23 January 2017Accounting & tax analysis

Ability to better manage TCOIR drives captive market growth in Asia

The Asian captive market continued to grow at a steady pace through 2016, and the formation of captives in the region is expected to continue in 2017, according to Aon's annual Asia Market Review.

Captive owners in Asia are continuing to aim to reduce their total cost of insurable risk (TCOIR), and the increase in captives is felt to be reflective of the overall maturing approach in Asia to explore bespoke alternative risk financing structures that are geared towards managing TCOIR.

“Aon is currently experiencing an unprecedented level of sophistication amongst captive owners in the region, the majority of which are gross line captives seeking to manage and control external risk transfer costs as well as group retention costs, taking a total cost of insurable risk (TCOIR) approach to risk-related decision making,” said Aon.

“With the insurance market approaching the bottom of the cycle, captive owners continue to aim to reduce TCOIR, with an increasing emphasis on analytics, risk improvement, and loss management in order to achieve TCOIR objectives.”

In terms of captive domiciles by country, Singapore has the most at 71, followed by Labuan at 40, Micronesia at 18 and Hong Kong at 3.

Aon suggested this growth is likely to continue, as the Asian market is increasingly seeing captives used as a tool to control volatility, incubate or introduce new risks, and to increase the price competitiveness of their overall programme.

Looking forward to 2017, Aon expects more captives to form as multinational continue to rationalise or globalise insurance programmes, and Asian companies' approach to risk management and risk financing continues to mature.

Some of the uncertainties relating to tax strategies and possible reputational impact were said to ensure that territory remains at the front of mind, however.

The Monetary Authority of Singapore, for example, had recently introduced Organisation for Economic Co-operation and Development (OECD) minimum base erosion and profit shifting (BEPS) standards, and will withdraw its tax exemption on March 31, 2018.

This is to comply with OECD guidelines in relation to “economic activity, substance and arm’s-length commercial arrangements.”

Aon believes this is a positive step for Singapore, suggesting it will continue to remain a competitive and reputable option to the growing number of multinational organisations using Singapore as the gateway to Asian or international services and markets.

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