Captives should leverage their capital in surplus to increase capacity: Asian Captive Conference 2020


Captives should leverage their capital in surplus to increase capacity: Asian Captive Conference 2020

Captive insurers would have around $1 trillion in capacity if they leveraged their capital in surplus more aggressively and applied three times leverage, as many commercial insurers do, according to Malcolm Cutts-Watson, managing director at Cutts-Watson Consulting.

Speaking on a panel at the Asian Captive Conference 2020, titled Business Interrupted: Finding a Soft Landing in a Hardening Market, Cutts Watson cited Marsh figures that show Asian captives have $113 billion in capital in surplus, around 20 percent of the total capital in surplus for captives globally. Leveraging this figure would allow Asian captives to take on more of the emerging risks that companies have faced this year, he said. 

Panelsis agreed there is increasing interest in captives and other forms of self insurance in Asia. This year has shown companies how interconnected many of their risks are, and exposed many gaps in their coverage, noted Cutts Watson. 

Likening risk to Swiss cheese, he argued captives can be used to fill the gaps in the coverage offered by commercial insurers. 

“The challenge for the insurance market is whether or not policy wordings are fit for purpose and meets the particular needs of the client,” he said. This is not a new issue but has been given more urgency by disputes around non property damage business interruption claims, he noted. 

Thomas Keist, global captive solutions leader at Swiss Re Corporate Solutions, said self insurance allows companies to take on new risks more flexibly than commercial insurers can, which he said is particularly useful in an economic environment like today’s. Companies are increasingly considering self insurance as a way to manage risks such as non physical damage business interruption, pandemic and cyber, he said. 

Ariel Kou, office manager at Marsh Management Services in Labuan, admitted that Asia is not as advanced as countries like the US and UK in terms of its approach to risk management and the use of captives. However, the increased challenges presented by things like COVID-19 has encouraged Asian companies to consider options they may not have considered in the past, she said. 

The panel agreed there is likely to be increased interest in captives among Asian medium sized companies in particular. Many smaller and mid sized companies have felt they lacked the resources to create their own captives, but there are an increasing number of options available to them that make captives affordable. 

Swiss Re has developed a virtual captive that allows clients to enjoy the benefits of a captive using Swiss Re’s balance sheet via a structured insurance agreement. The virtual captive has drawn a lot of interest from companies that are considering launching a captive but do not currently have the time to create one, said Keist, as well as from some companies that want to better understand captives before they commit to creating one of their own. 

Cutts Watson noted that many insurers in Asia worry that the growth of captives could eat into their own business, but said the evidence suggests that is not the case, with captives tending to write additional coverage that supplements commercial cover. Swiss Re’s virtual captive can help make Asia’s insurers more comfortable with the prospect of growth in the captives sector, he said. 

Farah Jaafar-Crossby, the chief executive at Labuan IBFC, who moderated the panel session, welcomed the creation of Swiss Re’s virtual captive, and other initiatives designed to make self insurance more accessible for mid sized companies. 

SMEs should have access to “this wonderful thing called self insurance,” Farah argued, with many of the gaps in risk coverage affecting smaller companies just as much as bigger ones. 


Labuan IBFC, Asian Captive Conference 2020, Malcolm Cutts-Watson, Cutts-Watson Consulting, Ariel Kou, Marsh, Thomas Keist, Swiss Re, Farah Jaafar-Crossby

Captive International