Labuan Captive Insurance

Labuan’s captive insurance business has increased 12.8 per cent to US$288 million in gross written premiums in June 2019, compared with US$255 million in the same period last year. Labuan Financial Services Association (Labuan FSA) director general Danial Mah said this was mainly attributed by the growing awareness around the benefits of captives in Asia.

Other reasons include changes in the international tax landscape, which have prompted companies looking for alternative jurisdictions to re-domicile their captives to ensure tax compliance, which requires among others for captives to have substantive presence in domiciles from which they operate, he added.

“Risk management in the form of self-insurance or captives is on the rise, due to it being an overall cost-efficient and customisable risk mitigating tool,” Mah said at the launch of Labuan International Business and Financial Centre (Labuan IBFC) and Swiss Re Corporate Solutions’s event entitled Adding Confidence to Captives: Managing Volatility via Self Insurance. Today we see a rise in demand for captive insurance across the region including Malaysia and expect this to increase as the risk management function advances and the corporate landscape evolves,” he added.

Mah said Asia in particular has shown tremendous potential for growth in captives over the coming years.

Citing a rating agency, AM Best, he expects to see a significant growth in the Asia Pacific domiciles for captives, including Labuan IBFC.

“Captives remain a vital business segment in Labuan IBFC, being the leading jurisdiction in Asia for captive formations compared to other jurisdictions in the region such as Singapore and Hong Kong,” he said.

Mah said this leadership is further entrenched in 2019, when four new captives were approved in Labuan IBFC between January to June 2019, totalling 51 captives registered in the jurisdiction as of June 2019.

This represents a growth of 8.5 per cent year on year and is significant when contrasted with the fact that for 2018, six captives were approved.

Labuan IBFC Inc chief executive officer Farah Jaafar-Crossby said the fact that Labuan IBFC is home to one of Asia’s largest reinsurance and retrocession market is also a significant advantage to captive owners.

“Being a licensed insurance related entity in such a large risk management eco-system provides for great access to coverage for these captives,” she said.

Labuan IBFC is home to more than 200 insurance and risk management licensees and the industry Association, the Labuan International Insurance Association is the single largest industry group in the jurisdiction, she added.

As a whole Labuan IBFC’s insurance sector registered strong growth in 2018 with total gross written premiums posting a significant increase to US$1.7 billion, rising 19.1 per cent from the previous year, of which foreign insurance business accounted for 64.7 per cent of the total premiums underwritten.

This shed a common misconception that Labuan IBFC’s role as a reinsurance hub is purely Malaysian centric, said Jaafar-Crossby.