Sources
1 Araullo, Kenneth. "Corporate Captive Insurance Boom Defies Expectations," Insurance Business, 4 Mar 2026.
Formations of captive insurance companies have surged lately, with recent industry research suggesting there are over 7,000 active captives globally, writing premiums of more than $80 billion.1
Once the initial flurry of activity around formation and structuring of captive risks has subsided, many captives drift into unintended underutilization, carrying on business as usual while the parent company's strategy, risk profile and the broader market evolve.
Businesses face several emerging and evolving risks — cyber exposure, political risks, supply chain issues and threats such as war, terrorism and political violence — which commercial insurance solutions may not address.
For existing captive owners, as potential coverage gaps open between the captive program and the company's commercial insurance policies and retentions or deductibles, making greater use of the captive could provide solutions to the changing risk landscape.
The utilization gap
Corporate risk managers and insurance buyers often face competing priorities, with opportunities to develop captive programs remaining unexplored.
Captive utilization is unlikely to be a regular feature of parent company board meetings, while captive board meetings (which are typically annual) are intended to satisfy regulatory compliance and handle regulatory filings. However, they may not offer the opportunity for in-depth strategic conversations about captive utilization and performance. It can be challenging for risk managers to revisit the period prior to captive formation, when the stakeholders were fully engaged.
"By the time clients reach the point of establishing a captive, they've gone through a significant journey and are fully committed — ready to move forward, retain a level of risk and embrace the captive model. But once the captive is established, many clients simply stop progressing and they fail to explore the broader value and opportunities the captive can bring," says Stewart McLaughlin, Business Development director — EMEA, Artex Risk Solutions.
Why captive utilization reviews matter
Regular captive utilization reviews can overcome inactivity many captive owners find themselves in, while ensuring captives remain strategic, and capital-efficient tools that evolve alongside changes in the parent business and market conditions.
The reviews are a way of establishing whether the captive remains fit for purpose, while also reminding stakeholders of the initial drivers behind the captive's formation. A strategic view can also open new horizons for captive utilization. Captive owners can discuss other uses for the vehicle and whether the current structure can deliver those solutions. It can also examine what industry peers and other owners are doing with their captives and establish whether the parent is maximizing the value the captive can offer.
A key point for captive utilization reviews is linking the captive strategy to the changing business and risk environment for the parent.
"Since your last decision around utilization, the insurance market will likely have changed across multiple lines of business, along with your appetite for retaining or transferring risk. That's a key part of the discussion around what to do with your captive — how to optimize its role during both hard and soft markets," says Aidan Kelly, SVP, Advisory and Analytics, Artex Risk Solutions.
Other drivers of captive utilization reviews could be changes at the parent company — new ownership, a new CEO or CFO, or a shift in business strategy that could change the risk profile and risk appetite of the company.
A timely review can also ensure accumulated capital within the captive is effectively redeployed, avoiding capital inefficiency and underperformance. Redeploying trapped capital to extract more value, making better use of what's already on the balance sheet, can often be achieved with no additional capital and minimal incremental costs.
Case study 1: Manufacturer benefits from property optimization
A global manufacturer faced sustained property insurance premium increases and constrained capacity, particularly for catastrophic exposures, while the captive remained unaffected.
Artex restructured the program, so the captive assumed the primary working layer, enabling the organization to retain risk at expected loss cost. The captive also accessed reinsurance markets for excess layers and improving overall pricing efficiency.
Existing surplus capital was actively deployed to support underwriting. The program delivered meaningful premium savings and improved capital efficiency through better use of retained earnings.
Unlocking value from existing captives
If captives reach a point where they have built up retained earnings and made profits, they are likely to be sitting on capital that is potentially invested in low-yield investments which may not be working hard enough.
Broadly speaking, a captive company has three choices for what to do with surplus capital. It can generate more revenue by deploying capital to conduct more business; it can lend money back to the group treasury for them to generate a better return on capital; or return it as a dividend to the parent company or shareholders. Doing nothing isn't a sensible approach.
"It's incredible how many captives don't even put those three options on the table. For example, a 3000% solvency ratio isn't an achievement — it's an inefficient use of capital and a missed opportunity to create value," says McLaughlin.
One option for deploying retained earnings more effectively is through expanding into new lines of coverage, which could address emerging uninsurable or hard-to-insure risks that have surfaced in the changing global risk landscape.
"This is where greater creativity with the captive can come into play. What other risks exist within the business that are captive opportunities? For example, their original feasibility study may have outlined plans to add coverage for reputational risk, product recall or cyber liability in the next 3-5 years. Why hasn't that happened — is it due to market conditions, a reluctance to take on more risk, or simply inertia?" says Kelly.
Case study 2: Healthcare system diversifies into stop loss and workers' comp
A healthcare system faced volatility in commercial stop loss pricing, while captive capital was underutilized, with limited risk diversification (concentrated on malpractice) and excess surplus.
