Datuk Iskandar Mohd Nuli summarises how Labuan IBFC provides a complete captive-centric ecosystem that caters to the lifecycle of a self-insurance company
Located off the coast of Borneo in Malaysia Labuan International Business and Financial Centre (Labuan IBFC), a risk management ecosystem complying with global standards), has been operating as an international business and financial hub for almost 35 years. Labuan IBFC remains an attractive financial intermediation hub, hosting the operations of more than 800 licensed financial institutions.
Regulated by the Labuan Financial Services Authority (Labuan FSA), a statutory body under the remit of the Ministry of Finance, Malaysia, the centre functions within a comprehensive legal framework.
The jurisdiction provides a cost-efficient operating base in a currency neutral operating environment which is home to more than 220 insurance and risk management licence holders, making it one of Asia’s largest and deepest risk management ecosystems.
Labuan IBFC complies with global standards and insurance best practice, with regulatory requirements being continuously reviewed. International Association of Insurance Supervisors (IAIS) core principles and captive guidance are observed, creating a business-friendly proportional market environment.
This balancing strategy is key to Labuan for businesses looking to expand into the Association of Southeast Asian Nations (ASEAN) in or out of the region.
A wide range of solutions and programmes
The centre offers a range of self-insurance structures and solutions in conventional, digital and Shariah-compliant versions.
A wide range of innovative captive solutions are available, such as protected cell companies (PCCs), master-rent-a-captive, mutual captives and association captives. This broad range of solutions offers businesses maximum flexibility, resulting in sustained interest from investors.
Labuan IBFC’s approach towards developing its self-insurance sector involves collaborations with risk management communities and international industry associations, as well as conducting targeted briefings and ensuring our presence at flagship captive events. We also organise captive-centric programmes that feature industry experts, allowing for an exchange of ideas and opinions on the challenges, benefits and trends in the captive segment.
Success as a captive hub
As the region’s fastest-growing captive hub, Labuan IBFC is home to 69 captives, according to records at the end of 2023. These captives have generated a total premium volume of more than half a billion, US$478.6 million, comprising over 30 per cent of Labuan insurance industry’s premiums.
The broader international insurance business contributes to the centre’s largest share of premiums at more than 60 per cent, with the majority of these premiums derived from the Japanese and Indonesian markets.
Beginning the jurisdiction’s self-insurance journey with Malaysian-based corporates, the fact that most captive premiums now originate from overseas markets underscores how Labuan IBFC has become the hub of choice for captives.
Staying ahead of the curve
Labuan IBFC is constantly looking to maintain its competitive advantage. The centre’s ‘Strategic Roadmap 2022-2026’ highlights captive insurance as a key segment for the jurisdiction, and features key initiatives charting the path for the development of the jurisdiction as both a regional and global captive hub.
Labuan FSA issued revised Guidelines on Captive Insurance Business, marking a significant milestone for innovation in the captive industry. These revisions took effect from 1 January 2024.
The revised guidelines aim to enhance the jurisdiction’s leading captive position by providing a more flexible and inclusive ecosystem for the captive segment.
They included the expansion of insurable risks of Labuan captives to include indirect insurable interest risks. Notably, there was the introduction of a new rental captive structure — an external rent-a-captive.
The revision also included the formalisation of a cell establishment via notification within seven days before commencement of the cell, accelerating cell formations in response to market needs. This new authorisation regime enables managers and their respective clients to meet urgent business needs despite the current hard market cycle.
Additionally, clarity was provided for the allowance of separate cells under the same PCC to conduct either general or life insurance business, the roles and responsibilities of PCCs, master-rent-a-captives and intermediary-owned rental captives, as well as other captive structures and operational requirements.
Evolving to mitigate connected and green risks
Labuan IBFC has adopted a three-pronged approach involving cooperation, partnership and continuous engagement to improve the captive segment. This is key to ensuring the success of the jurisdiction as a centre for self-insurance, together with regular updates to taxation, economic substance, business and prudential requirements.
The centre welcomes business innovations and opportunities, especially in the digital financial services space, with the possibilities of establishing purely digital captives, takaful captives or digital takaful captives.
These potential offerings will be able to capitalise on the jurisdiction’s one-stop-shop digital ecosystem.
Captives have shown tremendous potential in mitigating connected risks, which are not limited to cybersecurity, supply chain, environmental and geopolitical risks. For example, in the rapidly digitising business environment of Asia, captives allow corporations to prepare for cyberattacks or data breaches. These companies could be used to cover cyber liability, first-party cyber losses, and even to offer cyber insurance to other entities in the organisation’s supply chain.
Captives can also play a role in the ever-important twin agendas of sustainability and ESG. The demand for parametric insurance has grown by leaps and bounds, whereby captives can be used as a mechanism for structuring parametric weather insurance as companies take on more catastrophe-related risks due to global warming. In a nutshell, the role of captives is set to expand and evolve at pace. They will become globally recognised as viable tools to mitigate across-the-board risks.
