Page 37 - WTW Asia Insurance Market Report
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Captives                                                                  Base Erosion and Profit
                                                                          Shifting (BEPS)
Captives provide a means to identify, value and finance
any form of risk, and to access non-traditional reinsurance    BEPS relates to practices by which companies may
products. Company directors and risk managers have             transfer profits to regions of lower tax. In October 2015,
increasingly realised the strategic value that captives add    the OECD released a 15 point action plan to address this,
in the management and financing of ‘non-traditional’ risks     expected to be enacted by all OECD members.
alongside those usually considered ‘insurable’.
                                                               A number of these points expose captives to increased
Traditionally, in a competitive price market, the financial    fiscal uncertainty and tax scrutiny, along with a greater
benefits of transferring risks to commercial insurers tend to  need for documentation and reporting. Mitigating BEPS
outweigh those of establishing a captive. With companies       risks by putting frameworks and adequate governance in
recognizing a broader range of risks for which the market      place is essential to ensure captives are fully compliant
has yet to fully develop products, we saw an increase in
interest in captives in 2016 and expect this to continue in    Changes in Singapore Tax Regulations
2017 as the technique gains greater acceptance in Asia.
Large reinsurers are also devoting resources to structure      With 68 captives, Singapore continues to be the leading
products specifically for captive reinsurance in response to   Asian hub for captives. Many companies incorporate
the market trend.                                              captives in Singapore due to strong but appropriate
                                                               regulation, and local captive expertise. Singapore also
“Captives are writing a broader range                          offers tax concessions to offshore business written in
of risks, including emerging risks that                        captives.
the insurance market may be reluctant
to underwrite”                                                 In the 2016 budget, the Inland Revenue Authority of
                                                               Singapore (IRAS) announced that such business would
                                                               be taxed at a concessionary tax rate of 10% for new and
                                                               renewal awards, starting 1 April 2018 (each award is for
                                                               ten years). Concessions awarded previously exempted
                                                               offshore business in captives from tax for a ten year period.

                                                               Rise of Insurance Captives

                                                               Insurance companies globally have, for many years,
                                                               established captives for their own use. As Asian insurance
                                                               companies regionalise, we are seeing more insurers
                                                               driven to consolidate risks assumed in a variety of risk
                                                               classes and countries, to increase capital efficiency and
                                                               reinsurance access.

                                                               Growth of Chinese Captives

                                                               The increased interest in captives by Chinese state-owned
                                                               enterprises (SOE) continued into 2016. The captive market
                                                               is expected to grow further in China in 2017, both in the
                                                               SOE sector and as non-SOE companies aim to follow the
                                                               lead of SOEs.

                                                               37Asia Insurance Market Report 2016
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