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AM Best affirms rating of COSCO SHIPPING captive

Luke Harrison
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AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Hong-Kong domiciled COSCO SHIPPING Captive Insurance Co. The outlook of these credit ratings is stable.

COSCO Shipping Captive is owned by China COSCO SHIPPING Corporation.

The captive’s underwriting book primarily consists of marine hull business for the parent group and its affiliates, which is expected to be its key source of premiums over the medium term. Other business lines include liability, commercial property, cargo, motor, accident and health.

As a strategically important member of COSCO SHIPPING, the captive insurer receives various support from its parent in areas of business development, risk management, managerial and capital support.

The ratings from AM Best reflect the captive’s balance sheet strength, which the ratings agency assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

AM Best’s ratings also reflect the wide range of support the company receives from its parent, which the ratings agency perceives it to benefit from strong governmental support.

COSCO SHIPPING Captive’s risk-adjusted capitalisation remained at the strongest level in 2022, as measured by Best’s capital adequacy ratio (BCAR).

The company’s balance sheet strength is assessed as very strong, underpinned by a very low underwriting leverage and a prudent reinsurance programme.

The captive insurer’s capital and surplus has consistently grown at low- to mid-single digit rates, supported by a favourable dividend retention arrangement since its inception.

However, AM Best said the company is expecting a higher dividend pay-out ratio after it achieves net profits for six consecutive years.

COSCO SHIPPING Captive achieved a net profit each year from 2017 to 2022 and an average return on equity of 4.8% over the last five years (2018-2022).

The company’s underwriting performance continues to benefit from low distribution costs for group-related business and favourable reinsurance commission income, albeit offset by marginal net loss experience due to a small net earned premium base.

Due to a challenging capital market environment in 2022, AM Best said the captive’s investment performance experienced some headwinds.

The company will continue to focus on fixed-income oriented assets, which are expected to provide a stable stream of investment income.

Based on its three-year business plan, COSCO SHIPPING Captive expects stable premium growth while continuing to deliver a favourable bottom line.

Nevertheless, AM Best said its high-severity, low-frequency product risk profile and small net earned premium base may subject the company’s operating performance to potential volatility risk.

Negative rating actions could occur if there is a significant adverse deviation in the captive’s operating performance from its business plan.

“Negative rating actions could also arise if there is a reduced level of support from COSCO SHIPPING or a significant deterioration in COSCO SHIPPING’s financial strength or credit profile,” AM Best said.

“Positive rating actions could occur if COSCO SHIPPING Captive demonstrates sustained and favourable results to strengthen its overall operating performance while supporting its current business profile assessment.”

Singapore PCCs would lower barrier to entry, but “complicated” to introduce

Luke Harrison
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Singapore PCCs would lower barrier to entry, but “complicated” to introduce

The potential introduction of protected cell company (PCC) legislation would be complicated for Singapore, and more likely to be driven by the insurance linked securities (ILS) market, but would lower the barrier for captive entry in the domicile.

Singapore is the region’s largest captive domicile, with 82 pure captives active in the jurisdiction at the end of 2022. The idea of introducing PCCs has been discussed by industry and the regulator for some time, but has never materialised.

“The legislation has to fit into the existing legislation governing such matters as forms of insurance, corporate structures and income tax,” George McGhie, independent consultant and strategic adviser to Artex International, told Captive Intelligence.

“If you look at the time and effort and cost of the work to introduce PCC legislation, the potential returns to Singapore in terms of number of corporate cells and premium that might be created, could be quite low.”

McGhie said that PCC legislation could be more justified as a means of expanding the ILS offering into collateralised reinsurance alongside catastrophe bonds which have developed “rapidly” in recent years.

He added that PCC legislation had been reviewed by the Monetary Authority of Singapore (MAS) going back around 30 years.

“So far, they’ve not taken any step to introduce PCC legislation, and any moves to do so are more likely to be driven by the ILS sector than by corporate risk demands, where there’s not really a great drive for it.”

