Captive allure grows in GCC as market hardens

Interest in captive insurance companies is growing in the Gulf Cooperation Council (GCC) region as international commercial insurance rates harden, according to AM Best. In a report released this week, Best says that rising open market prices have sparked interest beyond the traditional users of captives in the energy and heavy industry sectors, and state oil enterprises.

The introduction of captive-specific regulation and the availability of experienced third-party captive managers to oversee the operations, have made the process of establishing a new captive easier at the same time as hardening markets provide a strategic rationale for captive sponsors to retain more risk, Best says.

Existing GCC captive sponsors typically operate in sectors where the business model requires a large insurable fixed asset base. Property, engineering and energy risks tend to dominate captives’ portfolios, with policies often including substantial business interruption limits. They also write liability covers, including D&O.

Historically, most captives in the region have acted as reinsurance captives, using a fronting commercial insurer to issue the insurance policy, and then retroceding most of the risk in the international reinsurance market.

Several GCC financial services regulatory authorities – including those in Abu Dhabi, Qatar and Bahrain –have introduced dedicated captive-specific legislation recognising the particular dynamic between a captive and its parent.

In general, captive-specific regulation in the region has been modelled on international best practice, with similar features to well-established captive domiciles such as Bermuda and Guernsey.

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