Aon predicts rising demand for captives among Asian risk managers

The global broker and captive manager’s view backs up optimistic views about the potential for the Asian captive market expressed by a range of experts during the Pan-Asia Risk Management Association annual conference in Singapore in November. In its annual Asia Market Review, Aon said that the “vagaries” of the soft insurance market have not dampened Asian companies’ growing interest in captives. The broker’s latest Global Risk Management Survey (GRMS) found that Asian captive owners grew from 17% to 23% during the preceding two years. Globally, captives grew at a rate of 7%, said the broker.hide“This continuing interest and growth during a soft market cycle shows that clients are turning to captives as long-term strategic vehicles. Our GRMS also finds that clients are ignoring the cyclical nature of the insurance market and finds that the major reason for forming a captive is for long-term strategic benefits,” added Aon. The broker said that interest in captives is spread across the region but stressed that China stands out as a country that has finally embraced the captive concept with at least five onshore and offshore captives formed in the past two years. The new Chinese captive owners represent some of the largest Chinese state-owned enterprises (SOEs), said Aon. The broker forecasts that formations will continue. It said that some 80% of the Fortune 500 currently own at least one captive, while only five of the 100 Chinese companies included in that list have a captive. The potential is therefore obvious. Aon believes that the growth will come primarily from certain sectors including health, construction, technology and energy and mining. Those captives that are formed in Asia will inevitably turn towards domiciles that have the rules and regulations needed to attract them. For Asian companies, that means Singapore which currently has 68 captives, Hong Kong with just three but hopeful more soon, Labuan with 40 and Micronesia with 18. “Most captives are formed in jurisdictions that feature captive-enabling legislation. Singapore is the best example of a recognised and reputable captive domicile attracting captives from the Asia-Pacific region in the main,” said Aon. “More recently we have seen interest from Latin America which, along with Asia, is an emerging captive region. Captive domiciles, particularly more recent entrants, tend to develop a niche or comparative advantage for certain types of captives or owners,” continued the broker. Aon explained that Hong Kong appears to be purely focused on mainland companies, Labuan is mostly home to Malaysian-sponsored captives, Micronesia appears to purely cater to Japanese captives, and Singapore is the “domicile of choice” for Australian captives. The broker said that insurers are also taking a keen interest in captives and want to work with captives and their owners and managers to provide services that can enhance, or at least complement, multinational captive programmes. Aon said this extends from policy administration services at the front of the captive to additional capacity in the form of traditional or alternative risk transfer programmes behind the captive. The broker added that Europe’s new capital adequacy regime, Solvency II, appears to make little or no distinction between captives and general insurers despite talk of proportionality. As a result, Aon believes there may be a level of fallout that could benefit Asian domiciles as European captives seek to move to less onerous jurisdictions. The broker added, however, that the globalisation of insurance standards and increasing concern by the Organisation for Economic Co-operation and Development and regulators around base erosion and profit shifting will be matters that captive domiciles, managers and owners will need to “navigate”. “The Asian captive market is expected to continue its upward trajectory and will in the main underwrite traditional lines such as property and liability risks, but we expect that well-established captives will be looking to expand their insurance portfolios into areas where traditional insurers do not provide a complete solution,” said Aon. “Exposures such as cyber risk, environmental liability, trade credit and employee benefits are likely to find their way into captive programmes where the risks can be incubated or tailored hybrid solutions can be adopted,” concluded the broker.

Aon predicts rising demand for captives among Asian risk managers

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