PCC perks

A primary advantage of PCC legislation is allowing a lower barrier to entry for companies who may never have had a captive before or are too small for a single-parent structure.

“What is undeniable is that cell regulation would lower the barrier to entry in terms of risk managers and corporates wanting to test out a captive strategy or dip their toes in,” Kelvin Wu, head of insurance at Singapore-based Weybourne Holdings Pte Ltd which owns Dyson Group, told Captive Intelligence.

“It also allows you to experiment a little bit more in terms of the type of risk that you want to put through a captive, perhaps you want to explore third party risk and so and so forth.”

Labuan is the only domicile in the region that allows for PCC structures, with the legislation being introduced in 2010.

Captive Intelligence understands that there are five additional PCCs currently in development, which are expected to be established in the near future.

Wu noted that the regulation in Singapore is currently “quite vanilla” as it only allows for a wholly-owned captives.

“Fortunately, that fits into the structure and the strategy that we had, but if we were wanting to explore other captive structures that perhaps includes a cell and that sort of thing, then Singapore would be a little bit more challenging,” he said.

Lawrence Bird re-joined Marsh Captive Solutions in May as captives consulting leader for Asia and said that as Singapore currently does not have cell legislation, for businesses that want to use a cell, he is seeing them established primarily in Guernsey, Bermuda or Labuan.

“The latter essentially being the only domicile in the region with cell legislation,” he said.

Ludan Wang, head of corporate risk and broking in Singapore for WTW, believes that PCC legislation should only be introduced with caution.

“I would be concerned if we ran PCCs in a non controlled manner, meaning we’re actually allowing sponsors to set up PCCs without a very clear strategy on what goes into the cells,” he said.

Hicks and Dewhurst new member managers for EMEA

Richard Cutcher
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MAXIS Global Benefits Network (MAXIS GBN) has appointed Suzanna Hicks and Nathan Dewhurst as member managers, to support the network’s local insurers across the Europe, Middle East and Africa (EMEA) regions.

Hicks and Dewhurst join Rebeca Kinloch, member manager for the Americas region, and Brian Park, member manager for Asia-Pacific (APAC), to complete the member management team.

“We’re delighted to have Suzanna and Nathan join our Member Management team, and I am confident that they will do an excellent job of supporting our network members across the EMEA region,” said Iliyana Mladenova, chief operating officer at MAXIS GBN.

“Suzanna has great experience and PMI product knowledge, having worked at one of our network members for the past five years, and Nathan has worked closely with our clients and broker partners in the past, so they both bring a new perspective to the team.”

Hicks and Dewhurst will represent local insurers and their needs across MAXIS GBN projects and initiatives, deliver training and education, and maintain the relationships between MAXIS and its members.

MAXIS GBN has a network of over 140 members globally, with around 50 of these being based in the EMEA region.

“Collaborating with, and offering support to, our network members all over the world is fundamental to the success of MAXIS GBN as a business, and we’re looking forward to seeing how Suzanna and Nathan can help both MAXIS and the network meet our shared goals,” Mladenova added.

Captive industry fully engaged in Bermuda’s 15% corporate income tax discussions

Richard Cutcher
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Captive industry fully engaged in Bermuda’s 15% corporate income tax discussions

The potential introduction of a 15% corporate income tax in Bermuda will prompt complex business discussions, but is not expected to drive captives out of the jurisdiction.

The Government of Bermuda published a public consultation paper on 8 August as it works with industry to find the most appropriate way to meet the Organization for Economic Cooperation and Development’s (OECD) global minimum tax rules.

A proposed corporate tax would likely come into effect from 2025 and would only apply to multinational enterprise groups (MNEs) with annual revenue of €750M or more.

Local industry has been fully engaged with the consultation and there is expected to be a further, more detailed consultation, later this year before any new tax in finalised and confirmed.

A panel of tax experts at the Bermuda Captive Conference, including Deloitte tax partner Andy DeGregorio, Mikhail Raybshteyn, partner for global insurance tax at EY, and Scott Slater, partner, tax services leader at PwC Bermuda.

