20 January 2021EMEA analysis

GCC sees increased interest in captives

There is a growing interest in captive insurance in the Gulf Cooperation Council (GCC) region, according to panelists on an AM Best webinar, titled Captives In The GCC and Their Rating.

Ronny Vellekoop, a senior executive officer at Marsh Captive Solutions in Dubai, said Marsh is seeing increased interest in captive formations among its clients in the GCC. This is being driven primarily by the hardening insurance market, he said.

Vellekoop said Marsh is currently working on “eight or nine” feasibility studies for clients in the region, mostly for traditional captives that write property and liability coverages.

In the US captives are doing more exotic lines of business: Vellekoop referenced a well known drinks manufacturer that uses its captive to write a longevity swap for its pension fund. GCC captives are not currently contemplating this kind of business with their captives, he said.

Vellekoop insisted the regulatory environments offered by different jurisdictions, including Guernsey, the Isle of Man, Bermuda and the Dubai International Financial Centre (DIFC) are now very similar, making DIFC a viable choice of domicile. “The differences are now just nuances,” he said.

The choice of domicile will affect the captive’s rating, however, noted Ghislain Le Cam, a director of analytics at AM Best.

AM Best includes country risk - which is broader than a sovereign rating - in its rating decisions for insurance companies, with countries ranked on a score from one (low risk) to five (high risk). GCC countries mostly score three or four, said Le Cam.

Vellekoop noted that tax is no longer an important driver for captive startups. In Europe and North America, if a captive is set up in a low tax jurisdiction, tax authorities can still tax its profits in the domicile of its parent company, he explained.

“Most now see captives as a risk financing and risk management tool,” he added.

He also explained that Marsh centralises its captive advisory business in New York, London and Singapore to ensure clients get domicile-neutral advice.