Are captives here to stay?
Growing through a soft market, which is the unusual part
Queen thinks captives are permanent, and his evidence is the timing rather than the volume. Captive formation has continued to grow through a soft market, when cheaper conventional cover would normally slow it down. That, to him, says institutional and mid market buyers now treat a captive as part of the risk financing stack rather than as something reached for when pricing turns.
The soft market point is the one worth sitting with. Captive formation has historically been counter cyclical: when conventional insurance is cheap and available, fewer people build their own. Growth through a soft cycle suggests the reason for forming has changed.
His picture of a mature user is a business that keeps the structure in place across cycles and uses it where it fits, which is a different thing from a business that forms one because this year's renewal was painful.
Key takeaways
Queen's evidence is counter cyclical growth: captive formation has continued through a soft market, when it would normally slow.
He reads that as captives becoming a standing part of the risk financing stack rather than a response to hard pricing.
For advisers the argument is retention, since a business with a captive in place tends not to re shop the account.
He points out how far up the scale this reaches, noting that even a company launching rockets holds a captive, and tells a story against the usual assumption about what such a company worries about: their general counsel told him the regulator on his mind was the aviation authority, not the tax authority.
From the conversation
Matt Queen
Captive Insurance Attorney and MGA Executive, Author of Modern Captive Insurance
“And another funny thing about the SpaceX thing is I met the General Counsel once.”
Transcript
Read the full transcript 5 turns
Matt Queenthe captive insurance industry continues to grow even in a soft market, which typically has been the exception to the norm, which means that captives are institutional and mid-market players are leveraging them routinely as part of their risk financing stack. And I think the sophisticated brokers at the large outfits are absolutely in keeping with what I was saying earlier
Matt Queen, which is we bring out the special teams, basically one every four downs as opposed to trying to save an account that's on its way out the door, maybe we'll throw a captive out them this one time. No, captives are part of the whole thing. And in every company that you've heard of have SpaceX as a captive, shockingly, who didn't want to insure rockets that are going to blow up. And another funny thing about the SpaceX thing is I met the General Counsel once. He said that his number one regulator is in the IRS. He doesn't worry about them
Matt Queen. Too big. It's the FAA. I mean, captives are
Matt Queenhere to stay in virtually every mid-market opportunity needs to have a captive explanation to them. And even if it doesn't make sense for their specific firm, the mid-market brokers need to be leveraging them liberally because once you have one in place, they're probably not going to shop that
Matt Queenaccount again. Once you have the structure in place, we've got the large self-interpretension with the captive and we've got the paper over here, you're probably not going to shop that account for the next 10 years. And everyone's going to be coming to you, the broker, as the super smart guy who put this in together or they'll have your head if it blows up in your face. But still, either way, it's a sticky account. That means that the renewals will be much smoother and that makes everyone's life a lot
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