Awareness and demand for compliance driving captive growth in Labuan

Growing awareness of the benefits of captives among Asian companies, combined with greater scrutiny of how corporations manage their taxation policies, are helping drive strong growth in the captive sector in Labuan, according to Danial Mah, director general, Labuan Financial Services Association (Labuan FSA). Mr Mah revealed first-half 2019 captive numbers that showed a healthy upwards momentum during the recent 'Adding Confidence to Captives: Managing Volatility via Self Insurance' conference, held at the launch of the Labuan International Business and Financial Centre (Labuan IBFC) and organised in partnership with Swiss Re Corporate Solutions and supported by the Pan-Asia Risk & Insurance Management Association (Parima). A total of four new captives were approved in the Labuan IBFC in the first six months of 2019. This means that the total number of captives in the jurisdiction is now 51. This represents a growth of 8.5% year on year. For the whole of 2018, a total of six captives were approved. “In terms of gross written premiums, Labuan’s captive insurance business increased by 12.8% to $288m in June 2019, compared with $255m in the same period in 2018,” Mr Mah said. He added that most of the premiums are of Asian origin, particularly from Indonesia and Japan. For the whole of 2018, the Labuan IBFC recorded an 11% growth in total gross premiums for its captive insurance business, amounting to $400.5m. “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,” said Mr Mah. He pointed out that captives have gained widespread acceptance around the world, including from international standard-setting bodies. “Asia in particular has shown tremendous potential for growth in captives over the coming years,” added Mr Mah. Earlier this year, ratings agency AM Best stated that it expects to see a significant growth in the Asia-Pacific domiciles for captives, including the Labuan IBFC. Mr Mah stressed that captives remain a vital business segment in the Labuan IBFC and it is the leading jurisdiction in Asia for captive formations, compared to other jurisdictions in the region such as Singapore and Hong Kong. Mr Mah said he attributes the growth of Labuan captives to 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 redomicile their captives to ensure tax compliance, which requires amongst other [things] for captives to have substantive presence in domiciles from which they operate,” he added. Mr Mah said that, as a midshore jurisdiction with adherence to high standards of integrity, transparency and compliance, Labuan IBFC is seen as “substance-enabling and credible". Andre Martin, head of innovative risk solutions APAC, Swiss Re Corporate Solutions, added it was great to share more on the benefits captives can bring to organisations as a comprehensive risk financing strategy through the event. “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. We look forward to continue working with customers to provide solutions in the captive space and are encouraged by the interest in alternative risk transfer solutions from this event,” he said. Farah Jaafar-Crossby, CEO of Labuan IBFC, the market development arm of the Labuan FSA, said the fact that the Labuan IBFC is home to one of Asia’s largest reinsurance and retrocession markets is also a significant advantage for captive owners. “Being a licensed insurance-related entity in such a large risk management ecosystem provides for great access to coverage for these captives. 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,” Ms Jaafar-Crossby added. Labuan IBFC’s total insurance sector registered strong growth in 2018. Total gross written premiums reached $1.7bn, rising 19.1% from the previous year, of which foreign insurance business accounted for 64.7% of the total premiums underwritten. Jaafar-Crossby pointed out that this figure counters a common misconception that the Labuan IBFC’s role as a reinsurance hub is purely Malaysia-centric. Ms Jaafar-Crossby added that the jurisdiction offers Asia’s widest range of self-insurance structures aside from pure single captives, with structure offerings that include mutual and association captives, rent-a-captives as well as the region’s only protected cell company and the Shariah-compliant Takaful captives. It was also stressed that the Labuan IBFC is also home to more than 50 banks, numerous company secretaries, auditors and other service providers, that provide Labuan-based captives with access to the full range of service providers needed.

Awareness and demand for compliance driving captive growth in Labuan

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