Intercompany Loans Growing in Captive Portfolios

Healthcare reform boosts interest in using captives for benefits.

Intercompany loans and other intercompany investments are currently the single largest investment allocation for corporate captive insurance companies, according to an annual survey of captives conducted by insurance brokerage Marsh. Other trends occurring in the captive industry include a surge in small captives and growing interest in using captives for employee benefits in the wake of healthcare reform.

The survey shows that the 1,148 captives Marsh has under management hold an aggregate 34 percent of their investment portfolios in intercompany loans or other intercompany investments. The next largest allocation is to fixed-income securities, which make up 32 percent of the investments in captives’ portfolios.

According to the Marsh survey, smaller allocations in captive portfolios include 21 percent held in cash and cash equivalents, 9 percent in alternative investments including hedge funds, and 4 percent in equities.

The substantial allocation to cash reflects captives’ need to pay claims, Mead said. “The key with a captive investment portfolio is matching up the projected claims payments to the expiration of the investment,” he said. “You’ve got to have the cash on hand. So the regulators pretty much push hard for short-term liquid investments, and that has not changed.”

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