Article

The current commercial insurance market has undergone significant transformation in recent years, marked by dramatic swings between hard and soft market cycles. As a consultant working alongside global brokers, captive managers, and high-performing businesses, it’s crucial to understand both the dynamics of today’s insurance landscape and the compelling advantages that captive insurance offers.

Commercial Insurance in 2025

The commercial insurance market in 2025 is experiencing a notable softening, particularly in property lines, where insurers have reported improved profitability and reduced reinsurance costs. Deductibles remain relatively stable, and competitive pricing is proliferating as carrier growth goals foster increased competition. This is beneficial for many insureds, especially those with robust loss prevention programs and favorable loss histories.​

However, not all segments benefit equally. While property and select specialty lines see downward pressure on rates, casualty and accounts exposed to natural disasters or catastrophic risk may still endure premium increases or stability at prior levels. Added complexities like social inflation, persistent supply chain disruption, and the impacts of natural disasters continue to challenge the market’s predictability. Despite this, stable or decreasing rates have taken pressure off brokers—many clients are content with renewals and rate reductions, leading fewer businesses to seek alternatives or challenge their existing programs.​

The Missed Opportunity in Soft Markets

History shows that during hard markets, frustration from persistent and sometimes arbitrary rate hikes—often irrespective of individual loss experience—drives many high-performing businesses to explore captive insurance solutions. Captives saw significant growth between 2015 and 2023, as insureds faced successive double-digit rate increases, even for loss-free accounts. The market’s tendency to force responsible businesses to subsidize poor performers within their segment catalyzed a windfall of captive formation, particularly in property insurance.​

Now, as rates soften and market pains recede, the push for captive solutions has diminished—insurers and brokers can relax, assuming clients will remain satisfied with lower costs. Yet, this comfort is likely short lived. The cyclical nature of insurance means another hard market will inevitably arise. The question becomes: Will your business be prepared, or will you be caught off guard, losing clients to those who already have a captive solution in place?​​

Why Form a Captive in a Soft Market?

There are several strategic reasons why forming a captive in a soft market sets businesses up for long-term success:

• Premium Advantage: Captive pricing at inception generally reflects prevailing market rates. Starting a captive during a soft market, while rates are low, allows organizations to lock in lower premiums. Waiting for the next hard market not only leaves you unprepared but forces insureds to pay a higher premiums at the outset of the transaction.
• Equity and Surplus Accumulation: As a captive matures, two major benefits arise: the accumulation of equity/surplus and the build-up of credible actuarial data. This surplus enables greater risk tolerance, premium holidays, and the distribution of profits to stakeholders—essentially allowing businesses direct access to the underwriting profits that would typically be absorbed by commercial insurers.​ Actuarial credibility within the captive results in premium stability and often rate decreases as the captive matures.
• Pricing Stability and Experience Rating: Unlike commercial insurers who price policies based on the broader market’s performance, captives use experience rating tailored to the insured’s own loss history. This leads to greater premium stability, often with long-term premium reductions for disciplined risk management.​
• Customized Coverage: Captive insurance is especially valuable for risks that commercial insurers are unwilling to cover, offer limited coverage for, or charge prohibitively high premiums. Captives can be tailored to fit the specific needs of their parent company, from unique contractual liabilities to supply chain interruptions.​
• Direct Reinsurance Access: Captives offer direct access to reinsurance markets, enabling businesses to negotiate better terms, higher limits, and greater flexibility than may be possible through conventional channels.​
• Improved Claims Handling & Cash Flow: Claims are handled more efficiently, and the timing of premium payments and risk funding is under direct control, enhancing cash flow and enabling better capital management.​

The Strategic Value of Captives

Soft markets may lull risk managers into a false sense of security, but the long-term view demands action even when commercial premiums decline. Establishing or joining a captive in this environment not only secures immediate pricing advantages but builds institutional resilience for future market disruptions.

By leveraging captives, businesses take control over their risk financing, maximize retention of underwriting profits, design coverage tailored to their needs, and build equity that can be returned to shareholders or reinvested in safety initiatives. The result is a risk management solution that isn’t at the mercy of market cycles, but driven by the performance, discipline, and objectives of the insured.

Whether the decision is made to form a captive in a hard market, or a soft market, forming a captive is a long-term risk financing strategy that is highly individualized based on the insureds risk-tolerance and goals. Captive Insure’s independent, education-led approach supports brokers, captive managers, and business owners through every phase of the captive journey—from initial feasibility analyses to comprehensive underwriting and ongoing program management. Our team leverages deep industry experience and a robust understanding of global insurance dynamics to design solutions that maximize premium retention, risk transparency, and long-term value.

By partnering with Captives Insure, organizations can transform insurance from a reactive expense into a strategic asset, confidently weathering future hard market cycles and securing stability in an unpredictable risk environment.