“Captives are the missing link”: How the strategic role of captives is evolving

Sonepar: Adaptation is key to survival

“I’m a biologist by background, and adaptation is key. In the context of risk management, adaptation means you must have a dynamic culture,” said Francois Beaume, Senior Vice President, Risks and Insurance, at global electronic distribution company, Sonepar.

Beaume runs Sonepar’s 22-year-old Geneva-domiciled captive and says it has grown and evolved over the past decade, becoming “the cement” that binds risk management and risk financing within the group.

For 15 years, the captive was “static”, only underwriting property business. During this time, the family-owned business was highly de-centralised and inward-looking. A lack of robust data and a restrained external communication strategy made its relationship with the insurance market challenging and less efficient than expected.

Under new group leadership, the captive was “revamped” seven years ago, taking on a new strategic direction and more dynamic purpose. It opened up to new lines of business, including cyber and liability and plans further expansion to employee benefits.

A new strategic direction

With a new strategic direction, Sonepar’s captive proved transformative in improving the group’s data strategy and reasserting its relationship with the insurance industry. “We decided that the captive could be a good vehicle to streamline the process and to bring transparency, facts and figures, and structure into the underwriting process,” commented Beaume.

It also became a key player in driving and connecting prevention strategies across different lines, bridging a potential gap between the risk financing strategy and the risk management strategy.

The captive became instrumental in supporting the company through the hard market especially in property and cyber lines. “We had a loss history in cyber that was quite significant and without a captive, we would have had a lot of difficulty keeping a consistent insurance programme. The captive was able to connect risk management and cyber security and bundle them very efficiently.”

The hard market validated the captive model and raised the internal profile of the risk management function, said Beaume. With the Group CFO and General Counsel sitting on its board, the value of risk management was elevated, “giving us more power up the food chain of risk management to reach our objectives of resiliency and performance.”

The power of collective intelligence

Sonepar’s captive continues to evolve, taking an active and collaborative approach to addressing the company’s changing risk profile, especially the growing exposures to cyber and environmental risks.

With rising climate risks in property portfolios, the captive has implemented a dynamic system to define, assess and adapt to changing exposures. It has also signed the United Nations Principles for Sustainable Insurance, enabling the captive to sit on the group’s ESG taskforce and be deeply involved in climate adaptation planning.

With a third of its turnover now coming from digital channels, the captive is also accelerating the group’s cyber maturity pathway. In addition, the group is a founding member of MIRIS, an insurance mutual dedicated to cyber risk, designed to pool collective intelligence and share best practice.

“We set it up to solve an issue that we were all having at that time with regard to cyber insurance capacity, but also to bet on collective intelligence and a collaborative approach,” noted Beaume.

Arcelormittal: Two shocks that changed its strategy

Captives are a well-established risk transfer strategy at global steel manufacturer ArcelorMittal. For over three decades, the company has used a mix of onshore and offshore captive models. Now, after a complex process of consolidation and expansion, its captive structure is consolidated in Luxembourg, explained the company’s General Manager & Group Head of Insurance, Laurent Nihoul.

Their captive strategy has three core objectives, Nihoul said. First, to minimise costs through economies of scale and leveraging the risk portfolio diversification ; second, to optimize coverage quality through its global programmes; and third, to maximise cash retention.

“Our captive has a clear financial mindset,” he continued. “If you look at the key drivers of our strategy, it’s the total cost of risk review and the capture of underwriting profit. It’s an arbitrage between insurance and self-insurance.”

Maximising cash is especially important in the steel and mining industry: “The Steel industry is not “cash rich”. The fact that the captive allows us to capture underwriting profit, to manage claim provisions and keep the money is supporting the group’s liquidity management.”

A future without insurance?

The captive’s recent history has been shaped by two shocks. The first was the hard market, which proved a wakeup call and demanded new strategies. Prolonged soft markets can breed complacency among insurance buyers, observed Nihoul:

“We had to challenge our assumptions [and reconsider] the bottom-line retention. We looked at being more dynamic, going into the towers, going into the intermediate layers on a quota share basis and on a nexus basis,” he explained.

The second shock was a dramatic loss history in property, which challenged the very role and purpose of insurance within the group. “We had to change the model,” Nihoul said. “We had to retain significantly more capacity and then de-risk through a combination of global and local risk transfer solutions, but we derisked behind our captive.”

The group is taking the lessons from this period by expanding its captive offering and positioning itself for a future in which the traditional insurance market may not offer a viable solution for it.

As part of this expansion project, the group has ventured into employee benefits, establishing a dedicated life and health captive. The goal was four-fold: provide stable premiums; capture administrative savings; provide HR with greater efficiency and capability in designing the benefit programme; and finally, to retain cash.

There have been important lessons learned along the way, reflected Nihoul, noting that employee benefit demands a different approach to P&C. “P&C is top-down: you create a programme and you push it into the countries. With employee benefit, everything is local, and you try to extract it. That's not the same job. That's not the same kind of portfolio or the same kind of data. So, you need resources to be successful.”

Volkswagen Group: Domiciliation on the horizon

At Volkswagen Group, its 34-year-old captive underwrites seven lines of business and insures approximately 55-60% of the group’s overall insurance programme, making it the most important single insurance company for the group.

“We are crucial for placing insurance and for guaranteeing insurance cover for Volkswagen,” said the CEO and Executive Director of the captive, Tibor Boettcher.

Volkswagen Group reported global revenues of 324 billion euros last year – equivalent to the GDP of the Czech Republic. Due to its size, the company can face capacity challenges in the traditional insurance markets, especially during hard market periods.

The captive mainly provides coverage for the primary layer: “We bring everything which is not insurable, or which is too expensive in the external market, into the captive. We are a kind of bundling instrument for smoothing premium and providing the relevant capacity.”

As well as balance sheet advantages, the captive enhances the group’s overall risk expertise, said Boettcher. “Being involved in future topics, like autonomous driving and electric vehicles, from the outset, [allows us to] gather the information and the knowledge from our brands and with the manufacturer. Then we can talk with the insurance companies on a level playing field.”

Major change is on the horizon for the captive, with a planned redomiciliation from Dublin, Ireland to Germany in early 2027. The primary motivation is bringing the captive into the same jurisdiction as the group headquarters to reduce regulatory and reporting burdens and offer practical efficiencies.

“We can use corporate functions like IT, HR, compliance and accounting which can fulfil the IFRS reporting standards…It will also give us a bit more safety and security on upcoming regulatory developments,” said Boettcher.

Summary: From risk transfer to strategic enabler

As a global multiline insurer, we’ve seen significant increase in both the creation of captives and expansion across diverse lines of business. Market conditions, the quest for greater capacity, evolving rate environments, and global pressures have all driven this shift towards captives. While each company shared its own unique experience of using a captive, the common theme that emerged across was that captives are increasingly demonstrating their value beyond their original purpose” Scherzinger summarized.

For many companies, the captive has become what Beaume describes as the tool to unlock opportunities: “It’s the missing link rendering something very conceptional into something that is actionable and measurable.”

Each of the 3 captives proved its worth during the hard market, but the broader benefits – including enhanced risk knowledge; more effective relationships with the insurance industry; and supporting wider corporate strategic objectives – have stuck throughout market cycles. Scherzinger emphasized “captives prove their value in an ever-changing global risk landscape, so they continue to evolve from an alternative risk strategy to a mainstream solution.”

Originally published on Commercial Risk on October 14, 2025.