For qualifying MNEs with a captive in Bermuda, the impact of a new 15% corporate income tax will vary, depending on the group’s location, other taxes it is paying elsewhere or, for US companies for example, if the captive is already making the 953(d) election.

DeGregorio said the announcement in August was not a surprise with Bermuda already signed up to the OECD’s Pillar 2 initiative and the potential tax referenced in the February budget statement.

With the OECD pushing ahead with the introduction of a global minimum tax of 15%, to be paid on the group’s income in each jurisdiction a qualifying company operates, Bermuda is trying to minimise top-up taxes paid in other jurisdictions, while ensuring companies are not paying more than 15% in Bermuda.

“These taxes are going to be paid either way – if Bermuda does nothing, then the tax would be collected elsewhere,” DeGregorio said.

The United States has yet to sign up to Pillar 2 with the US Congress split, broadly along party lines, on whether it will support a global minimum tax.

For US-owned captives in Bermuda that make the 953(d) election – meaning they are subject to US federal income tax – it is expected no additional tax would need to be paid in the 15% regime, but it is not mentioned specifically in the consultation.

Those captives in Bermuda operating under 953(d) should ensure they have an Internal Revenue Service certificate confirming that election.

Any additional tax liability could be influenced by a variety of factors, including number of captives in the group, type of captive, ownership structure, whether the captive(s) are profitable, in run-off or whether there are other Bermuda companies within the group.

“Is there an easy fix? No, probably not,” Raybshteyn said. “For large companies especially, this is going to take a lot of effort to work out.

“At this point, we have more questions than real answers. We rely on what’s been published to date and what has come up in other jurisdictions that may or may not be mirrored by Bermuda.”

Slater emphasised that a lot of captives will not be big enough to fall into scope of the proposed new tax regime, while many US-owned Bermuda captives are unlikely to have an additional tax liability.

The biggest impact could be on non-US owned Bermuda captives that do not currently pay any tax today.

The panellists agreed, however, that if a 15% corporate income tax is introduced it is not expected to prompt a wave of exits from the Bermuda captive market.

“I don’t see anyone running for the hills,” Raybshteyn added. “I don’t think much will change. Companies need to make prudent business decisions (and those will differ for all), but is there a line to leave the island? No.”

Captive conversation has “flipped 180 degrees” – Barnett Waddingham’s Heah

Luke Harrison
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The conversation around captive utilisation has completely “flipped” over the past few years due to increased pricing and reduced capacity in the commercial market, according to Wan Heah, partner and head of general insurance at, Barnett Waddingham (BW), an independent UK professional services consultancy.

“I think a few years ago, if you asked me what’s in the captive space, a lot of them were talking about the viability of a captive,” he said.

“So, even up to four years ago, the group could go out and get external insurance cheaper than the captive would be able to charge because the market was hungry, and they had capacity to use up.”

Heah said the conversation had now completely changed, with clients struggling to get external insurance, and as a result, the captive owner no longer worries about viability.

“In fact, what they do care about is if they are getting the right price. So that conversation has done a complete 180.”

Heah noted that he had been party to conversations in which organisations that have never had a captive before are now thinking about launching one because they cannot get the cover they need.

“What they want is probably in the reinsurance market somewhere, but they can’t get that because there isn’t a direct primary insurer that would be willing to take the risk on,” he added.

Heah said Barnett Waddingham acts as the outsourced actuarial function for captives domiciled in Europe, including in Ireland and Malta.

“In addition to being the outsourced actuarial function, sometimes we also act as the head of actuarial function,” he said.

“We effectively act as the chief actuary, and will take on the statutory and regulatory obligations that come with that.”

He said the company also helps captives with pricing and performance reviews whilst being cognisant on expense controls.

“From our perspective it is making sure that you can still deliver a cost-effective actuarial service without removing value from the delivery,” he said.

Heah highlighted that BW provides actuarial expertise for both small and large captives, even in instances when a larger captive might also have its own in-house actuarial function.

