Labuan: A risk-discerning market

The financial centre’s insurance industry continues to exhibit growth, led by the captive segment

 

Labuan International Business and Financial Centre (Labuan IBFC) was established by the Malaysian government in 1990. The jurisdiction is regulated by a single regulator, 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, is the official promotional and marketing agency for the centre.

Strategically located in Asia Pacific, Labuan IBFC is well positioned to tap into one of the fastest-growing regions in the world, highlighting its position as Asia’s premier international financial hub.

The centre provides a wide spectrum of financial products and services in conventional, Islamic and digital forms.

Labuan IBFC offers a wide range of business structures and investment solutions to facilitate cross-border transactions and international business dealings carried out by global investors and businesses.

Our key service areas include banking, insurance, wealth management, businesses related to the capital markets, leasing, money broking and commodity trading.

Labuan IBFC’s modern and globally recognised regulatory framework adheres to international standards and best practices in financial services and prudential supervision, including protocols on anti-money laundering and exchange of information and regulatory requirements as determined by the Organisation of Economic Co-operation and Development (OECD).

This underscores Labuan IBFC’s commitment to ensuring a safe and secure business environment. Labuan IBFC strongly believes in a collaborative agenda while we seek to position the jurisdiction as Asia’s premier international financial hub.

As such, Labuan FSA and Labuan IBFC’s partnership with Labuan International Insurance Association (LIIA) has been key in the growth and development of Labuan IBFC’s reinsurance industry, specifically the captive industry.

LIIA is the largest industry grouping in Labuan IBFC with more than 200 licence holders, all of which operate in the insurance, reinsurance and self-insurance sector, creating a robust ecosystem for the captive industry to thrive.

Labuan IBFC as Asia’s captive hub

The Labuan IBFC Strategic Roadmap 2022- 2026 rightfully positions the jurisdiction as the region’s captive hub.

This positioning is based on several factors, first and foremost of which is that the jurisdiction operates based on a comprehensive legal framework, making it an ideal jurisdiction for the intermediation of risk.

Labuan IBFC also ensures regulatory requirements are continuously reviewed and met, with the International Association of Insurance Supervisors (IAIS) core principles and captive guidance duly observed as well as adherence to global standards to preserve a business-friendly market environment.

In addition, Labuan IBFC provides a cost-efficient operating base with a wide range of innovative captive solutions, such as protected cell companies, master-rent-a-captive (incorporated cell company), mutual captives and association captives.

This range of solutions enables businesses that establish their operations in the jurisdiction maximum flexibility as they develop and mature over their individual lifecycles, which has led to sustained global interest.

This has resulted in the formation of Labuan-based cell captives for global businesses, including several European and Australian-headquartered businesses. The jurisdiction is also home to the world’s first Shariah-compliant captive.

A thriving insurance sector

The insurance industry’s recovery phase in Asia has been somewhat favourable despite the challenging global economic downturn and the post-pandemic impact. Overall, the performance of the insurance sector in Labuan IBFC improved.

A highlight from the Market Report 2022 is that gross premiums continued to reflect growth momentum – the highest recorded in the past five years.

The industry underwriting margin also rebounded with 19.5% growth driven by lower claims, management expenses and commissions incurred.

Labuan insurers have continued to be vigilant by adopting conservative underwriting appetite that includes prudent investment strategies and risk management, amid market uncertainties.

Captives leading the insurance game Over the recent years, captive insurance has proven to be a growth segment in Labuan IBFC. It was also highlighted as a focus area in Labuan IBFC’s Strategic Roadmap 2022-2026.

Labuan captive insurance has shown an impressive business track record over the last three decades. The gross premiums underwritten by the Labuan captive segment has slowly but surely increased, amounting to $570 million with 67 captives registered for 2022. The numbers clearly demonstrate the increasing maturity of Labuan’s captive sector.

To accelerate the expansion of this key segment, initiatives such as formulating omnibus captive policies to ensure comprehensive business offerings, intensifying market growth of Labuan captives through targeted initiatives and fostering collaboration with other target international insurance markets by forging new partnerships have been identified.

It is also worth noting that Labuan IBFC recently won the highly commended international domicile award at the European Captive Review Awards 2022.

This award is the latest testament to Labuan IBFC’s position as a leading captive hub. Captive-related event and developments Labuan IBFC, in collaboration with LIIA, hosted the fifth Asian Captive Conference themed Embracing Change and Accelerating Growth: The Way Forward for Self-Insurance in 2022.

It was a success with stakeholders from the entire captive ecosystem – regulators, captive owners and insurance personnel – sharing the latest issues and challenges impacting the captive market.

On a positive note, the Insurance Capital Adequacy Framework (ICAF) was finalised in 2022 through a series of market engagements, field tests and financial simulations over eight years between Labuan FSA and the Labuan insurance industry.

ICAF is intended to be a contemporary, risk-focused and future-proof capital adequacy regulations aimed at ensuring Labuan IBFC continues to be an internationally compliant insurance centre while enhancing its market stability and resilience, therefore ensuring the insurers provide the appropriate financial outlay for the set of relevant risks that they face.

12 August 2024
5-6 November 2025

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