Best Comments on First Asian Based Captive Rating

March 24, 2011

A.M. Best Co. announced that it has recently “assigned its first rating to a captive domiciled in Asia, as the global practice of major corporations self insuring through captives shows further signs of establishing itself in the major insurance markets of the Asia Pacific region.”

Best explained that risk financing through captives is a long established practice in the United States, and more recently domiciles in the Middle East have sought to attract new captive formations. However, Best’s rating of Energas Insurance (L) Limited in Labuan, Malaysia, “marks the latest step in the growth of captive usage in Asia.”

Energas, which has a financial strength rating of ‘A’ (Excellent) and an issuer credit rating of “a” with a stable outlook for both ratings, is the primary insurance carrier for its ultimate parent, Petroliam Nasional Bhd (Petronas), the Malaysian state-owned oil and gas corporation.

Susanna Lam, Managing Director of A.M. Best Asia Pacific, said the rating demonstrated the development of Labuan as a captive center in Asia. “Petronas’ decision to rate its captive reflects the company’s strong level of commitment to the overall risk management program of the group,” she stated. “By obtaining a rating, it also demonstrates the increasing sophistication of the Asian captive market.”

Best indicated that it currently “rates approximately 200 captives worldwide, with Energas the first rated captive to be domiciled in Asia. Singapore is regarded as the key regional center for captives, although Labuan has emerged as an alternative hub with 33 captives operating in Labuan at year-end 2010.”

Lam added: “A rating can not only validate the financial strength and credibility of a captive but may also, among other things, provide greater flexibility regarding fronting arrangements, enhance access to reinsurance and provide captive benchmarking standards.”

Best also pointed out that Petronas sought a rating for its captive, in part as it “allowed the oil company to support its business plan of participating in the insurance arrangements of its overseas interests.”

Raziyah Yahya, chief executive of Energas, explained: “This rating enables us to expand our business and allow us to write our own risks domestically and in the international arena in countries where we operate without the need to use a fronting insurer.”

Best described the Asian captive market as “somewhat stagnant over the past few years, reflecting a soft market for rates.” Although it also noted that “companies are reportedly becoming more sophisticated with their insurance purchasing and are exploring different alternative risk transfer techniques.”

Details may be obtained for Best’s ratings on Energas.

Source: A.M. Best

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