7 November 2016Asia analysis

EXCLUSIVE: Captive market to become more relevant as it gains greater acceptance in Asia

Although captive expertise has been active in Asia for some time, captive insurance is still viewed as innovative, claims George McGhie, managing director of captive practice at Willis Towers Watson, Singapore.

According to McGhie, clients have adopted captive techniques, such as single parent captives, protected cells, or through arrangements with insurers, but each case involves lengthy deliberation at client, insurance market and regulation levels.

“Growth has therefore been slow and steady, but we expect acceleration as Asian companies expand into areas where captive is a more established technique,” McGhie told Captive International.

“The key risk to growth in Asian captives remains the need to comply with local regulatory requirements and business practices, and to gain acceptance in Asian boardrooms.

“However, as Asian companies expand overseas, the complex issues involved in creating valuable and compliant multinational risk and insurance programmes are coming to the fore.

“Multinationals in many other regions have long used captives as a means to help address those issues, and as Asian companies expand into those regions they are gaining more exposure to and understanding of captive techniques, particularly when entering joint ventures with captive owners in those markets.”

He went on to say that WTW is also seeing an increasing focus on identifying and valuing risk exposures for which conventional insurance is not fully developed, for example, weather and environmental risks and cyber exposures.

“The use of captives to address such risks and to access the alternative market capacity now based in regional centres such as Singapore and Hong Kong, is increasingly of interest to Asian clients,” McGhie clarified.

He said that in order for captives to become more accepted amongst Asian clients, regulators and insurers, education needs to continue, particularly with a clear focus on risk management and financial benefits of captive techniques.

This is best provided through practical examples, and as more Asian companies embrace captives those examples become more relevant to their peers, McGhie told Captive International.

He said: “It is of course vital that any captive arrangements are compliant with requirements of the OECD Base Erosion & Profit Shifting initiative, in domicile and in the parent country. All captive consultants should ensure that clients are fully informed on the necessary steps to ensure this.”

When asked what makes a good captive domicile, McGhie answered: “Captive clients need stability, experience, consistency and professionalism from domicile regulators and service providers - all at reasonable cost. Singapore is extremely well served in all these aspects.

“Considered one of the world’s most friendly operating environments for international business, the professional infrastructure supporting captives is extremely strong.

“Captive regulations are simple and clear, regulatory reporting requirements are far from onerous, and the Monetary Authority of Singapore as regulator is world renowned for its professionalism.

“Capital and solvency requirements for captives are simple and transparent, and risk based capital requirements do not apply to captives.

“As such Singapore is in many ways an ideal domicile, and has attracted captives from outside of its traditional catchment zone of the Asia Pacific as a result, something we expect to continue.”

Looking at the future of captives in Asia, McGhie said that he expects growth to accelerate from the historic slow pace. This change may not be dramatic in the short term, but as Asian companies globalise into areas where captive is an established technique and gain familiarity, he expects increasing interest.