The captive self-insurance model of large enterprises is gradually heating up. Following the establishment of captive insurers by the petroleum, railway and shipping sectors, a China Securities Journal reporter learned on the 22nd that China Datang Corporation (hereinafter "Datang Group"), one of the country's extra-large power generation enterprises, also intends to establish a captive insurer.
Today, a pre-disclosure announcement on the official website of the Insurance Association of China showed that China Datang Corporation plans to sponsor the establishment of China Datang Group Property Insurance Captive Co., Ltd. (hereinafter "Datang Property Captive"). The company will be wholly owned by Datang Group, with registered capital of RMB 500 million, registered in Kashgar, Xinjiang Uygur Autonomous Region, with its business address in Xicheng District, Beijing.
Datang Property Captive's business scope covers the risks borne by Datang Group and its affiliated units, including risks of loss and risks of liability for compensation. Specifically, these include enterprise property insurance and engineering insurance, liability insurance, motor vehicle insurance, cargo insurance, short-term health/accident insurance, and reinsurance of the above businesses; as well as insurance fund utilization businesses permitted by national laws and administrative regulations.
Cao Zhihong, executive director of China Captive Network, said in an interview with a Shanghai Securities News reporter that establishing a captive insurer can provide enterprises with special risk coverage, such as professional liability for architects and engineers and for accountants, pollution liability, and liability for municipalities, oil extraction and certain hazardous contractors. At the same time, a professional captive insurer can effectively help enterprises reduce insurance costs, such as reducing the management fees paid to insurers. Moreover, compared with traditional commercial insurance, the captive mechanism can effectively help enterprises proactively and timely monitor their risk management programs, thereby avoiding or reducing moral hazard and helping improve the efficiency of enterprise risk management.
Data shows that by the end of 2016, the number of captive insurers worldwide reached 6,531, of which the United States accounted for nearly 50%, with an average annual increase of 200. Large international multinational corporations generally choose captive insurers as a risk management tool, and 90% of the world's Fortune 500 companies already own their own captive insurers.
In fact, the domestic captive industry is still in its infancy. It was not until December 2013, when the CIRC issued a dedicated document for captive insurers, that the conditions for establishing captive insurers, their operations, and their supervision and management began to be regulated.
Up to now, the development of the domestic captive industry has been gradually heating up, with some enterprises choosing to register captive insurers onshore and others choosing to establish captives offshore. These include CNPC Captive Property Insurance Co., Ltd., China Railway Property Insurance Captive Co., Ltd., COSCO Shipping Property Insurance Captive Co., Ltd. and Guangdong Yudean Property Insurance Captive Co., Ltd. registered in mainland China, as well as the captive insurers of CNOOC, CGN and Sinopec registered in Hong Kong, China.
It should be noted that, as the domestic captive industry is still in its infancy, Cao Zhihong said that when large enterprises establish captive insurers, in addition to paying attention to the cultivation of professional insurance management talent, they also need to consider the CIRC restriction that "retained risk shall not exceed 10% of net assets", which limits captive premium capacity. In addition, captive insurers' ability to participate in group risk management still needs to be improved.
Source: Shanghai Securities News · China Securities Network, 2017-03-22