A.M. Best: ILS and Captive Insurance Growing in Asian Market

A.M. Best’s Jose Ribeiro, managing director, Asia-Pacific, said Asia is poised to become a significant growth opportunity for the insurance-linked securities (ILS) market. He also confirmed that captive insurance (in multiple regions) and foreign ownership of insurance companies in China are both emerging growth areas for Asia.

Insurance-linked Securities in Asian Market

"Singapore and Hong Kong are trying to establish themselves as centers for ILS vehicles." Mr. Ribeiro said. "There is a bit of rivalry between Hong Kong and Singapore because Singapore is seen as the center for insurance and reinsurance in Asia, while Hong Kong is seen as the center for banking and financial services and for insurance connected with greater China."

Mr. Ribeiro noted that there has been some movement in Hong Kong and Singapore from Chinese entities toward issuing CAT bonds and fully collateralized vehicles. While nothing concrete has occurred, Mr. Ribeiro advised that we should expect to see more happen within the next 12 months.

Captive Market in Asia

According to Mr. Ribeiro, "In Asia, there are three domiciles that have been quite active in terms of attracting new captive ventures. Probably the most important one is Singapore, which now boasts around 80 captives. The second one is Labuan in Malaysia. They currently have around 50 to 60 captives. The third one is in Micronesia, which is being mainly chosen by Japanese companies, and it has 25 captives. All of these captives are steadily growing."

He explained that more and more captives are also forming in China and Hong Kong and that both China and Hong Kong will grow quickly as captive domiciles over the next 5 to 10 years, mainly because of the Chinese market.

Opening the Chinese Insurance Market

Chinese regulators have made efforts to open up the Chinese insurance market to allow foreign ownership of local subsidiaries, according to A.M. Best. Mr. Ribeiro said that both AXA and Allianz will now maintain full ownership of their related Chinese entities, and he hopes that other US and European insurers will follow. However, Mr. Ribeiro noted that, at current, international insurance companies comprise less than 3 percent of the Chinese market share.

He also mentioned that, mainly in China and Hong Kong, start-up insurance companies (of all types) are beginning to form.

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