The captive insurance industry may well be at a turning point and efforts should be undertaken to develop it, says Bank Negara governor Datuk Seri Muhammad Ibrahim.
He said the industry should be focused on better risk management, promoting macro-economic stability and encouraging new growth rather purely concentrated on tax planning.
“There are promising signs, among business and regulatory sectors, that there is a growing space for captives to play a role. It is important that we move forward to harness this potential, responsibly and thoughtfully,” he said in his keynote address “De-risking Asia: The growing role of self-insurance” at the Asian Captive Conference 2017.
Muhammad said captives have had, at best, an uneasy relationship with regulators. Captive insurance did not get off on the right foot with regulators.
To recap, in the early days of the modern captive, efforts to regulate captives were mostly ill-suited to the nature of the captive business, he said.
Prudential and market conduct regulations intended for the protection of the general public were applied equally to traditional and captive insurers.
Muhammad said this reduced the cost savings that captives were set up to achieve. In response, captives relocated and domiciled in jurisdictions with less onerous regulations, which on hindsight is an onerous consequence.
“Fast-forward half a century, captives have an entrenched reputation for being tax evasion vehicles of large corporations. Offshore centers that are hosts to many captives have come under greater scrutiny, with stronger tax and regulatory regimes back on the cards to haunt the industry.
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