One of a kind: Bahrain is the home of the Middle East's first captive domicile.

The Middle East is hardly at the top of the list when people speak of captive domiciles. That's because the push to promote captives in this region really started just three or four years ago, says Youssef Al Kareh, general manager of Ensurion, an insurance management firm based in Bahrain that specializes in forming and advising captive insurance companies in the region.

Recently, Ensurion announced the licensing of the Middle East's first captive insurance company. This captive, Tabreed Captive Insurance Co., which will be set up and managed by Ensurion, will insure the risks of Dubai-based Tabreed, one of the world's largest district cooling companies.

The emergence of the captive concept in this region is significant considering traditional insurance, unlike Takaful, is frowned upon in most of the Muslim world. Takaful and Retakaful underwriting is based on Islamic principles, or Shariah law and promotes mutual-like protection combined with restrictions on investments, as Islamic law prohibits interest-bearing instruments and nonethical investments, according to an A.M. Best Co. report on Middle Eastern and African markets.

Best's Review recently caught up with Al Kareh to discuss the captive potential of the Middle East.

Do you believe the use of captives is gaining momentum in the Middle East?

Yes, this part of the word finally has its first captive. We believe that this success story is going to have positive implications on other clients around the region who have contemplated or are contemplating the establishment of a captive insurance company. We hope this is going to act as a catalyst for this market to really grow and realize its potential in this part of the world.

Why is it a success story that you have a single licensed captive in the Middle Fast?

There are a few companies in the Middle East that have captive vehicles, but they're incorporated in offshore domiciles, in the U.K., Bermuda and Cayman Islands. The breakthrough we've made is to convince a regional company with an international reputation not only to set up a captive insurance company, but to domicile it in this part of the world. Companies in this region would take a lot of comfort in the fact that a blue chip company in the region has actually done the exercise from A to Z. It also places this part of the world on the map of world captive domiciles.

What industries do you think would benefit from forming captives in the Middle East?

We've engaged corporations in different industries. Those would include the one we've just established, which is a utility provider, a district cooling provider. We've engaged people in the aviation industry, the petrochemical industry, logistics business and in the banking and financial services. We're not targeting specific industries because we see the potential across many industries. The whole region, in recent years, has been riding the wave of astronomical prices of oil, and a decent number of corporations have grown so much in terms of size or complexity, or in terms of international acquisition, that all of those companies have a profile of a typical captive candidate.

Traditional insurance, unlike Takaful, isn't widely accepted in the Islamic world because it conflicts with the principles of Shariah. So, is there such a thing as Takaful captives that are Shariah-compliant?

At the moment, there is no such thing as a Takaful captive. We have just incorporated our first captive, so it's not like we're looking at a pool of captives and none of them are Shariah compliant. Having a Shariah-compliant or Takaful captive is something we've considered and one of the things we hope to bring to the market in the next year or two.

What other alternative risk-transfer solutions could companies in the region take advantage of?

There are key products that corporations in this region could utilize. There's a possibility for finite structures in this part of the world, for environmental liability and pollution liability for oil and petrochemical companies with potentially great exposures to environment liability. The aviation industry, which buys huge limits of liability, could also benefit from such structures.

However, I think it's going to take some time before we see the sophisticated ART solutions that are a real blend of the insurance and capital markets. The capital markets here are not yet developed enough to allow such structures. I allow myself to say that because I worked on a number of initiatives when I was in London, and even there, these structures were considered a little bit advanced.

An audio interview with Youssef Al Kareh is available at www.bestdayaudio.com