Asia-Pacific Captive Insurance Domiciles Expected To Grow

A.M. Best expects to see a significant captive insurer formation increase in Asia-Pacific domiciles as economies grow and businesses seek new and more sophisticated ways of risk management and control, according to the rating agency's latest report, titled Asia-Pacific Captive Domiciles Poised for Growth.

In the report, A.M. Best said captive insurer growth in the region to date has remained relatively slow, mainly due to the persistently competitive insurance market. With abundant capacity available at cheaper costs, the benefits of establishing a captive may not seem particularly attractive. A lack of knowledge and understanding about captive insurance also pervades the Asia-Pacific region. Not only is there limited information available on captive insurance and its benefits in Asia, but also there are few avenues for businesses to turn to for more information. This general lack of awareness also has contributed to the low captive insurer count in this region.

However, businesses have expanded their use of captive insurance past providing cover for traditional property and liability risks into nontraditional classes of risk, such as cyber and trade credit. The introduction of the Belt and Road initiative in China also has increased demand for specialty insurance according to the report.

As Asia's economies rise in prominence, fueled by the growth of small and medium-sized enterprises, A.M. Best believes captive domiciles in Asia-Pacific will thrive. Singapore, Labuan, and the Federated States of Micronesia stand out as established captive domiciles. In recent years, China and Hong Kong have emerged as regulators have been keen to develop captive insurance in their jurisdictions. Hong Kong's considerably lower capital requirements, friendlier regulatory environment, common law legal system, and free and open financial economy currently make it a more attractive domicile than China according to the report. However, captive interest is growing in China as local companies grow in sophistication and look to make captives part of their risk management strategies.

"As the capacity in China for new risks related to the Belt and Road also is insufficient, businesses with captives in this region would be well-placed to take advantage of the domiciles' geographical locations and comprehensive insurance ecosystems to connect with foreign insurers and reinsurers and transfer these risks to the international market," said Christie Lee, director of analytics with A.M. Best.

Access to this complimentary report is available on the A.M. Best website.

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