Asia-Pacific

The current market environment for insurance buyers in Asia-Pacific (APAC) is challenging. A slight price easing is apparent in the region, but this comes after an extended period of premium increases, which many clients have resisted and challenged. In response, organizations are increasingly turning to captives. Indeed across the region, the total GWP in captives under Aon’s management has increased by 23 percent in the last five years.1

Recent renewals have also seen many clients reducing limits and increasing retentions to maintain program costs that matched prior-year levels. Our data show captive net aggregate retention has been up 46 percent in the region since 20182. This can be a successful strategy for those organizations with a well-managed captive with considerable data on its claims history.

Most risk classes in the region have experienced increasing rates and reduced capacity. In Australia, for instance, there has been an increase in D&O claims, driven by the 2018/19 Royal Commission into banking misconduct, which led to a severe capacity crunch and increased pricing.

And in the wider APAC region, natural catastrophes such as floods, wildfires and cyclones are again expected to cause significant damage in 2021. These extreme weather events are one reason why property damage and business interruption (PD/BI) has been hit particularly hard by rate increases and capacity reduction. Captive GWP for this line is up 60 percent since 2016 in the region3, in line with the increase in market rate and a higher number of captives underwriting PD/BI, as many organizations have found coverage in the primary market to be prohibitively expensive.

Increase in Enquiries

While we have mainly seen increasing retentions on existing programs as opposed to the wholesale rush to establish new captives in the region, captive enquiries have increased significantly this year – a strong indicator of the future pipeline. We are processing new captive applications in Singapore, forming protected cells and delivering feasibility studies from Japan to Hong Kong to Australia.

India and China are relatively immature as captive markets; however, enquiries are up as local risk managers look to increase their understanding and reduce their total cost of risk in response to hard market conditions.

The focus for existing captives in the region remains on more traditional risks such as PD/BI, GL (captive GWP up over 500 percent since 20164) and marine cargo, but there are signals that the future focus is likely to expand beyond this. Some of the global benefits networks are increasing their reach around APAC, and a number of insurers are keen to introduce elements of global benefits programs to existing P&C captives.

For instance, regarding the reduction in capacity, we are seeing an increase in enquiries from coal companies, in particular around risk retention vehicles and mutual insurers, to retain the risk of coal mining and exploration that is understandably becoming harder to place in the commercial market. Additionally our 2021 Captive Benchmarking Survey indicates a significant increase in captive utilization for cyber globally. Though we are not yet seeing much of this in APAC, we expect captive owners in the region to follow suit over the next few years.

Alternatives to Primary Markets

In addition to captives, we have noticed more enquiries for mutuals and for protected cells, as risk managers look to access reinsurance capacity.

We also see an increase in alternative risk transfer mechanisms such as insurance-linked securities (ILS), in particular Asian re/insurance companies using ILS to access the capital markets through Singapore, and more recently, Hong Kong.

The latest statistics from Business Insurance show that the number of captives in the APAC region grew by about 3 percent between 2019-205, and we expect to see this number increase over the next couple of years.

Footnotes

1 Aon’s 2021 Captive Benchmarking Survey

2 Aon’s 2021 Captive Benchmarking Survey

3 Aon’s 2021 Captive Benchmarking Survey

4 Aon’s 2021 Captive Benchmarking Survey

5 Business Insurance 2021 and 2020 Captive Managers and Domiciles Rankings + Directory