Wednesday, October 30, 2024

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Domicile Wars: Is Abu Dhabi emerging as a strong choice in Middle East region?


  • Risk-based solvency regime provides proportionate environment for captives
  • Interest from UAE-based companies, the wider region and Europe
  • Re-domicile process straight forward and already tested
  • PCC and ICC legislation in place but no formations to date

Confidence is growing that Abu Dhabi can position itself as a strong domicile choice for existing and prospective captive owners in the region and further afield, with several applications in the pipeline.

Abu Dhabi is the capital city of the United Arab Emirates with the international finance centre, known as the ADGM (Abu Dhabi Global Market), established in 2015.

Speaking on the latest episode of the Global Captive Podcast David Barker, director of supervision at the ADGM, explained that they recognised it would be a good idea to have a dedicated regime for captive insurance, rather than them coming under the same rules as general insurance business.

ADGM takes a risk-based approach to supervision, described by Barker as “proportionate”, and it has a captive rulebook setting out the regulatory framework.

“I think we are poised for that growth that we do expect to see coming,” he said.

“With the captive managers here, although there’s only four captives so far, I think we’re really positioned for great growth.”

There are four classes of captive insurers – Classes 1, 2, 3 and 4, with all four existing captives falling into Class 4.

  • Class 1: A ‘pure captive’, single owner, which writes no third-party risk.
  • Class 2: Single owner captive with up to 20% gross written premium from third parties.
  • Class 3: Suitable for group or association captives.
  • Class 4: Anything else that does not fall within Class 1, 2 or 3.

The domicile also has protected cell company (PCC) and incorporated cell company (ICC) regulation in place although there has yet to be a cell company established.

Barker said he had spoken to multiple organisations interested in establishing a PCC structure and suspects the domicile will have its first “quite soon”.

The first captive licensed in the jurisdiction was ADNOC Reinsurance Limited in 2018, owned by Abu Dhabi National Oil Company (ADNOC).

Mubadala (Re)insurance Limited was established in 2019, by state-owned Mubadala Investment Company PJSC, while TAQA Insurance Limited re-domiciled from Guernsey in 2021.

EGA Reinsurance Limited, owned by Emirates Global Aluminium, received its captive licence in 2020.

Two of the four captives in Abu Dhabi are managed by Marsh, while Aon and Artex manage one each.

Motivations

Aon Captive and Insurance Management hosted a Captive Masterclass in Abu Dhabi in September and David Hogg, regional managing director in EMEA for Aon’s captive business, said they see “great potential” in the domicile and the region more broadly.

“There is a lot of interest in captives and I think it is very much being driven by the hard market conditions,” he told Captive Intelligence.

“Traditionally in this region, when insurance premiums have gone up people have just paid more money, but I think the pronounced impact of the hard market has really made them look at alternative ways of financing risk in a much more structured way. Obviously, a captive clearly meets this objective.”



Speaking on the Global Captive Podcast Toby Shore, senior director within group treasury at Emirates Global Aluminium, said having previously explored and then shelved an idea to form a joint captive, they revisited the strategy during the pandemic.

“There was a cost savings, premium element to that, but it was more about strategically exploring how are we going to manage our insurance programmes going forward?” he said.

“We had quite a large growth strategy, our traditional insurance property and business interruption programmes had steadily been eroded through market conditions, so it was really to see that if the market was changing, how are we going to adapt to that market and how are we actually going to respond that was in the benefit of our shareholders and EGA as a whole.”

When it came to choosing a domicile, Shore explained they went through the usual “beauty parade” of options and had looked at established centres in Europe.

He said ADGM emerged as the favourite because they were comfortable in the legal environment, based on UK law, and the ADGM had been very welcoming.

“Still obviously providing a very thorough regulatory service, but really looking to see how they can help companies come into the ADGM and establish business and grow from there,” Shore added.

Karl De Giovanni, director of client solutions in EMEA for Aon’s captive business, said large organisations in the region, both private enterprises and those state-owned, are becoming increasingly sophisticated in their approach to risk management and financing.

“We’re seeing a lot of interest coming from the region in general,” he said on GCP #112.

“They’re quite on the ball with their risk management function and they have the ability to retain substantial risk.

“A lot of them just do it on their balance sheet, but the ADGM is, from what I can see, a very business friendly regulator, taking into consideration proportionality when it comes to captives and therefore a structured way of retaining risk for these types of organisations is the way forward, I think.”

Re-domestications and new formations

Costain Nikisi, general manager in the Middle East for Aon Captive & Insurance Management, said Abu Dhabi is proving to be a “captive friendly” destination.

“There’s a captive specific piece of legislation, which you do not quite find elsewhere in the region so that’s clearly very useful,” he said.

“Everything becomes very transparent and that’s really helping when you’re explaining to the potential clients what we have in terms of infrastructure and the regulatory framework.”

TAQA Insurance Limited, owned by Abu Dhabi energy company TAQA, was originally domiciled in Guernsey, but re-domesticated in 2021.

With regards re-domesticating captives, Barker and Nikisi said it is a fairly straight forward process to move a captive into ADGM.

“The first step is really for a captive to understand does its existing jurisdiction allow for being re-domiciled elsewhere?” Barker explained.

“There are a number of things that a captive would need to do in that exiting jurisdiction, usually around giving notice and making sure everything has been tied down there.

“One of the key aspects though is everyone needs to be lined up to make sure there’s not a period of time where the captive doesn’t exist anywhere. And getting that lined up just takes logistical certainty, but it’s never been a problem for us so far.”

Nikisi said they are currently working with another European captive which is considering re-domiciling into ADGM.

“We really see that simplicity and openness of this domicile to allow captives owned by entities from this region to come back home,” he said.

“And the example that has been set by TAQA is clearly one that is a good template to be followed.”

Looking ahead to future new formations, while there has been none to date in 2024 Barker said all the captive managers are reporting a “strong pipeline” of enquiries and feasibility studies.

“Whether they come to us with the applications this year or next year, I do not know,” he said. “I would not be at all surprised if if they start coming to us before the end of the year.”