Captives Proliferate In Pacific Rim
In the world of international captive domiciles, all eyes are on Australia and Pacific Rim countries, which are seeing a lot of new captives being formed as well as a spate of redomestications.
Legislation that allows the formation of captives in Australia is luring Australian parent companies back from Singapore and also provides alternatives for Pacific Rim companies seeking a domicile, according to industry experts.
"Australia is certainly a very fast-growing territory for us," said Stephen Cross, group managing director for Aon International Risk Management Group in Iselin, N.J., and a board member of the Minneapolis-based Captive Insurance Companies Association.
"If you go back over the years, a lot of the Australian-based parent companies went to Singapore to form their captives." But with a change in legislation in 1997, the captive movement "has taken a very firm grip" in Australia, he said. Local regulatory benefits also allow Australian organizations to "keep their captive in Singapore if they want, but they can do the day-to-day processing and client contact on a more local basis," he said.
"I think youve got more Australian companies looking beyond the shores of Australia for their own business," he added. "So the more international the Australian domestic companies become, the more the need for captives."
Carol Pierce, editor of A.M. Bests "2001 Captive Directory," agreed that Australia is a domicile worth watching. "Australia is attracting some captives that are already in existence–so theyre really redomestications–out of Singapore and back to Australia," she said. A.M. Best is headquartered in Oldwick, N.J.
"It makes a lot of sense for Australian companies that already have captives to bring them back to Australia," she added, noting that from Sydney "its a nine-hour flight to Singapore."
Mr. Cross said the captive industry in Australia is in the developing stages. "Its more advanced than Latin America, but the captive market is not as mature as North America or Europe," he said.
Singapore, he added, is also expensive. "Unfortunately the Australian dollar is fairly weak right now, so for an Australian parent company to be paying the costs in a foreign currency, whether its sterling or U.S. dollars, theres a dilemma," he said.
Ms. Pierce said many captive insurers need more support and infrastructure than Singapore has to offer. "Singapore really has no regulation of its captive industry," she said. "The only requirement in Singapore, other than forming under the captive legislation, is that your auditor sends in a letter saying he audited your books and they were okay." Other domiciles, she said, require a financial statement, proof of ownership and background checks of officers and directors.
However, Michael Parrish, managing director of Aon Insurance Managers Singapore, said Singapores captive industry "benefits from a fully developed infrastructure, with no shortage of support services from banking, auditing, legal and captive management professionals."
He said that the Monetary Authority of Singapore "oversees an accommodating regulatory regime with fairly low capital and solvency requirements, no restrictions on a captives investments or reinsurance arrangements and little bureaucratic interference."
New captive incorporations in Singapore have been relatively few over the last decade, he said, with the number of domiciles "remaining stuck around 50."
In other areas of the Pacific Rim, Mr. Cross said: "Wed like to attract the very obvious countries first and then develop from there."
Where Pacific Rim captives will choose to domicile may take time to determine, Mr. Cross said. "That area has always been difficult. Its a long period between when you start to solicit a piece of business and when you eventually get it closed. It sometimes takes years."
More and more Pacific Rim-related captives are being established in Guernsey and Bermuda rather than Hong Kong, which "hasnt really taken off just yet," he said. "Certainly theres potential, but thats where we get to the age-old question of are there too many captive domiciles? Theres only so much work to spread around."
Mr. Cross explained that clients are best served when captives arent spread too thin among management companies. "All of the managershave an economic reality which has to be recognized," he said. "Clients have access to deeper levels of expertise in an area with greater potential for captive market development. For us, depending on the profile of the captives, it takes five-to-10 captives to make it worthwhile to staff up a domicile."
Even with the proliferation of domiciles, the captive industry is growing, he said. Hardening markets on the property, directors and officers, and casualty sides are a factor.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 13, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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