Captives set for continued growth: III economist

ORLANDO, Florida – Rising prices in the commercial insurance market will likely lead to an increase in the number of captive insurers for at least the next two years, said Michel Léonard, chief economist and data scientist at the Insurance Information Institute.

Macroeconomic and geopolitical changes will likely continue to shape insurance market conditions that are favorable for captive growth, he said in his keynote presentation Thursday at the World Captive Forum, sponsored by Business Insurance.

Historically, captive formations increase when the commercial insurance market hardens, he said. In 2023, the latest year for which figures are available, there were 6,161 captives worldwide, still below the 2015 peak of 6,851 captives.

“The consensus seems to be that by 2026, we will be back to where we were in 2015,” Mr. Léonard said.

Commercial insurers still face pressures that are driving increased pricing, with adverse underwriting trends being the main driver, particularly in areas such as commercial auto, he said.

Higher natural catastrophe losses are also a significant problem for insurers, as diverse large losses occur more frequently, Mr. Léonard said.

“From a risk management standpoint in nat cat, you are seeing risks that for many, many years allowed us to diversify, are happening at the same time,” he said.

In addition, increased court awards and settlements, and the rising costs of replacement materials due to inflation, are also increasing pressures on insurers, Mr. Léonard said.

The threat of tariffs against other countries could also increase replacement costs, but the most recent executive orders on the issue are likely to be more “performative” than to result in significantly higher tariffs, he said.