2014 Captive Benchmarking Report — The Evolution of Captives: 50 Years Later

Companies may be using captives more as a tool to generate operational and risk management value rather than for their tax efficiencies, the report suggests.

Since the credit crisis, a large proportion of captives have entered into intercompany investments with their parent company and affiliates. Thanks to increased flexibility from the regulators with this type of investment, it is now the most common among captives…

For the 2014 edition of our Annual Captive Benchmarking Report, Marsh benchmarked 1,148 captives, including a vast array of captives, risk retention groups, non-traditional captives (such as special purpose vehicles), and life insurance captives. This broad sample gives us unprecedented benchmarking data and metrics to compare and contrast the industry and allows us to identify current and future trends.

Among the key findings from the report:

• Only one-third of US captive owners treat their captives as insurance companies for US federal income tax purposes, suggesting that captives are being used more as a tool to generate operational and risk management value than for their tax efficiencies.
• Small captives, created by midsize companies writing less than $1.2 million in premium, are the most common form of new captives in the US.
• To qualify as insurance companies for tax purposes, more than two-in-three small captives are opting for the brother/sister approach, where a captive owner is a holding company with several subsidiaries.
• More captives are underwriting voluntary employee benefits, such as critical illness, identity theft, pet insurance, group home, group auto, and group umbrella.