Table 1: Captive formations in the Gulf Parent


Captives located in the GCC Tabreed


Abu Dhabi Saudi Remix Dubai Holding


Mubadala Development Company


Qatar Petroleum


Saudi Arabia


Dubai Dubai Qatar


District Cooling


Location Industry Captive


Tabreed Captive Insurance Company B.S.C


Concrete Masheed Captive Insurance Company B.S.C Group Group


Oil & Gas


Dubai Holding Insurance Services PCC Ltd


MDC (Re) Insurance Limited


Al Koot Insurance and Reinsurance


DIFC DIFC Qatar


Location Bahrain Bahrain


“ THE MIDDLE EAST, WITH ITS EASE OF SET-UP AND SUPERIOR INFRASTRUCTURE, IS WELL POSITIONED TO BECOME A SUCCESSFUL CAPTIVE HUB, NOT JUST IN THE REGION, BUT IN THE INTERNATIONAL CAPTIVE MARKET.”


This is something captive parents have already discovered in other


parts of the world. While such organisations may have located their captive or cell company in one of the more established markets, there are plenty of reasons to think that some of those with established captives may opt to relocate these companies to the GCC. Uncertainty over how so-called tax havens will be treated in the future has already seen a number of companies relocate their captives from Bermuda and Cayman. Most have gone to onshore US domiciles, but there is no reason why the Middle East should not also be an option.


Captive audience In the meantime, the set-up costs are coming down and the benefits


of becoming a Middle East captive owner are becoming more and more apparent. The Dubai International Financial Centre (DIFC) recently reduced its application fee for captives from $15,000 to $5,500, and for protected cell companies (PCCs) from $40,000 to $8,000 for the core cell, plus $1,000 per additional cell.


While captives and other risk-retention vehicles, such as PCCs, are a relatively new concept in the GCC, the idea of self-insurance sits well with many organisations, particularly when they discover that they can get a wider breadth of cover, tailored to their unique risk profile, for a lower price than they would be able to secure in the commercial market. Some of the fears over counterparty credit risk, heightened during the financial crisis, have further encouraged businesses to see the benefits in taking control of their risk transfer needs.


Captive insurance helps to avoid any concern over future price volatility


or available capacity. While it may seem remote, the region has not yet been fully tested from a catastrophe perspective. Another cyclone in Oman this year (after cyclone Gonu cost an estimated $4.2 billion in economic losses in 2007), earthquake risk in a rapidly developing Dubai, and hail storms and flash floods in Saudi Arabia suggest that the region could be exposed to some of the bigger loss scenarios if the unthinkable happened.


A big catastrophe loss—or even a series of smaller attritional losses—


is all it would take for a contraction of the commercial insurance market and resulting rate hardening, particularly if it coincided with an active Atlantic hurricane season. While cost and tax considerations are but two of the many compelling reasons for exploring captive insurance, they are significant.


Concern over escalating prices for cover in the commercial market (which has been witnessed in classes such as property catastrophe, medical malpractice, financial institutions and offshore energy in recent years) frequently drives captive growth. Self-insurance makes insurance costs more predictable over the long term, with premiums budgeted for and more control over claims processing.


In fact, three GCC-based organisations (two Saudi and one Kuwaiti


oil, gas and petrochemical companies) own captives that are based in other domiciles—Bermuda, Guernsey and the Isle of Man. Similarly, a large number of companies in the Asia Pacific region own captives that are based as far away as Europe or even Bermuda. With the Middle East now able to service their captive needs much closer to home, the board members of such companies may see the logic in saving on the time and airfare, and relocating their captives to the region.


In Europe, continuing ambiguity over how captives will be treated under Solvency II could prompt some of the larger captives to relocate, if it transpires that their capital requirements will grow considerably under the new insurance regime. In a July 2009 report entitled European captives – a growth market during a challenging time, rating agency A.M. Best noted that there was anecdotal evidence that non-EU domiciles were seeing an increase in enquiries about captive formations as a result of the pending directive.


“The prospect of setting aside considerably more money and the inevitable need to spend more time on regulatory compliance will lead companies to consider setting up their insurance vehicles outside the European Union,” predicted A.M. Best. “It is inevitable that domiciles outside the EU will see a pick-up in interest, as Solvency II represents an enormous change to the framework for insurance business in general.”


It is an extremely dynamic time as the world emerges from the financial crisis. The confluence of new regulatory pressures, cost- cutting, and uncertainty over tax rules and capital flows has caused a growth in interest in captive insurance. In uncertain times, the ability to take control of risk transfer requirements and purchase more bespoke cover at lower costs is becoming more and more attractive. While the established captive centres will undoubtedly be the beneficiaries of some formations, it is our belief that the Middle East, with its ease of set-up and superior infrastructure, is well positioned to become a successful captive hub, not just in the region, but in the international captive market as appetite grows.


Shaun Brook is practice leader, insurance management at Kane. He can be contacted at: shaun.brook@kane-group.com


20 emea captive 2011


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