Surplus Proving Invaluable to Captive Owners in Current Environment

Captive insurance companies holding surplus and excess capital have proven valuable sources of financing for their organizations as the economic downturn hits and the insurance market hardens.

Speaking to Richard Cutcher in episode 39 of the Global Captive Podcast, Ellen Charnley, president of Marsh Captive Solutions, elaborated on the way captives under their management had supported their parents since the outset of the pandemic.

"In the last 6 months, we've helped companies that are in a liquidity crisis extract approximately $3 billion from their captives' surplus in the form of dividends and parental loans," she said.

"The captives have really shown their true colors in this time of crises as a vehicle to truly help organizations, and I can safely say a large proportion of them have already been paid back so they have been a short-term solution to get cash back to the parent," Ms. Charnley said.

The total assets under management in Marsh's captive portfolio stand at $391.4 billion, including $113 billion in shareholder funds, which is the amount by which assets exceed liabilities, according to the 2020 Marsh Captive Landscape Report.

Ms. Charnley explained that this environment and the flexibility shown by captive insurance companies is a good example of why it is useful to build up a surplus in a captive.

"I have the discussion with parent organizations where they question the surplus build up. The objective of a captive is preservation of capital and to pay claims, but often they build up surplus over time if actuaries are quite conservative, which they generally are." she said.