A phased captive strategy added funding for medical stop loss and workers' compensation deductibles, enabling the organization to retain predictable healthcare risk while limiting exposure through reinsurance.
The program generated premium savings while enhancing long-term financial stability and delivering stronger returns through more efficient surplus capital deployment.
Innovation and emerging risks
A captive should have an ongoing purpose — it should serve a clear utilization need. If it doesn't, that indicates a failure on the part of the captive stakeholders to carry out a periodic review. The captive utilization review might conclude that it's functioning exactly as intended, with no appetite to take on additional risk — a perfectly acceptable outcome, if it's confirmed that the captive is meeting its objectives.
"Our role as consultants is to think outside the box, to think beyond traditional risks and focus on emerging and uninsurable risks. These could include business risks or credit risks that are not traditional insurance products, but which can still be financed using a vehicle the client owns and controls — their captive," says Kelly.
The captive could play a role in sponsoring additional risk management initiatives or loss prevention techniques which would ultimately reduce loss events and improve loss ratios. If the captive is viewed as part of a broader suite of risk management and risk financing strategies, surplus funds could be reinvested back into the parent organization as a strategic resource — for example, to enhance risk safety measures or improve employee health initiatives.
"One of our clients plans to install a nursing facility at their head office, which houses a couple of thousand employees. They want to have a nurse on-site two to three times a week to conduct routine health checks. With the captive sponsoring this initiative, the organization can ultimately reduce health-related costs. Preventative healthcare measures like these can lead to fewer medical claims, as employees benefit from proactive health management," says Kelly.
Initiatives like this demonstrate the flexibility of captives and their strategic value in providing benefits to the parent organization that aren't necessarily insurance-based.
Domicile and structure
A further consideration that could come out of a strategic review of captive utilization is the choice of domicile and captive structure. With recent regulatory developments in Canada, France and the UK to establish domestic captive regimes, clients with long-established captives in offshore jurisdictions may be facing pressure to re-domicile the vehicle.
"A not-for-profit health system might question why their executive team is flying internationally twice a year and may prefer to bring the captive home to the U.S. There are also tax implications to consider, particularly for US taxpayers, when operating offshore," says Kelly.
McLaughlin agrees: "Optics can be very important. We're already seeing significant shifts in this area, as some organizations are facing pressure to move away from offshore environments."
Captive owners will also want to consider how best to align their captive with changing regulatory regimes. With the growth of onshore domiciles, they may question the need to base their captive in a tax-efficient domicile, as emerging captive regimes increasingly acknowledge the important role captives play as risk financing and risk management tools.
Additionally, proposed changes to the EU's Solvency II regulations recognize the need for greater proportionality in the treatment of captives. The creation of a new category under Solvency II of "small and non-complex undertakings" (SNCUs) comes with the expectation that most EU-domiciled captives are likely to meet the SNCU criteria.
Case study 3: Education/healthcare clients expand joint captive program alongside domicile and structural review
A private university and health system operating a joint venture, relying on an offshore captive, aimed to expand the captive's capabilities and determine effective ways to separate risk exposures between their organizations. They also questioned whether their current domicile continued to meet their evolving requirements.
Artex undertook a thorough analysis, evaluating the expansion of coverage across multiple lines — including workers' comp, general liability, property and terrorism, D&O liability, EPL and cyber liability.
To facilitate risk segregation, the team compared the existing single-parent captive structure with a segregated cell approach. Additionally, the assessment compared retention of the offshore domicile with moving to an onshore jurisdiction.
The final review provided strategic guidance on funding expanded coverages, structural insights into current operations and a balanced perspective on whether domicile change was aligned with the client's long-term goals.
A captive worth revisiting
Historically, the captive insurance sector has fallen behind in revisiting and refreshing captive insurance strategies, post-formation, leading to missed opportunities for captive optimization.
Many captives remain focused on a single line of business for years, even decades, while key business risks are either under-insured or are covered by commercial markets characterized by high premiums and/or constrained capacity and limits.
A captive utilization review can improve capital efficiency by redeploying a captive surplus in three ways: expanding lines of business and retaining more risk; returning capital to the parent; and optimizing captive investment or deployment strategies.
Given the infrequent and often routine nature of captive board meetings, a dedicated captive optimization strategy meeting is more likely to unlock potential capital efficiencies and new risk financing options.
Furthermore, parent companies rarely remain static and changes in leadership, ownership or business strategy can impact risk appetite and exposure, requiring a reassessment of risk management and risk financing strategies.
A regular captive utilization review should take place at least every 5 years (and arguably every 2-3 years). It will enable owners to reassess whether the captive is still fit for purpose, explore new coverage options, assess the need for domicile or structural changes, improve capital efficiency and ultimately reassert the captive's value as a strategic tool.
Authors
Senior Vice President, Advisory and Analytics
Business Development Director, EMEA