AM Best notes growing interest in GCC captives

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By Favour Nnabugwu


AM Best has expressed keen interest in the creation of captive insurance companies in the Gulf Cooperation Council (GCC) region, due partly to the hardening trend of international commercial insurance rates.

The rating agency observed that the use of captive re/insurance in GCC countries has been limited to date, despite overall strong growth for the global captive industry in the past decade.

However, with reinsurance rates hardening, primary insurers in the region are now retaining more risk and looking to captives as one possible option for managing it.

And significantly, this interest has not come from the traditional users of captives, such as the energy and heavy industry sectors, and state oil enterprises.

Historically, most captives in the GCC region have acted as reinsurance captives, using a fronting commercial insurer to issue the insurance policy, and then retroceding most of the risk in the international reinsurance market.

In addition to hardening rates, AM Best suggested that other factors could be helping to drive interest in captives, including positive regulatory developments, maturing risk management among regional companies, and the availability of professional management services.

AM Best therefore maintains a strong outlook for the development of the sector in the GCC, but warned that captive sponsors and other stakeholders should be aware of key risks, such as a heavy reliance on the ability of professional managers, along with the exposure to disputes and credit risk associated with reinsurance counterparties

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