The Asia Pacific captive market remains tipped for significant growth, despite challenges, as businesses continually seek new and more sophisticated ways of risk management and control, according to A.M. Best.
The ‘Best’s Market Segment Report’ on Asia Pacific captive domiciles, showed that despite the large economies in the region, such as China and Japan, the captive industry is small. In 2018, there were an estimated 6,337 captives globally, with just 2.8 percent domiciled in Asia Pacific.
However, A.M. Best suggested that as the growth of small and medium-sized enterprises (SMEs) fuels a rise in the prominence of Asia’s economies, the capital and risk management strategies of these SMEs will need to evolve.
The ratings agency said that not only will captives become more of a focus as part of a robust internal risk management strategy, but that captive domiciles in the Asia Pacific region will also thrive.
According to A.M. Best, there is “abundant growth potential in the region”, particularly in Singapore, Labuan, and Hong Kong.
The report highlights Singapore, Labuan, and the Federated States of Micronesia (FSM) as the region’s established domiciles, but also noted the recent emergence of China and Hong Kong.
According to A.M. Best, both the China Banking and Insurance Regulatory Commission (CBIRC) and Hong Kong’s Insurance Authority (IA) keen to develop captive insurance in their jurisdictions.
The report outlines two key challenges which have meant growth remains relatively slow in the region, despite the tremendous potential.
Firstly, the persistently competitive insurance market of the last decade or so has meant a low captive insurance penetration rate, as with abundant capacity available at cheaper costs, the benefits of establishing a captive may not seem particularly attractive.
The second challenge is the inherent lack of knowledge and understanding of captive insurance.
A.M. Best explained: “Not only is there limited information available on captive insurance and its benefits in Asia, but also there are few avenues for businesses to turn to for more information.”
“This general lack of awareness has resulted in the low captive insurer count in this region”
Additionally, A.M. Best explained that though tax management issues have traditionally been the reason for setting up captives in more established domiciles, the fact that most of the Asian domiciles have committed to implement and abide by the Organisation for Economic Co-operation and Development Inclusive Framework on base erosion and profit shifting means “this factor is likely to be downplayed”.
Despite these challenges, the Asia Pacific captive market remains tipped to grow by A.M. Best.
