Zurich Insurance Group
Adrian Sweeney of Zurich explains why Asia is looking to take the captive concept beyond the usual risk transfer, and how far the region has come...
What do those without the financial strength of China, such as the Cook Islands or Labuan, have to do to compete? Is it a case of carving out a niche?
Most of the smaller domiciles distinguished themselves from a stronger domicile, such as Singapore, and so have already set their target audience, their niche and their strategy. Each one has their own speciality and appeal to support their existence, be it by providing for a specific market, such as Micronesia for Japanese companies, or to a certain segment of customers such as Labuan with the protected cell company legislation.
How important is Asia’s economic development to the coming-of-age of its captive insurance industry?
The economic developments have started people on the path to seeking new solutions and learning how to better utilise and protect their assets. Risk management is growing in importance and the captive industry is benefiting from this development.
As the growth and cash flow slows and costs rise, alternative solutions gain ground and the captives’ offer of keeping the cash flow within the group becomes highly attractive.
We see many more Asian companies buying or opening operations globally, and a captive can be a useful tool to centralise the corporation’s risks in one location as an aid to risk management and risk financing options.
Are there opportunities in Asia to use captives as part of an investment strategy?
There are possibilities to take captives beyond the usual risk transfer and create something more akin to a profit centre, which then can fund further risk improvements and lead to further profits in the captive. This creates a self-investment tool that can be part of the investment strategy of the company.
As a captive matures there is often a surplus of capital that is built up and this can be used in a variety of ways to assist the parent company, including as part of an overall investment strategy.
What role will regulators play in the development of Asia?
Regulators will have a strong influence on the development in the region, as can be seen by the encouragement of the Chinese regulator in respect of creating captives.
Similarly, the increase of the tariff in Indonesia has started many companies to seek an alternative solution for their insurance needs.
Regulators will be a strong force in the development and the direction captives will take in Asia.
What is Zurich’s current focus in the region? Are particular domiciles being prioritised?
Zurich prioritises the customer, not a particular domicile. For us it doesn’t matter where the customer has their captive.
We focus on bringing innovative and proven solutions to customers in the region and help them to further understand the possibilities of captives and support them in creating tailored solutions.
How is Asia overcoming a lack of experienced practitioners?
Education and knowledge sharing are of utmost importance and Zurich is always more than happy to share their understanding and knowledge with customers and brokers. We host and support various events across the region.
How are captive insurers being used to access cheap capacity through the reinsurance markets?
The tendency seems to be to use the cheap capacity and push it to the front line through the captive, bringing down the premium cost of the insurance.
This can be seen across various industries.
While this improves impact of insurance cost on the company’s profit and loss, it also cuts down the premium flow to the captive and limits it abilities to function as a risk management and risk transfer tool.
A captive that is used to access cheap reinsurance creates an alternative problem for the company—that of the credit risks of the reinsurance being bought.
In Asia, we are seeing a much stronger growth in captives that form a key component of the parent company’s risk management strategy working with a partner that can service their needs globally, providing fronting, risk engineering and risk transfer capacity in support of the parent company.
