Captive insurance in China
A gateway to improving enterprise risk management
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Captive insurance, as an important participant and provider in the insurance market, has a low profile in China, though China ranks second in the world in terms of premium scale. Currently there are only eight captive insurers in China, four registered in mainland China, four in Hong Kong. In the world, this number is 6 304, including 3 270 in North America and 787 in Europe, as of the end of 2020. The four captive insurers operating in mainland China recorded CNY 2 090 million of premiums and market share of 0.18% in 2019. This report is available in Chinese only.
The research analyses the existing situation, including the regulation and profitability of China's captive insurance companies. It points out that diversified types of captive, like association captive, can help enterprises to improve risk management and obtain stronger protection by accessing the global re/insurance market. As a result, it improves companies' overall risk control ability, operations and management, while contributing to the new development structure of the domestic and international dual cycles at the national level. Captive insurance also opens a new window for the insurance industry, especially in the context of low penetration of the China market and a wide protection gap for large enterprises.
Captive insurance started its development in China in 2000 when the first captive company was established by its state-owned parent enterprise. All of the eight captive companies are affiliated with large state-owned parent enterprises in the fields of energy, transportation, international shipping and equipment manufacturing. For years, large state-owned enterprises have been the primary drivers of captive insurance as a tool to manage risk, due to the regulatory requirement on parent company's assets set at no less than CNY 100 billion. Relying on its trust relationship with the parent company, the captive can better explore the parent's insurance needs and tailor solutions.
Looking forward, all companies face more complex risk structures and a fast-evolving market environment. It is challenging to seek a universal arrangement from the commercial insurance market to cover all corporate risks. Captive insurance can innovate to provide protection against new risks, empowered by advanced technology and comprehensive data from the parent company.
Following the survey and research findings, the report puts forward the following suggestions:
- develop association captives to help SMEs deal with complex risks;
- design innovative products to lower the risk of new emerging business;
- create a favourable business environment to speed up captive development;
- establish a cooperative partnership model to support Chinese enterprises going global;
- explore China's offshore captive registration centre, aligned with the pace of economic and insurance development.