The Labuan International Business and Financial Centre is home to a captive-centric ecosystem that provides end-to-end support and management. Datuk Iskandar Mohd Nuli, executive chairman cum CEO explains more
Labuan International Business and Financial Centre (Labuan IBFC) was established by the Malaysian government in 1990. The centre is regulated by a single authority, Labuan Financial Services Authority (Labuan FSA), which is governed by Malaysia’s Ministry of Finance.
Labuan IBFC Incorporated Sdn Bhd (Labuan IBFC Inc), a wholly-owned subsidiary of Labuan FSA, serves as the official promotional and marketing agency for the centre. Strategically located in APAC, Labuan IBFC is well positioned to tap into one of the fastest-growing regions in the world, per the jurisdiction’s tagline — ‘Asia’s premier international financial hub’.
Labuan IBFC offers global investors and businesses an internationally recognised yet business-friendly legal framework. It also adheres to international standards and best practices with access to Malaysia’s double taxation agreement available to 70 countries.
It also offers fiscal neutrality and certainty while adhering to guidelines set by international bodies, such as the Organisation for Economic Co-operation and Development, Asia/Pacific Group on Money Laundering and Financial Action Task Force.
Labuan IBFC also ensures that regulatory requirements are continuously reviewed and met, with International Association of Insurance Supervisors core principles and captive guidance duly observed. Additionally, it adheres to global standards to preserve a business-friendly market environment in an effort to transform into a risk-discerning market.
Captive structures
The wide variety of captive structures serve to underline the centre’s position as a captive hub. A captive insurance entity in Labuan IBFC may include, but is not limited to, the following forms:
- pure/single captive
- group/association captive
- multi-owner captive
- master rent-a-captive
- subsidiary rent-a-captive
- captive using protected cell company (PCC)
This broad range of solutions enables businesses that establish their operations in the centre maximum flexibility. This has resulted in the formation of Labuan-based cell captives for global businesses, including several European- and Australian-headquartered organisations. The jurisdiction is also home to the world’s first Shariah-compliant captive. Given that it is still a hard market with increased premiums, the centre’s ability to provide a cost-efficient operating base is another reason why users choose to set up captive(s) in the Labuan jurisdiction. In addition, captives can also be used as risk vehicles in underserved risk categories such as cyber and agriculture.
The Labuan IBFC Strategic Roadmap 2022-2026
The Labuan IBFC Strategic Roadmap 2022-2026 aims to grow the Labuan insurance sector by underwriting specialised risks and developing an industry-wide retention policy as well as rationalising the existing captive framework, diversifying the available PCC structures, and upscaling the role and professionalism of insurance intermediation.
By 2026, Labuan IBFC expects to see increased presence of top brands and for captive premiums to expand beyond their current market share.
The hub has also introduced wide-ranging captive legislation to accelerate expansion of this key segment. Initiatives include formulating omnibus captive policies to ensure comprehensive business offerings, intensifying market growth of Labuan captives through targeted initiatives, and fostering collaboration with other international insurance markets.
These ongoing initiatives and a holistic captive ecosystem have contributed to the centre’s captive growth, whereby 67 captives with total gross premiums of US $571 million were registered with the centre as of year-end 2022.
More than 62 per cent of the premiums were generated from the international insurance business, according to Labuan IBFC’s 2022 Market Report.
Looking ahead
Labuan IBFC, in collaboration with Labuan International Insurance Association, will be organising the sixth Asian Captive Conference (ACC). The conference will be held on 7 September 2023 at the Sime Darby Convention Centre, Malaysia.
Themed ‘The Connected Risk Journey in Self-Insurance’, the one-day and in-person conference is expected to host captive sector movers and shakers comprising regulators, service providers and users.
The conference will feature captive industry highlights, challenges and leading trends including International Financial Reporting Standards (IFRS) 17 and its related impact on self-insurance.
It will also explore key considerations and strategies related to various self-insurance models.Additionally, there will be discussions about how captives can be used to serve the ESG agenda.
Looking at 2024 and beyond, Labuan IBFC’s digital services and offerings have resulted in an influx of digital financial services providers.
Among these are insurtech providers, which have revolutionised the conventional forms of financial offerings in the centre, including the possibility of setting up purely digital captives.
The centre is poised to further strengthen its position as a leading captive hub.
