Wednesday, July 24, 2024

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The rise of captives in the Middle East: Demand reaches new heights

Marcin Antosik, Captive Operations Leader – Middle East, Marsh

The Middle East has experienced rapid economic growth and diversification across various sectors, including energy, construction, finance, and healthcare. As companies expand their operations and face more complex risks, captives start to play an increasingly important role in their risk management strategies.

Governments in the Middle East have recognised the importance of captives in supporting economic growth and attracting foreign investment. As a result, they have introduced favourable regulations and frameworks to encourage the establishment of captives.

These regulations provide companies with the necessary legal and regulatory framework to set up and operate captives in a transparent and efficient manner.

Opening the door to captives

There are currently three countries in the Middle East that have specific captive regulations: the United Arab Emirates (UAE), Qatar, and Bahrain.

In the UAE, there are two financial free zones with captive insurance regimes — the Dubai International Financial Centre (DIFC) established in 2004 and the Abu Dhabi Global Market (ADGM) established in 2015.

Regulators in both free zones have introduced captive regulations of the highest standard, in line with well-established captive insurance domiciles, including Bermuda, Guernsey, Cayman Islands, and the Isle of Man. Currently, the UAE is the largest domicile in the Middle East.

These regulators are constantly seeking ways to improve the environment for captive insurers. For example, in the DIFC, the Dubai Financial Services Authority (DFSA) has approved a revised solvency regime for captives that is more proportionate to their business model and risk profile. This regime came into force in 2021.

Qatar, through the Qatar Financial Centre established in 2005, aims to establish the country as a thriving captive insurance hub, while Bahrain has been a destination for captives for years.

There has been positive dialogue between the captive owners and regulators in these locations. And for companies with captives in their home country, it has often been easier to operate according to the regulations of one country, rather than two.

Saudi Arabia has been contemplating captive legislation recently. The possibility that foreign captives could be redomiciled back home is an important consideration. For Marsh clients in the country, captives are becoming more important for the evolving risks they are facing.

Bassam Albader, CEO of Marsh Saudi Arabia, supports the use of captives as an innovative and necessary option for clients’ risk management needs.

“Captives are becoming an important part of successful risk financing, especially for evolving risks,” he said.

“It would be advantageous to Saudi Arabia to develop the legislation so that companies can efficiently and effectively run captives without needing to use domiciles a long way from home.

“As a global captive leader, bringing this capability to Saudi Arabia is a dream of mine, one that will help in developing the local insurance industry while further enhancing the available insurance solutions we can provide to our clients.”

When does a captive make sense?

The total number of registered captives in the UAE, Qatar, and Bahrain is 13, with 11 of them managed by a captive manager. Marsh is involved with most of these.

In addition to these 13 captives, several Middle East companies use captives domiciled outside of the region — for example, in Bermuda or Guernsey.

At present, the captives under management in the Middle East are from a broad range of industries including oil and gas, transportation and logistics, energy, mining, power and water, and property. However, the use of captives as part of a risk management and insurance strategy is suited to many other sectors such as health, finance, and manufacturing.

The most popular line of business remains property, although captives under Marsh management also write political violence, liability, construction, and group accident programmes.

Outstanding results

The financial performance of the Marsh-managed captives has been exceptional. In 2023, gross written premium (GWP) across the captives reached nearly $250 million — a 10% increase over 2022.

Net income of the captives surpassed $100 million in 2023, a rise of more than 50% from $66 million in 2022. Additionally, total captive-related assets under Marsh management in the Middle East increased 40%, year on year, to $612 million in 2023.

Demand for captives continues to grow

Meanwhile, activity levels in the Middle East have reached unprecedented heights. Marsh Captive Solutions has experienced a surge in demand for feasibility studies for captives in 2023 and 2024 from clients in most industries and locations throughout the Middle East.

The majority of companies in the region are looking to use a captive for key company risks such as property, political violence, and liability. In addition to these lines of business, there is growing interest to use a captive for employee benefits, marine cargo, and other non-traditional risks.

Marsh-managed captives in the Middle East continuously explore new lines of business to enhance their risk coverage. Notable areas of expansion are group travel (including kidnap and ransom coverage), marine cargo, and trade credit insurance against non-payment risks.

An increasing number of captives in the Middle East are opting for private or public ratings. By obtaining ratings, captives enhance their credibility and demonstrate their financial strength and stability to stakeholders. These ratings have been positive for captives under Marsh management, ranging from B++ to A-.