Captives used in hybrid solutions for nat cat

Vicky Beckett 27/01/2012

An increase in natural catastrophes and supply chain disruptions is pushing captive owners to adopt hybrid solutions for low frequency, high severity events.

Marsh has reported an increase in interest in a blending of parametric trigger solutions alongside other insurance products.

Many risk managers are still not willing to take a risk that is as high severity as natural catastrophes (nat cat) in house, but are seeking a compromise as an alternative to commercial insurance.

Parametric insurance does not cover the pure loss, but is an agreement that the insurer will make a payment based a triggering event occurring, for example, a certain category level of hurricane or the intensity of an earthquake.

John Davies, managing director of Marsh Risk Management, said: “With captives we might start to see more companies having a retention of a degree of catastrophe risks, perhaps at the lower end.

“This would be combined with either with parametric trigger products in the nat cat space that sit above the captive or we are having a lot more enquires about the relevance of contingent capital solutions for nat cat layers sitting above a descent captive retention.

“I think we’ll start to see more of these products coming out. Marsh will be developing more solutions for our clients that are parametric trigger based.”

He argues that supply chain risks are more likely to be covered through a captive, if there is not capacity in the market.

This will be challenged by Solvency II as the more risks that are covered by a captive, the more capital that need to be allocate, therefore making the captive more capital intensive.

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Captives used in hybrid solutions for nat cat

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