Europe, Middle East and Africa

In what can sometimes be a complex regulatory environment, captive growth in EMEA has not matched the same level as some domiciles in the Americas recently. But difficult market conditions are being felt across the region, just as they are globally. Aon’s 2021 Captive Benchmarking Survey indicates an increase in captive and protected cell formation across EMEA between 2019-20. Organizations have been increasingly looking for alternative ways to finance risk, as coverage in the primary insurance market has become, in some cases, unaffordable.

Indeed we’ve seen an 80 percent increase in the number of insurance entities writing general/public liability and credit Insurance since 2018. PD/BI has also seen a steep rise in that period, with 69 percent of insurance entities we manage in EMEA now writing that line, compared to 42 percent in 2018.1

Global Drivers

The trend for increasing rates and reduced capacity that started in property lines is now present in many liability lines too. Trends are all interlinked with the natural catastrophes experienced in the region and the impact of globalized behaviours in re/insurance markets where rates in general are hardening to correct years of insurer losses and underpricing.

We’ve seen particular growth in protected cell utilization for distressed supply chain-reliant sectors such as construction, waste management, paper and the food industry. Clients have sought to access capacity in the re/insurance market that they are simply no longer able to find competitively in their domestic market.

Utilization for Emerging Risks

As is the case in other regions, we see increased interest in captive utilization for ESG risks as companies get more familiar with their trading impact on the environment and their ability to reduce this impact. The risks associated with that have led to conversations concerning “green captives”, which, among other things, invest assets into ESG-funds to align the captive strategy with that of the parent company.

Cyber is another line that has hardened significantly over the past two years. In EMEA, this hardening has coincided with the number of insurance entities writing cyber doubling and a 150 percent increase in GWP since 2018.2 We expect this trend to continue as companies’ understanding of cyber risk improves every year. This uplift in awareness increases the potential for captive use to retain the risk cost-effectively.

Overall, our data suggest that captive and protected cell owners in EMEA have benefited from the additional options available to manage their total cost of risk. They have used increased retentions or reinsurance capacity in lines hardest hit by rate hikes in recent years.

Footnotes

1 Aon’s 2021 Captive Benchmarking Survey

2 Aon’s 2021 Captive Benchmarking Survey