A new insurance era dawns with captive outsourcing at its heart

Kaviraj Nuckchedee, Manager in Corporate Administration and the Captive Insurance lead at Rogers Capital looks at how COVID-19 has given captive insurance an unprecedented spurt as companies become more aware of additional risk exposures uncovered by traditional insurance programmes – and why Mauritius is well poised to act as a captive hub for Africa

Frederic M. Reiss, the father of captive insurance, brought the captive concept into practice in Ohio in the 1950s – the company had a series of mining operations and Reiss helped the company incorporate its own insurance subsidiaries, thus coining the term captive insurance companies because they wrote insurance exclusively for the captive mines.

Consequently, a captive insurance company is defined as an insurance company that is wholly owned and controlled by its insured. Its primary purpose is to insure the risks of its owners, and to make certain that its insureds benefit from the captive insurer’s underwriting profits.

We now take a look at how captive insurance has evolved over the years and why Mauritius is well poised to act as a captive hub for Africa.

The rise and rise of captive insurance

During the 70 years of existence of captive insurance, the market and the appetite for it has evolved phenomenally to approximately 7,000 captives globally as of 2020. The captive market size, in terms of annual premiums, in the 10 top captive domiciles globally amounted to USD 130 billion and is growing continuously.

Over the years, mid-size captives have seen the most growth, from 11% in 2013 to 23% in 2019. Meanwhile, big-size captives have remained relatively stable with growth percentages between 61 and 54 from 2013 to 2019.

The top 10 industries that use captives the most are financial institutions; healthcare; manufacturing; retail; transportation; communication, media and technology; power and utility; energy; mining, metals and minerals; as well as marine. Recently, the main growth in captives use is in the energy sector which experienced a 151% increase, financial institutions which recorded a 104% rise, while communications, media and technology noted a 98% increase.

Benefits of captive insurance

A captive allows for many risk-management advantages, including:

  • Improved Claims Review and Processing A captive is free to establish its own claims handling policies and procedures.
  • Increased Coverage – Captive, unlike conventional insurance which may be unwilling or unable to provide cover for certain risks, will be able to address coverage issues.
  • Underwriting Flexibility – Captive insurance provides control over the policy contents, so as to ensure that the cover provided is bespoke to the company’s requirements.
  • Access Reinsurance Market – Captive insurance offers direct access to the international reinsurance markets.
  • Reduced Insurance Costs – A captive offers cost savings through lower premiums, elimination or reduction of overheads such broker commissions, marketing fees and lower administrative costs and mark up costs.
  • Tax Benefits – Leveraging captive insurance allows the organisation to secure significant tax advantages.
  • Profit Centre – All the profits that are generated at the end of the year remain at the disposal of the captive and can be retained by the owner of the captive.
  • Direct Investments – The profits can be used to direct investment choices and further grow the wealth of the captive.

Captive insurance booms amid COVID-19

More and more organisations are considering a captive for insurance protection and financial flexibility in response to an increasingly difficult risk and insurance landscape. The trend of rising captive vehicles continued in the first half of 2020 amid an increase in challenging insurance market conditions and the impact of the global COVID-19 pandemic. The pandemic has made companies more aware of additional risk exposures that their traditional insurance programmes were not providing coverage for.

Some captive insurers have been able to support their parent organisations during COVID-19 by accessing permissible capital invested in the captive investment portfolio and thus providing relief from business disruption losses. Moreover, the challenging state of the commercial insurance market — with its higher insurance premiums, more stringent underwriting criteria, reduced capacity, and less competition — is giving more and more companies reason to consider the benefits of adopting captive insurance.

No wonder then that there were 76 new captives formed in 2020 globally, representing a 200% year-on-year increase according to insurance broker Marsh.

Captive insurance in Mauritius

Mauritius is seen as a captive domicile since 2015 and has started to position itself as the emerging captive hub for Africa. The Mauritian government and local regulators have implemented all the necessary parameters and provided the requisite support to make captive insurance in the jurisdiction attractive and business friendly.

Indeed, Mauritius has demonstrated unequivocally that it has the capabilities and expertise required to offer captive services. Mauritius is receiving considerable attention since the enactment of the Captive Insurance Act in 2015 which provides a significant incentive in the form of a 10-year tax holiday for pure captives to promote the island as a captive hub for the region.

Licensed and authorised by the Financial Services Commission to act as a captive manager, Rogers Capital Captive Insurance Management Services is a pioneer in Mauritius in managing captive insurance vehicles. Our captive manager services range from day-to-day administration to technical insurance related services.

Rogers Capital has the highest quality, security, and compliance standards in place for client information privacy and data protection and therefore ensures hassle-free, confidential, accurate, cost-effective, and time-bound captive insurance solutions. We give you the opportunity to focus on your core business operations, while managing, through a dedicated and expert captive team, your insurance related matters as well as a captive vehicle for the interest and benefit of its insureds and owners.

Captives have stood the test of time as effective tools to navigate through uncertainty. Amid the pandemic, captives can help organisations become more agile in responding to risks and protecting their people and assets.

Indeed, their ability to design customised insurance coverages, access alternative capital, and generate profits through third-party business makes captives especially valuable during market transitions such as those triggered by COVID-19. It is clear then that a bright future beckons for the captive insurance industry – with Mauritius well poised to leverage opportunities in this growing space by acting as a captive insurance hub for Africa.

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Kaviraj Nuckchedee

Email : [email protected]