Bermuda, Islands and US leadership reshuffle at Marsh Captive Solutions

Richard Cutcher
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Bermuda, Islands and US leadership reshuffle at Marsh Captive Solutions

Marsh’s Julie Boucher has relocated to South Carolina and taken on the new role of US captive chief client officer, while Michelle Sivanayson has moved to Bermuda to succeed Boucher as islands practice leader.

Boucher has worked more than 35 years in captives at Marsh, first within the broker’s US captive group before relocating to Bermuda in 2018 to become the first islands practice leader. The Islands role brought the Bermuda, Cayman Islands and Barbados offices together into one region.

Boucher will continue to report into Ellen Charnley, president of Marsh Captive Solutions.

Sivanayson has 20 years of captive experience and began her captive career in Bermuda.

She moved to Halifax, Nova Scotia to help establish Marsh’s Captive Operations Group (COG), which she assumed leadership of in 2017, responsible for more than 150 colleagues in Canada and India, providing operational support to captive clients around the world.

Laurie Marshe, with Marsh Captive Solutions since 2008, succeeds Sivanayson as COG leader, based in Halifax.

Mike Parrish, previously Bermuda client services leader, has moved into a new role supporting European captive clients, and has been succeeded by Tanja Korff.

Korff will report into Sivanayson and will be responsible for delivering Marsh’s captive capabilities and advice to clients in Bermuda.

Korff joined Marsh Captive Solutions in 2006 and most recently lead client service teams in the United States out of Columbus, Ohio.

There is a newly created role for Chris Varin who has been appointed chief digital officer.

Varin has had a 32-year career at Marsh Captive Solutions and was most recently US practice leader.

He will continue to report directly into Charnley and is now responsible for leading the digital transformation of the Marsh captive business by leveraging technologies and platforms to drive growth, improve efficiency and enhance client experience.

Ed Precourt has been promoted to US client services leader and is responsible for leading all aspects of the client operations across the US.

He has worked more than 30 years with Marsh Captive Solutions and was previously deputy US practice leader.

GCP Short: Cells, third party risks and captive benchmarking

Richard Cutcher
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Domenico Pettinari, Marsh Captive Solutions
Finky Yan, Marsh Captive Solutions

In this GCP Short, produced in partnership with Marsh Captive Solutions, Richard is joined by two vice presidents from the consulting team to discuss their career progress to date and the variety of client projects they have been working on.

Domenico Pettinari and Finky Yan address the growth in third party risks, new captive formations and an enlightening comparison of cell captives to a Manhattan apartment, which I particularly enjoyed and pretty sure I will be using in the future.

For more information on Marsh Captive Solutions, visit their Friend of the Podcast page here.

For the latest breaking news, analysis and thought leadership from the global captive market, visit Captive Intelligence and sign up to our twice weekly newsletter here.

Labuan introduces external rent-a-captives (X-RAC), renews captive commitment

Richard Cutcher
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Labuan introduces external rent-a-captives (X-RAC), renews captive commitment

The Labuan Financial Services Authority (FSA) is committed to further strengthening and promoting the jurisdiction as a “well-regulated business environment” for captive insurance.

Presenting at the Asian Captive Conference 2023, co-hosted by Labuan IBFC and the Labuan International Insurance Association (LIIA), the FSA highlighted its newly revised captive guidelines, including the provision for “indirect insurable interest risks” and a faster process for establishing a cell captive.

The revisions also include the introduction of an external rent-a-captive offering (X-RAC).

“Existing subsidiary rent-a-captive (S-RAC) features are similar to X-RAC,” Yang Berusaha Encik Nik Mohamed Din Nik Musa, director general of the Labuan FSA, said in his keynote address.

“The only distinction is that master rent-a-captives (M-RAC) owns less than half of X-RAC’s shares.”

The director general reinforced the regulator’s commitment to keep policies relevant and fit for purpose for the captive market.

“Labuan FSA will formulate omnibus captive policies, carry out targeted marketing promotion and forge new partnerships with other global insurance markets to build on the jurisdiction’s existing strength as a leading captive centre,” he said.

