LONDON, 14 November 2006 – Despite popular belief that the captive market is close to saturation point, more than one third (36%) of the Global 500 do not currently own a captive, according to the Aon G500 Captive Report released today. The report highlights that some insurance buyers within the G500 are failing to achieve not only better quality of cover, but also cost savings through economies of scale and savings on senior management time.

Even in the US and Europe, where the concept has been long established, it is apparent that there is significant room for new take-up with approximately 22% of the largest companies not owning a captive.

Mature insurance buyers in certain industries and sectors, thought by many to be saturated in captive take-up, actually show relatively substantial growth potential, with around 40% of the largest finance and insurance companies not owning a captive at parent company level. In manufacturing, a third of companies listed in the G500 do not have a captive in place and even mining (including oil and gas extraction), which has the biggest take-up, still has 29% of companies without a captive.

The report also highlights the huge potential that exists for the Asian markets, taking into consideration global expansion of the Asian G500 members and overall growth in insurance premium volume in Asia itself. Currently, just a quarter of G500 companies have a captive in this region. Despite some captive activity in China, none of its 20 G500 companies have a captive and of the 70 Japanese G500 companies, only 23 have a captive. Of the Asian companies that have set up captives they may increasingly look to Asian domiciles to establish or relocate their captives, with Hong Kong potentially the main beneficiary as China’s economy expands.

Additional Aon G500 Captive Report findings:

Offshore v onshore

Despite reported concerns over the public perception of offshore domiciles and the attention of regulatory and revenue authorities, the report shows that the G500 companies still favour offshore domiciles. Change will take time and will need to be supported by good business reasons.  Bermuda is the domicile of choice accounting for nearly 28% of G500 captives followed by Vermont, Luxembourg, Ireland and Guernsey. These domiciles account for 79% of the total captive share of the G500.

Long-term strategy

In contrast to conventional wisdom, with steady market growth over the last 20 years, market volatility has had relatively little impact on overall growth patterns. There is also a lack of evidence that captives are formed as a knee-jerk reaction to major loss events. The research supports the theory that captives are generally formed for strategic reasons having been set up in a considered way rather than being driven by a short term reaction to market volatility.

Commenting on the survey findings, Stephen Cross chief executive officer of Aon Captive Services Groupsaid: “The research surprised us by highlighting the fact that G500 companies are missing a trick by not taking advantage of the cost and coverage benefits of captives. More surprising was the finding that companies in more developed markets, such as the US and Europe, are missing out on these benefits. One of the reasons may be the ‘perceived’ cost in establishing a globally coordinated approach.

However, we expect the G500 to bridge this gap over the next few years, particularly in Asia, where we expect to see significant growth.   In addition, there is room for improvement in specific sectors such as financial services and manufacturing.

What’s clear is that those companies which do use captives, are adopting a long-term and strategic view to risk financing – it’s not a knee-jerk reaction, based on specific events.”

Notes to editor:



The Global 500 Captive Report

The Global 500 list is sourced from the CNNMoney.com website and is based on size of revenue. The research into the G500 was carried out using a combination of Aon’s local domicile knowledge with publicly available information.

The analysis has focused on the current G500. The largest member (current) by revenue is in the region of $340bn, while the smallest is in the region of $14bn. The largest company by employee count in the G500 is 1.8 million, while 30 G500 companies have less than 10,000 employees. There is, therefore, a considerable spread within the G500.

As far as sector analysis is concerned, each member of the current G500 listing has been allocated an industry sector according to an NAIC coding. It is then it has been established whether the company has a captive, if there is more than one captive in operation, where it is domiciled and the year of formation has also been recorded. We have also reviewed each company by size of workforce as well as its revenue ranking within the G500 listing.

This initial work by Aon Captive Services Group (ACSG) is the beginning of a series of research documents looking into the world of captives, their take-up, trends and utilisation by size of company, geography and sector. The intention is to widen the scope of research beyond the worlds G500 in due course. One of the key deliverables of this research series will be useful benchmarking information to captive owners.

Sources: AIM Captive Statistics 2006; AM Best; CRADD.

Aon Captive Services Group:

Aon Captive Services Group (ACSG), a division of Aon Reinsurance International, provides captive and alternative risk financing solutions. The division has over 500 staff based in numerous countries around the globe. The division is split into two businesses:

• Aon Insurance Managers (AIM) – Captive Management
• IRMG – Risk Management and Risk Finance Consulting

About Aon

Aon Corporation is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

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