Gillett, senior vice president at Johnson & Higgins, Bermuda.

He voiced his confidence in the captive market in a speech on the second day of the Seventh International Reinsurance Congress held in Bermuda at the Hamilton Princess.

Mr. Gillett said Johnson & Higgins anticipated a growth from 2,900 captives in 1992 to 4,000 by the year 2000, adding that these were conservative estimates.

The hardening market was creating considerable interest in captives throughout the world, he said.

In addition, most tax regimes, with the exception of the US, are encouraging the use of captives, he said.

And recent attempts to regulate transactions that impact on the development of captives have had "no bad result''.

"There is a change in the distribution of captives, with a far larger percentage of the captives in the future emanating from (places) other than the US, which has dominated captive growth over the years,'' he said.

"Those people who think that the US market is saturated are, we believe, simply out of touch.'' One of the reasons for the continued and accelerated growth of the captive market is, according to Mr. Gillett, reduction of the cost of the risk.

Another reason is parent profit planning which is becoming popular in Europe, where there is more tax flexibility than in the US, he said.

Profit centre captives are also more popular and have become quite common. He said: "They are used in situations, such as appliance manufacturers offering extended warranty to each one of their customers and banks providing credit life insurance to each of their customers, that is the people taking loans with the company.

"Some companies are offering programmes through their captive, usually on a reinsurance basis, which are designed to enhance their core product.

"A good example of this is fast food chains who offer through a front certain property and casualty covers as part of the franchise they sell.

"This enhances their franchise and will cause an entrepreneur in some small town to select their franchise rather than a franchise offered by a competitor, thereby enhancing that companies ability to grow.'' There is greater use of finite risk or financial reinsurance, said Mr.

Gillett.

"The catastrophe funding is the area, at the moment, where we are seeing great demand,'' he said. "Finite risk is being used as a method to smooth the effect of the insured being hit by one of these catastrophes.'' Leveraging of capital, profit smoothing and closing out of old years are four areas where Johnson & Higgins anticipates finite risk being used in conjunction with a captive.

He also predicted that excess property, a deficiency in the market, may be the next growth area in Bermuda.