A Captive market
By admin • Jul 10th, 2008A useful tool. Abdulla al-Awar, the managing director of Dubai International Financial Center (DIFC) Authority, says captive insurance is an innovative risk management tool that has been used globally since the 1960s. “Today, there are over 4,500 captives worldwide writing over $38 billion in premiums,” he says. “Some of the world’s leading firms such as British Petroleum, Microsoft, Proctor & Gamble, and British Airways have utilized captive insurance structures. Captives are especially popular in sectors such as energy, industry, property and construction, financial services, transportation, utilities, healthcare.” Currently 65 percent of Fortune 500 companies utilize a captive to meet at least one or more of their insurance needs.
According to Marsh’s Global Benchmarking captive insurance report for 2008, publicly identifiable companies own about 2,750 captives. “Whilst the total premiums paid to captives in respect of property and casualty insurance are difficult to accurately identify,” the report reads, “it is estimated that they are in the region of $55 [billion] to $60 billion reflecting approximately 20 percent of the estimated corporate spend on such insurance.” It also notes that a noticeable impact has yet to be felt from Middle Eastern financial centers such as Dubai.
DIFC says it has one registered captive manager (Heritage Insurance Management) and expects to have two captive entities established and running by the end of 2008. Mohomed of Dana Insurance, however, has a simple answer to this lack of progress. “Here, there is no need for a captive because they are not paying any taxes,” he says. “So the very basis for having a captive doesn’t exist. But it does exist for places such as Iran and India. And for that Dubai is best-placed.”
Al-Awar of DIFC admits that on a regional level, the captive industry is still at its earliest stage. He attributes that to a general lack of insurance awareness by regional firms. “The region has one locally based captive managed by an independent captive manager in Bahrain and a few captives based in global off shore domiciles,” he says. However, he’s certain that things will soon change. “Now with the first registered captive manager in the DIFC, the regional market will start to have the needed expertise to develop and expand,” he says. “With a multitude of inquiries coming from all around the region, the DIFC is set to be the stage for the boom of the industry.”
Bodies such as DIFC have reasons to believe that the growth of captives is just around the corner. Considering the recent economic turbulence in the West and slow growth in Western Europe and North America, the world’s insurance and reinsurance companies are now looking beyond their traditional markets. Centers such as DIFC are best placed to attract such companies. With that in mind, DIFC’s regulatory body – the Dubai Financial Services Authority (DFSA) – has introduced specific legislation relating to captives. The result is, the DIFC now recognizes captive insurance companies while the UAE and many other jurisdictions do not.
Then there are ancillary services, which are in the process of being developed. DIFC has in recent months organized three seminars to raise awareness about the concept. At one such event – the 8th World Insurance Forum on March 13 in Dubai – George Oommen, the executive director at DIFC’s insurance and re-insurance unit, said: “In order for captive insurance companies to operate efficiently, we need to have service providers around the captive industry, such as auditors, law firms, actuaries, etcetera, which can all be readily found in Dubai.” Bahrain and Qatar have also put in place regulatory captive insurance frameworks that would suit corporations based in the region. 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 whose captive’s profits are 100 percent retained or repatriated.
