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China's captive insurance industry poised to grow


Captive insurers are gaining popularity in China as well as other parts of Asia.

Regulatory changes, notably in China, are likely to fuel captive growth in the region as state-owned enterprises explore their use as a risk financing tool.

“It's an emerging scene,” said Chris Lay, London-based president of the global captive solutions practice at Marsh L.L.C.

He said there are probably at least 50 companies in China that are large enough to set up captives that meet the China Insurance Regulatory Commission's 2013 criteria, which include that the registered capital of the captive should match the risks it underwrites and that the captive or its parent's business sector be characterized by high risk concentration, wide geographic spread, difficult insurance transfer, steady insurance demand and ability to control high risk.

“As China's growth accelerates and the government works to reform the economy, domestic companies are increasingly adopting risk management approaches more frequently associated with their Western counterparts,” including captives, said Paul Owens, CEO of Willis Group Holdings P.L.C.'s London-based captive practice.

While the captive domicile of Singapore historically has focused on captives owned by Australian companies and Japanese companies often have chosen Hawaii as a captive domicile, there now is significant interest in captives from companies in Laos, Malaysia, the Philippines and Vietnam, Mr. Lay said.

“This is part of the risk financing journey of these economies,” he said, which is being aided by the opening of many insurance markets in the region.

Several captives have been set up onshore in China since the CIRC issued its guidance in 2013.

China National Petroleum Corp. last year set up a captive, CNPC Captive Insurance Co. Ltd., in conjunction with one of its units, PetroChina, which said in a statement that the captive covers risks from overseas projects that are difficult to insure in the commercial market. The captive is rated A1 by Moody's Investors Service Inc.

China National Offshore Oil Corp. also operates a captive, CNOOC Insurance Ltd.

And earlier this year, China Railway Corp. received regulatory approval to set up a captive onshore in China.

In recent months, China's insurance regulator has set out an approach that is “extremely supportive of captive insurance” and looks “to be attractive not only for local companies but for international ones considering China as a domicile,” Mr. Owens said.

Because they have well established frameworks as well as local expertise and resources, Hong Kong and Singapore also are likely attractive domiciles for Chinese companies looking to set up captives, he said.

Dominic Wheatley, CEO of Guernsey Finance, said the promotional body for Guernsey's finance industry has worked with officials and insurance practitioners in Beijing and Shanghai to share experience and knowledge and “help develop their domestic captive regime.”

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