Aon has received an increase in captive insurance enquiries across Asia including current ones from China, Japan, the Philippines, Indonesia and Singapore, according to Alastair Nicoll, regional director for captive and insurance management, Asia Pacific at Aon.
Nicoll’s comments come after the release of Aon’s 2021 Asia Market Review, which reveals that enquiries from organisations about forming a captive or protected cell company (PCC) are projected to continue.
These enquiries also continue to grow in the wider Asia Pacific region. “Demand from Australia remains high while we see increasing numbers from New Zealand,” he explains.
Discussing PCCs, Nicoll notes that although Aon’s PCC White Rock operates in seven different countries, it does not operate in the Asia region. However, Asian corporations are accessing White Rock cells in the domicile most suitable to them, based on careful consideration of the pros and cons.
In Singapore, the Monetary Authority of Singapore (MAS) has recently revealed plans to look into converting an existing funds structure that is in place here into one for insurance. The Variable Capital Companies (VCC) Act was introduced in 2018.
“We continue to hope that they will enable a protected cell type structure in Singapore soon,” he adds.
Although there is movement within the market, Nicoll points out that compared to Europe and the US, Asia lags behind in the number of captives owned and managed in Asia.
He explains that there are several reasons for this, including the legal status of some organisations. For example, there are the state-owned enterprises in China that started forming captives over 20 years ago and although a few have followed, it is a very limited number with most of their captives domiciled in Hong Kong.
“There's also some reluctance I've noticed to invest in consulting services and there can be an inability to centralise decision making, especially in family-owned enterprises, and sometimes the results are simply not as compelling as expected,” he adds.
In terms of competition, Nicoll suggests that the Federal State of Micronesia (FSM) is the biggest competitor, as it’s home to many Japanese captives.
“FSM has a special relationship with Japan, where they have set themselves up with Japanese service providers and speakers and they have a good double tax treaty,” Nicoll notes.
The report highlights in its reflections that it remained crucial to discuss with a broker soon after renewal, not just before and to allow a time frame of up to nine months to form a new captive.
Nicoll points out that it's easier working with captive owners as they approach renewal compared to companies who are thinking about setting up a captive because of the period of time it takes to set up a captive.
“Due to the time requirements for formation, a company looking to set up a captive won't be as nimble in preparation as they approach renewals,” with Nicoll suggesting they should take a longer-term view early in the annual cycle to test the programme in different captive scenarios through a formal feasibility study.
“We recommend companies to do this as it provides internal decision-making validation before forming their new subsidiary and it takes our consultants about three months to complete a full study — so there's a time consideration here,” he adds.
Elsewhere, the report predicts that the general mergers and acquisitions (M&A) trend will also lead to risk finance reviews for risk retention and optimising captives.
Nicoll notes that although captive numbers are decreasing slightly at a global level, there are still a lot of new formations every year.
“Aon is seeing a lot of M&A activity, which is driving some decrease in the overall numbers of captives. The Organisation for Economic Co-operation and Development base erosion and profit shifting rules and Solvency II regulations in the EU are also resulting in a few companies closing down their captives,” he explains.
He adds: “Overall, there is a balance, but there are new captives being formed all the time.”
