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SINGAPORE-Captive growth in Singapore is inching forward.
Three captives formed in the island nation in 1996, but two others were deregistered, bringing the year-end 1996 total to 49, one more than at year-end 1995, according to The Monetary Authority of Singapore.
Two captives owned by Japanese companies have registered so far this year, while one has deregistered, bringing the current number to 50.
Gross premiums written in 1995 dropped 8.4% from 1994 to $284.2 million Singapore ($201.2 million). Year-end 1996 figures are not yet available.
Singapore's first life insurance captive, Northern Insurance Pte. Ltd., owned by a Canadian company that is keeping a low profile, was formed last year. It is managed by NMG Risk Managers & Actuaries Pte. Ltd.
Among 1996 formations was Sedgwick Management Services (Singapore) Pte. Ltd.'s establishment of a captive for Normandy Mining Ltd., an Adelaide, Australia-based mining company. It began writing business Dec. 1.
The captive manager also established Fernz Insurance Pte. Ltd. for Auckland, New Zealand-based Fernz Corp. Ltd., but it also lost a captive with the deregistration of Sydney-based Matila Insurance Pte. Ltd. Matila was established in 1986 to write tobacco product liability coverage for Sydney-based WD & HO Wills (Australia) Ltd., but had been in runoff in recent years.
Sedgwick is the largest of Singapore's captive managers, with 21 captives under management, including two outsourced from other managers.
This year's entrants to the domicile include Johnson & Higgins Risk Management Services (Singapore) Pte. Ltd.'s startup of a captive owned by a Japanese toothpaste manufacturer, SunStar.
Last year Johnson & Higgins, which now manages five Singapore captives, took over of Southern Insurance (Singapore) Pte. Ltd., a captive of paperboard manufacturer Visy Industries Pty. Ltd., from International Risk Management's Singapore office. IRM now manages only one captive in Singapore.
George Tarabaras, Sedgwick managing director, said there is "a general trend" for captives to write more business, despite the soft market, and to retain more risk. Many Singapore-based captives are maturing and are positioning themselves for a change in the insurance market by retaining increased layers of coverage, he noted.
Singapore's chances of attracting more Australian-owned captives
to the domicile have been hurt by
an Australian government proposal to remove Singapore from Australia's "white list," a list of countries with tax rates considered sufficiently similar to Australia's. Therefore, Australian businesses that set up companies in those nations are not required to pay additional tax to Australia (BI, Feb. 24).
If Singapore is taken off the list, Australian-owned captives will have to pay another 10% in tax to the Australian government.
Mr. Tarabaras said Sedgwick is lobbying the Monetary Authority of Singapore to ask the Australian government to retain Singapore's white-list status.
Sedgwick has already submitted its own protest to the Australian government, arguing that the removal of Singapore is "inconsistent with Australia's trade policies."
Some smaller captives are "examining their future" in light of the Australian tax plan, but larger clients are taking "a professional" attitude, Mr. Tarabaras said.
Even without the white list issue, the Australian insurance market is so soft Australia-based companies have few incentives to establish captives, observed George McGhie, managing director of Johnson & Higgins Risk Management Services (Singapore).
Richard B.H. Tan, managing director of Alexander Insurance Managers (Singapore) Pte Ltd., which manages six captives, said growth in Singapore is deterred for other reasons as well. Asian companies do not yet see the advantages of captives, and there is a global move toward finite risk transfer options, which slows captive growth worldwide, Mr. Tan said.
But Mr. McGhie downplayed that, saying there is "a lot of smoke but not much fire" with finite risk financing options. "Cheap insurance is still the best way to secure risk," he said.
While captive managers agree Asia still represents the major growth area for potential new captive owners, Asian companies will not necessarily choose Singapore as their domicile, Mr. Tan noted.
A new alternative may be Hong Kong. Draft captive legislation has been prepared there, but Hong Kong won't take off as a domicile until ramifications of the upcoming July 1 transition to Chinese rule are known, Messrs. Tan and Tarabaras agreed.
Still, once Asian risk managers understand "what captives can do and how flexible they can be," there will be increased growth from that region, Mr. McGhie said.
Mr. Tan said Japanese companies are starting to consider captives as a viable option, particularly with the freeing up of Japan's insurance market. In the past, because many big Japanese insurers are linked with major industrial companies, those companies have placed all their insurance with the related insurers.
Mr. Tarabaras agreed that Japanese companies are very interested in Singapore, and added that there is still interest from Australia as well.
Sedgwick completed a feasibility study in February for a big Taiwanese company, and Mr. Tarabaras is confident the company will license a captive this year. Sedgwick also is preparing captive feasibility studies for two Australian companies.
For more information on Singapore as a domicile, contact the Insurance Commissioner's Department, 10 Shenton Way, MAS Building, Singapore 0207; 65-225-5577; fax: 65-229-9694.