Hardening Market, Regulatory Changes Driving GCC Captive Interest

The hardening commercial insurance market and regulatory developments are driving interest in captive insurance in Gulf Cooperation Council (GCC) countries, according to A.M. Best.

In a new report, Best says that while captive insurance has enjoyed steady growth across much of the world over the past decade, its use has been limited to date in GCC countries. Now, though, hardening markets and regulatory developments in some GCC jurisdictions are increasing interest in making it easier to form captives.

The Best's Market Segment Report, "Gulf Cooperation Council: A Hardening Market and Regulatory Development Drive Interest in Captive Insurers," notes that multiple potential captive parents in the region are conducting feasibility assessments or seeking regulatory approval.

The report said that the interest is coming not just from the region's traditional captive users—the energy and heavy industry sectors and state oil enterprises—but from a broader range of companies that's now investigating self-insurance solutions as an alternative to hardening insurance and reinsurance markets. The GCC region's companies also are becoming more sophisticated in their risk management, Best said.

The introduction of captive-specific regulation and the availability of third-party managers to oversee captive operations in the region have made it easier to establish new captive insurance companies in the GCC, according to the rating agency.

Several GCC financial services regulatory authorities—including those in Abu Dhabi, Qatar, and Bahrain—have introduced dedicated captive-specific legislation recognizing the particular relationship between a captive and its parent, Best said. Most of those jurisdictions recognize three classes of captives—single parent, captives with a mandate to source a limited portion of premiums in the commercial market, and mutually owned captives—with some also identifying a fourth class to give regulators flexibility to assess nonstandard captive structures.

In general, the jurisdictions' captive regulations are modeled on international best practices with features similar to those of regulations in domiciles like Guernsey and Bermuda, Best said.

Tax savings are not a driver of captive formations in the GCC, Best said, as jurisdictions in the region that do apply corporate taxes do so at very low rates.