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Captive experts eye Asia-Pacific as next region for growth

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Asia Pacific captive insurers

The captive insurance sector in Asia-Pacific is relatively small but has potential for significant growth, as businesses in the region increasingly consider the self-insurance vehicles part of their risk management strategies, experts say.

As companies in the region become more exposed to captives and insurance rates firm, captive growth is likely to accelerate, they say.

Ratings agency A.M. Best & Co. Inc. said it expects to see “significant growth” in the Asia-Pacific domiciles as businesses seek “new and more sophisticated ways of risk management and control,” in a report published Tuesday.

Of the 6,337 captives worldwide in 2018, only 2.8% are domiciled in Asia-Pacific, meaning the segment has “abundant growth potential in the region,” the Oldwick, New Jersey-based ratings agency said in its report, “Asia Pacific Captive Domiciles Poised for Growth.”

Singapore, Labuan, and the Federated States of Micronesia stand out as established captive domiciles in the region, the ratings agency said in the report.

According to Business Insurance’s latest ranking of captive domiciles, Singapore is the largest Asia-Pacific domicile with 72 captives licensed at year-end 2018, Labuan has 48 captives and Micronesia has 25. By comparison, Bermuda, the largest North American domicile, had 711 captives and Guernsey, the largest European domicile, had 206 captives.

China and Hong Kong also have emerged as captive domiciles in recent years, with regulatory authorities “keen to develop captive insurance in their jurisdictions,” Best said.

Asia-Pacific businesses are showing “growing interest” in captives, said Franck Baron, group deputy director, risk management and insurance at International SOS Pte. Ltd. and chairman of the Pan-Asia Risk & Insurance Management Association in Singapore in an email.

“Interest varies a lot depending on the risk/insurance maturity of each country/jurisdiction. High interest countries are Australia, Japan, Singapore, Malaysia, China and Hong Kong,” Mr. Baron said.

Despite the relatively small numbers, with fewer than 200 captives domiciled in Asia-Pacific overall, percentage growth year-on-year reflects that “a lot is happening in the region,” said Simon Burtwell, global captive network lead and partner, FS insurance at Ernst & Young Global Ltd. in London.

Mergers and acquisitions by companies in Asia-Pacific also drive growth, he said.

“We are seeing an increasingly acquisitive Asia-Pacific region investing in European and American businesses and suddenly finding within the mix of those, they’ve got captives,” said Mr. Burtwell.

“We get a lot of questions from people who’ve just bought a business with a captive structure within it about how to make it as efficient as possible. And obviously when you’ve acquired one (captive) you think it may be a good idea and start thinking about as many ways as possible to use them,” he said.

A growing awareness and increasingly sophisticated approach to risk management by businesses as well as the need to cope with price increases in commercial insurance markets, are other key drivers of growth in captives in the region, industry experts said.

Soft insurance rates often suppress captive growth, said John Andre, managing director at A.M. Best, in Oldwick, New Jersey.

“Generally, when rates firm traditionally you see more utilization of captives,” he said.

Price is one driver, but changes in insurance buying strategies by companies in the region are also driving captive growth, said Michael Serricchio, a managing director with Marsh Captive Solutions, a unit of Marsh LLC in Norwalk, Connecticut.

“The biggest driver is that these companies are finally willing to take more risk. They’re not buying insurance at a $1,000 deductible, they’re buying insurance at $1 million deductible now,” Mr. Serricchio said.

Another key reason for the growth is that Asia-Pacific companies tend to adopt a peer-to-peer approach, he said.

“They look very closely at what their peers are doing. The fact that you see large scale national oil companies and other national companies in addition to private companies setting up captives has paved the way for other companies to enter the market,” he said.

Marsh has seen a 24% increase in the number of captives it manages in Asia-Pacific in the past five years, he said.

“It’s probably less than 10 total captives, but that’s a lot for that part of the world. Five years ago, the number may have been 2 or 3. It is very strong growth, way more than in the U.S. or in Europe,” Mr. Serricchio said.

Premiums in Asia-Pacific captives managed by Marsh grew from $508 million in 2014 to $1.1 billion in gross premiums in 2018, he said.

Financial institutions, energy, power, utility and oil exploration industries are the top sectors with captives, according to Mr. Serricchio.

In addition to traditional property and liability risks, Asia-Pacific businesses are increasingly using captives to cover nontraditional classes of risk such as cyber, employee benefits, trade credit and environmental liability, industry experts say.

All risks can benefit from captives’ usage, according to Mr. Baron. “That includes employee benefits too,” he said in the email.

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