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Buyers Using Captives to Escape Market Cycle, Rather Than in Reaction to It

Companies are increasingly using captives as a long-term strategy to insulate themselves against commercial market-cycle volatility, rather than using captives as a shorter-term solution when rates harden, a new report says.

By Phil Gusman | Updated on August 13, 2013

Companies are increasingly using captives as a long-term strategy to insulate themselves against commercial market-cycle volatility, rather than using captives as a shorter-term solution when rates harden, a new report says.

In a Special Report on U.S. captives’ performance in 2012, A.M. Best says, “Before 2000, the captive cycle followed the underwriting cycle for the commercial-lines industry,” explaining that when the commercial market hardened, businesses formed and increased the use of their captives to protect themselves from the steep rate increases. As the commercial market softened and rates declined, captives would be run off or downsized as companies took advantage of the lower prices and more generous coverages in the conventional market.

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