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18 April 2024

GCC holds high potential for captive insurance despite credit crisis

The presence of large conglomerates increases opportunity for captive insurance. (CHANDRA BALAN)

By Shveta Pathak

Captive insurance is likely to see high growth in the Gulf Co-operation Council (GCC) in the coming months in spite of the ongoing global crisis, leading insurance solutions providers have said.

Growth of regional corporations, and asset boom in the region, which is creating significant amount of physical assets that may need heavy insurance premiums, are expected to fuel this growth.

Michael Cormier, MD Captive Solutions, Marsh, said: "We have high expectations of growth in the captive industry in the Gulf in terms of new formations and also in terms of higher percentage of companies using captive as part of their risk management strategy."

The presence of large conglomerates increases opportunity for captive solutions and also makes business sense in the present economic environment, said industry executives.

"The region has a heavy presence of large conglomerates and we are a growing economy. The fact that companies here have traditionally relied on other jurisdictions to cover risk and are now looking at alternative forms of risk management also means immense opportunities for captives," said Wayne Jones, Partner, Clyde & Co. "It is very attractive for conglomerates to be able to manage their risk without having to outsource it to others." The asset boom in the region too could be a growth driver, feel solutions providers.

"Asset boom in the GCC is creating large and growing amount of physical assets commanding large insurance premiums. Besides, regional corporations are growing in sophistication, size and complexity. An increasing captive insurance awareness and insurance penetration increases potential for captive insurance in this region," said Ronny Vellekoop, Head of Office and Senior Executive Officer, Marsh Management Services (Dubai).

He said the global economic volatility and commercial underwriter capital and investment losses may lead towards increasing insurance premiums. A recent 'Global Captive benchmark Report' by Marsh revealed that almost 65 per cent of the Fortune 500 companies own one or more captives and the growth pattern since the 1980s has been steady.

According to the report, large corporations may view captives as an important long-term strategic risk financing vehicle and have tended to form captives for varied reasons including managing risk and creating an insurance interface between group headquarters and business units due to greater focus and a more strategic approach towards risk retention, risk capital allocation and risk tolerance and due to their practical need to manage businesses regionally or globally from an insurance buying perspective.

Concerns over the financial strength and credit quality of insurance and reinsurance firms too have been drivers to growth.

"Regional companies can choose to capitalise local captives, retain more risk and capture the benefits," said Cormier.

Among industries that are expected to go in for captive solutions are those engaged in large property development, oil, large industrial manufacturing, food service companies, and financial business among others. "They would be using captives strategically."