Newsletter-volume 4 - 2011 (Draft) - Actuarial Society of Hong Kong

ReputationAs the most successful captive domicile in theregion, Singapore is an intuitive choice for manycompanies.Future of Captives in ChinaTraditionally, there has been little interest forChinese companies to set up captives due to thelow cost of insurance, the lack of riskawareness, the low liability environment, the lowcommercial insurance penetration rate and thehigh start up cost (relative to the currentinsurance cost) provided little incentives tocompanies to set up captives.The highflying economy in China provides HongKong with a second chance to regainmomentum as a captive domicile. Over half ofthe Global 500 companies have a captiveinsurance company. Few large corporations inChina have captives. CNOOC InsuranceLimited, a Hong Kong captive, is owned by andinsures the international property risk of theparent company, China National Offshore OilCorporation. A few Chinese corporations haveset up captives in Singapore.Some large Chinese corporations are setting uptraditional insurance companies in China ratherthan setting up a captive. Hua Neng Group, anenergy company, and Guangzhou AutomobileGroup set up full fledged insurance companiesas part of their business expansion strategy.These entities will insure their parent company’srisks as well as other third party exposures.The international captive market has beengrowing significantly in the last 30 years, thesponsor companies have been generallyenjoying the benefits which include, but are notlimited to, better risk management, tax savings,access to reinsurance capacity and hence lowerinsurance costs, and availability of coverage onunusual risks.The continued development of enterprise riskmanagement practices may encouragecompanies in China to manage their risk moreefficiently looking at risk transfer, risk retentionand potentially setting up a captive. Chinesecorporations with international risk exposuresare expected to be the first adopters of captivesto deal with their overseas risks. The demand forcaptives in China will undoubtedly emerge.Why Hong Kong?Mainland China currently has no captiveinsurance legislation and is lacking in expertiselimiting the establishment of captives in theMainland. Hong Kong is well positioned toThe Actuarial Society of Hong Kong, 2202 Tower Two, Lippo Centre, 89 Queensway, Hong KongTel (852) 2147 9420 Fax (852) 2147 2497 Website: www.actuaries.org.hkNote: Views expressed are not necessary those of The Actuarial Society of Hong Kong10