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New regulations lead to an increase in Middle East captive insurers

Governments in the Middle East recognise the importance of captive insurers in supporting economic growth and attracting foreign investment.
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By Marcin Antosik , 

Captive Operatons Leader, Middle East, Marsh Captive Solutions

14/05/2024 · 5 minute read

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

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

These vehicles have started to play an increasingly important role in companies’ risk management strategies, as they expand their operations and face more complex risks.

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 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 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.

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

As he said recently in an article published by Captive Intelligence: “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.

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

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

When does a captive make sense?

There are 14 registered captives total in the UAE, Qatar, and Bahrain, 12 of which are managed by a captive manager. Marsh is involved with most of these.

In addition to these 14 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 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 healthcare, finance, and manufacturing.

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

Net income of Marsh-managed captives rises

In terms of the financial performance of the region’s Marsh-managed captives, in 2023, gross written premium (GWP) 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 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 that are looking to use a captive do so for key risks including property, political violence, and liability. In addition, there is growing interest to use captives for employee benefits, marine cargo, and other non-traditional risks.

Marsh-managed captives in the Middle East continue to explore new lines of business. Notable areas of expansion include group travel, including kidnap and ransom coverage; marine cargo; and trade credit insurance against non-payment risks.

Having captives at the core can help companies in the Middle East accelerate corporate objectives, support business units, access alternative risk capital, and protect human capital. Marsh Captive Solutions enables clients to quantify and manage risk programs through a combination of data and analytics.

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