EMEA Captive asks Abdulla Al Awar to explain why the region has such tremendous potential as a captive insurance hub.
With Aon, Kane Group (formerly Heritage) and Marsh already established in the Dubai International Financial Centre (DIFC), why are captive management companies attracted to Dubai?
Captive managers are recognising the many and varied growth and development opportunities for the insurance sector in the region. This is being driven by an increasing awareness of regional risk management organisations. Historically, insurance penetration levels have been relatively low here—approximately two percent of gross domestic product (GDP), compared to eight percent in the US. This appears to be changing, to the benefit of the insurance industry.
The increasing demand for insurance will inevitably spur the growth of the captive sector. We have spoken with many organisations that have expressed a desire to investigate all of the tools available to them to ensure that they are optimising their insurance programme. In almost all cases, they have recognised the benefits that a captive can provide.
What is the DIFC doing to position Dubai as the captive domicile of choice?
Since its inception in 2004, the DIFC has looked to position itself as the leading captive domicile in the region. The DIFC offers a host of financial incentives for captives and captive managers. No taxes are imposed on insurance premiums, or on the profits of captive insurers whose parent company’s premium payments are transferred to the captive, and the captive’s profits can be fully retained or repatriated.
The DIFC is a dollar-denominated jurisdiction that is underpinned by a common law legal framework administered by the DIFC courts, an independent judicial system that deals with matters arising from and within the DIFC. In addition to this, we also have the DIFC Arbitration Centre, which is a world-class centre for alternative dispute resolution.
The geographic location of the DIFC makes the administration and management of captives easy, due to its time zone and accessibility. Furthermore, by locating within the DIFC, captives have immediate access to the cluster of service providers necessary for them to operate efficiently—captive managers, auditors and legal firms. The increasing reinsurance capacity within the DIFC is well positioned to support the development of the DIFC as a captive domicile.
All of this creates a stable foundation for the DIFC to develop into a leading captive domicile. Our captive business development team is working closely with existing captive managers to make this a reality and is proactively meeting with prospective companies to promote the benefits that the DIFC can provide as a captive domicile.
What specific regulations have you developed to support the growth of the sector?
At the heart of the DIFC concept is an independent regulator, the Dubai Financial Services Authority (DFSA), which grants licences and regulates the activities of financial institutions in the DIFC. Staffed by professionals with experience of working at leading regulatory agencies around the world, the DFSA has set uncompromisingly high standards in creating a regulatory and legal framework built on global best practices. The DFSA has been created using principlebased primary legislation modelled closely on that used in London and New York.
The DFSA has introduced specific legislation relating to captives, which includes provisions for the establishment of protected cell companies (PCCs). Being the only domicile in the region to allow such structures, we feel that this provides an additional competitive edge over our closest rivals.
Geographically, where are you looking to attract the most business from?
In terms of captive business, we have spoken with companies both from within the Gulf Cooperation Council (GCC) region and outside—as near as the United Arab Emirates (UA E) and as far away as Australasia. We attended a conference last November in Japan and received a great deal of interest from a number of organisations that were either interested in setting up a new captive here or redomiciling their existing captive to the DIFC. Given that we are receiving such interest from around the world, we don’t have to restrict our geographical scope at all.
A lack of liquidity has been cited by some markets as a reason for the slowdown in the number of captives beingsigned up. How has the global financial crisis affected your development?
Given that the DIFC is new on the scene as a captive domicile, it has significant scope for growth. The only way for us to go is up. The current financial crisis may even assist the growth of captives in some cases. In these uncertain times, many companies are looking to take control over areas of their business in order to ensure that they will ride out the current economic storm. In a lot of cases, this includes restructuring in order to stabilise operational costs and to streamline business processes.
A captive can fit perfectly into this strategy, as its introduction consolidates and enhances internal risk management processes. It can also provide a vehicle to finance retained risk in a structured manner, minimising the cost and maximising the efficiency of an organisation’s insurance programme. In addition, a captive allows organisations to take control of claims, and to encourage and reward good risk management. All of these factors will help to maximise profit margins at a time when corporations are under pressure.
How established are the infrastructure, regulatory environment and critical support necessary for major global companies to operate regional captive programmes?
Many global organisations that have been successfully servicing the global captive insurance industry for many years have established a presence in the DIFC. These organisations represent the key disciplines required to support captive operations, including managers, reinsurers, actuaries and auditors. The regulatory environment that the DFSA has put in place is based on industry best practice and is world-class. These factors have created a professional and experienced infrastructure that should allow the captive industry to flourish here.
Finally, what financial incentives does the DIFC offer captives?
The DIFC offers a whole host of financial incentives for captive insurance companies. Taxes on insurance premiums and on the profits of captive insurers are set to zero. The parent company’s premium payments can be transferred to the captive, whose profits can be fully retained or repatriated. Firms benefit from an extensive tax treaty network for UA E-incorporated entities. Firms established in the DIFC can also have 100 percent ownership.
By locating within the DIFC, captive insurance companies have easy access to the professional service providers necessary for them to operate efficiently. The DIFC is home to several such service providers, including auditors, law firms and actuaries.
Furthermore, by virtue of being located in Dubai, the DIFC gives access to a large pool of skilled, multilingual professionals living in the region. Also, Dubai provides a world-class urban infrastructure, and diverse lifestyle and leisure opportunities.
Abdulla Al Awar is managing director of the Dubai International Financial Centre. He can be contacted at: Amira.Abdulla@difc.ae