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What Excess and Surplus Lines Can Tell Us About Captive Insurance

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It’s a hardening market for many coverages, including property, umbrella, medical professional liability, homeowners, cyber liability, directors and officers’ liability and many more.

In past markets with similar conditions, the insurance industry has responded with innovations, finding structural ways of meeting demand for unavailable or unaffordable coverage. Captives, risk pools, risk retention groups, and excess and surplus lines—or E&S—insurers are great examples of innovations that have acted as financial lifelines for organizations needing coverage in historically analogous markets.

Recent data shows that, increasingly, organizations are looking to captive insurance and E&S markets, indicated by increases in premiums written over the course of the past few years. Closer examination of E&S premium growth and loss data offers insights into this market. Because E&S insurers are subject to the same financial reporting requirements as admitted markets, we can get a clear view into the operating results of E&S solutions.

But E&S data also shows us very interesting and helpful information about cost, loss and availability trends in the captive insurance space—compelling conclusions worth a deeper dive. One major regulatory requirement that admitted carriers and E&S insurers share is the completion of an annual financial statement that complies with the requirements of the National Association of Insurance Commissioners. The required format of the annual statement allows comparison of insurers on an apples-to-apples accounting basis.

So, what can we learn by diving into the financial statements of the E&S market, and what is the relationship to trends in captive insurance? E&S data highlights, amplifies and, in some sense, helps explain the market conditions captives face.

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