On 1 September, the FSA signed a Memorandum of Understanding (MOU) with the Bermuda Monetary Authority for “greater regulatory, enforcement and supervisory co-operation between the two regulators”.

In May, Labuan IBFC renewed its MoU with Qatar Financial Centre Authority (QFCA) as the two financial centres work together on areas including Islamic finance, digital finance, capital markets and captive insurance.

Captive Intelligence reported in July that 62% of captive premium in the midshore domicile, which is a federal territory of Malaysia, was generated from international insurance business in 2022.

“Labuan captive insurance has demonstrated an outstanding track record,” the director general added.

“This demonstrates the increasing maturity of the Labuan captives’ sector, as the aggregate premium underwritten by the Labuan captives segment has been steadily increasing, primarily from Asia.

“With strong financial fundamentals, Labuan captives will not only sufficiently be resilient to withstand external disruptions, but also have the capacity for greater retention.”

Labuan added five new captives in 2022 while one captive surrendered its licence, taking its total number of captives to 67 at year-end.

Mr Nik Mohamed Din Bin Nik Musa said after the second quarter of 2023, there were now 71 active captives in the domicile.

Captive Intelligence published a Long Read in June analysing the appeal of Labuan as a captive domicile with the new permission to write third party risk through a captive expected to boost the jurisdiction’s profile further.

“It is anticipated that with the expansion of insurable risks under Labuan captives, this will further support the industry’s innovation and cater for the needs to deal with current global issues,” the director general said.

Eduardo Fox recognised with Bermuda’s Fred Reiss award

Richard Cutcher
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0
Eduardo Fox recognised with Bermuda’s Fred Reiss award

Eduardo A Fox, a consultant with in Appleby’s corporate and private client and trusts practice groups, will be presented with the Fred Reiss Lifetime Achievement Award at the Bermuda Captive Conference this week.

Fox is the seventh recipient of the Award, named after Bermuda-based Ohio engineer Fred Reiss who established the jurisdiction’s first captive in 1962 and was instrumental in the market’s growth on the island.

Fox was actively involved in the negotiation and signing of Tax Information Exchange Agreements (TIEAs) with Mexico, Colombia, Argentina and Brazil which, effectively, opened the doors for business development with the region.

He was appointed a member of the Government of Bermuda’s International Treaty Team and is currently the Oficial Advisor to the Government of Bermuda on Latin American Affairs.

“It was a delightful surprise and a definite honour to receive such a prestigious recognition,” Fox said.

“I would like to profusely thank those who saw my contribution worthy of such high award, but I should like to mention that, like anything of this magnitude, it is due to the hard work and support by many in the industry and the country as a whole.

“I have been extremely lucky to be surrounded and assisted by so many great visionaries, who not only had the patience to listen to me but signed off on the great project of business-developing a new market of more than 600 million people.”

Leslie Robinson, Bermuda Captive Conference chair and senior vice president, head of underwriting and claims at Willis Towers Watson Management Bermuda, said: “Both the Bermuda Captive Conference and the Bermuda Captive Network are thrilled to bestow this year’s honoured award upon an industry veteran who has devoted over three decades to the captive insurance industry and the broader international business community in Bermuda.

“We deeply appreciate his long-standing service and unwavering dedication, which have played a pivotal role in maintaining Bermuda’s status as the preferred domicile for captives and other global business ventures.”

The Bermuda Captive Conference is being held September 11 – 13, 2023 at the Hamilton Princess Hotel & Beach Club.

Slow uptake, but parametric products can be “perfect fit for captives”

Luke Harrison
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Slow uptake, but parametric products can be “perfect fit for captives”
  • Parametric policies issued by captives rare
  • Captives can play role in reducing and absorbing the basis risk of parametric products
  • Regulators increasingly comfortable with captive parametric policies

Parametric products are the “perfect fit” for a captive due to their direct access to internal company data, while the policy’s automatic pay-out function also lends well to captive utilisation.

Having the ability for claims to be paid automatically streamlines the claims process and removes the need for large internal or external claims teams.

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