the face of a devasting economic crisis could see a surge in the number of captive insurers, a senior risk management executive said yesterday.

"Protecting the balance sheet and adding to earnings is exactly what a captive does,'' Stephen Davies, regional director of Aon Risk Services Asia, told a seminar on risk management.

Captives are special vehicles created by firms specifically to underwrite their group's own insurance risks.

They tend to offer significant cost savings over traditional insurance for firms in high risk businesses -- like aviation or petrochemicals -- or if they are large enough to be spending more than US$1 million a year on insurance.

Most of the world's top 1,000 companies have captives and Davies said their scope was significant in Asia, partly because insurers' administration costs were very high.

"Frictional costs consume 40-50 percent of the premium dollar in Asia,'' said Davies, who works for a unit of US insurance services group Aon Corp (NYSE:AOC -- news) which manages about 490 of the world's 3,800 captives.

Lower frictional costs were effectively savings for the captive owner, an important consideration when many high-level commercial insurance contracts demand payment in US dollars, a currency that has soared in value against crisis-hit Asian units.

Davies said many firms in Asia were captive candidates, especially those with higher credit ratings than their insurers, or the parent companies or their present insurers.

Many Asian insurers have been forced to the brink of insolvency by the regional economic turmoil which has wiped billions from balance sheets and investment portfolios.

"Sometimes you are a whole lot better being insured with yourself than with an insurance company that would be at risk in exceptional circumstances like we see today. Companies need to be honest about that,'' Davies said.

Singapore was already the biggest captive centre in the Asia Pacific with 36 percent of all regionally domiciled captives based here.

The actual number, 51, was tiny compared with Bermuda, the leading centre worldwide with about 1,500 captives, but Singapore was likely to see its ranks swell.

"The prospect of Singapore becoming a major domicile for the Asia Pacific is very real,'' Davies said.