Commercial insurance markets are soft. Premiums are compressing, capacity is expanding, and carriers are competing hard for volume. For most companies, it feels like relief. Renewals come in flat or down, and the urgency around alternative risk financing fades.
That instinct is often unfortunately wrong. A soft market is not a reason to delay captive formation; it's often the optimal time to start.
When a captive is formed during a soft market, the economics work on both sides of the program simultaneously:
Retention layer: The captive writes coverage at actuarially sound rates calibrated to the insured's actual loss experience, not inflated commercial benchmarks.
Excess and reinsurance layers: Purchased at cyclical lows. Fronting fees, collateral requirements, and attachment points are all more favorable when carriers need premium volume.
This compounding advantage doesn't last. When the market hardens (and it will), excess pricing increases, capacity contracts, and the cost to build a program from scratch goes up across every component.
Soft markets can also often produce predictable behavior that may benefit captive formation:
The operational infrastructure for a captive (securing fronting paper, negotiating collateral, placing reinsurance) can be materially easier to assemble when capacity is abundant.
Every hard market arrives with the same constraints: rate increases, coverage restrictions, capacity withdrawal, and longer lead times. Companies that wait until the turn to explore captive formation face those constraints at the worst possible moment.
Captive formation isn't a 30-day exercise. A properly structured program requires feasibility analysis, actuarial studies, domicile selection, regulatory application, capitalization, fronting engagement, and governance development. A more realistic timeline is often 3 months on the short end, maybe years on the longer end. The largest determining factor for the time needed to complete a captive transaction is directly related to the amount of education and due diligence that the prospective shareholders may require. Forming a new regulated entity, whether a cell, single parent, or otherwise, is a meaningful decision and can be a daunting task. It's a decision that should be made after careful review and consideration, not rushed to hit a renewal date.
Starting now means doing that work with time, choice, and leverage, not under pressure with expiring programs and no alternatives.
A captive formed in a soft market begins its operating history in the most favorable environment possible. Premium adequacy is easier to achieve. Surplus accumulation starts earlier. Over a 5 to 7 year horizon, retained underwriting profit compounds into a balance sheet asset that reduces total cost of risk, regardless of what the commercial market does in the interim.
The soft market removes several common objections. Fronting capacity is available. Reinsurance is competitively priced. Formation timelines are manageable.
The first step is simple: send us the submission.
Our team breaks down due diligence into stages designed to make the process efficient and low-friction for all parties:
Stage 1, Initial Viability: We review basic submission data (exposures, loss history, current coverage) and come back within a day or two with an assessment of program fit. No commitment required.
Stage 2, Formal Indication: If the prospect fits, we produce a detailed proposal including non-binding premium indications, expected claims, costs, collateral estimates, and captive proforma financials. We walk through the proposal together before anything goes to the insured.
Stage 3, Insured Presentation: Our team collaboratively presents the proposal to the insured, giving them the information they need to determine if this concept merits further due diligence and bindable terms.
Stage 4, Bindable Terms: Full underwriting, collection and evaluation of the more detailed items, targeting bindable terms in approximately two additional weeks.
This complete due diligence process can be done at no cost and without obligation. The typical timeline runs 90 days in total, with submissions received further from renewal performing better. Education is the primary factor, not paperwork.
The insurance market is cyclical. This is structural, not speculative. The current soft market will end. The question is whether your organization used this window to build, or just to enjoy the temporary relief.
SUBMIT A RISK