Labuan IBFC reports 2019 captive growth in premiums and licences

Labuan has reported that ten new entities were approved in 2019, comprising one general insurer, five captives, three brokers and one underwriting manager, while seven entities surrendered their licences. This is according to the Labuan International Business and Financial Centre’s (IBFC) Market Report 2019, which notes that 2020 marks the 30th anniversary of the establishment of the Labuan IBFC in 1990. The Labuan IBFC currently has 219 insurance and insurance-related companies, including 64 re/insurers, 52 captives, 23 managers and 80 brokers. The report states that during 2019, “the Labuan insurance industry remained resilient as it continued to show growth trends with higher profitability performance”. According to the report, the Labuan captive business continued its growth momentum as premiums increased by 14.2% to $457.5m, with 64.5% of the total premiums originating from international markets, and 35.5% from Malaysian business. In terms of distribution of gross premiums, Asia and the Pacific accounted for 58.2%, and the Far East for 34%. Europe accounted for 3.8%, the Middle East and Africa for 3.8%, and the US for 0.2%. Premium growth was mainly driven by engineering (which accounted for 27.1% of premiums or $124.2m) and other classes (61.7% of premiums). ‘Other classes – liability’ accounted for 32.5% ($148.6m), while ‘other classes – other’ accounted for 22.5% ($103m) and ‘other classes – product liability’ for 6.7% ($30.8m). Fire totalled 7.2% of gross premiums in 2019 ($33m), marine 0.3% ($17m) and motor 0.3% ($1.1m). Engineering saw growth of 25.9% to $124.2m, while other classes reported 14.7% growth to $282.4m. The report notes: “The Asian market for captive insurance is considered to be relatively new and its potentials have not been fully realised. With 40% of Fortune 500 companies being headquartered in Asia, of this, only 6% have captive structures. While many companies are still dependent on traditional insurance, the commercial premium rates can be costly. As such, there are increasing opportunities for captives to be used as a cost-effective risk management vehicle. With the heightened realisation of an innovative way of managing risk exposures, captives can be a viable risk transfer solution. This is certainly a strong business case for captives to grow in Asia.” It adds that the Labuan IBFC has the highest growth rate for new captive establishment in the region, and was the second-largest market in Asia with 52 captives in 2019. On the wider business market, the report states that Labuan IBFC remained resilient in the face of challenges in the global market. “In 2019, one of the watershed events was the rollout of the new Labuan IBFC tax framework, which had in many ways changed the Labuan IBFC’s business landscape. The salient features of the new framework included removal of the RM20,000 tax option, removal of ring-fencing elements and the introduction of substance requirements. The substance requirements will further enhance the Labuan IBFC market players’ contributions towards the island’s economic growth via increasing their business presence,” states the report. It adds that with the new Labuan tax framework, the Labuan IBFC is conforming with internationally acceptable tax practices. For the insurance industry as a whole, Labuan showed modest top-line growth but higher profitability performance for 2019. Total gross premiums were $1.5bn, with 89% of the total premiums originating from the Asian market. The industry’s profitability grew by 43.7% to $190.5m, mainly due to improved underwriting performance and better cost management. In 2019, the Labuan Financial Services Authority entered into three memorandums of understanding (MoU). The first MoU was with China Banking and Insurance Regulatory Commission, the second was with the UK’s Financial Conduct Authority, and the third was with Nanjing Municipal Financial Regulatory Bureau. The report explains: “As the Labuan IBFC remains mainly a host market, efforts will be continued to have closer ties with regulatory authorities of home jurisdictions to enhance cross-border supervisory and regulatory monitoring for international business setups.”

Labuan IBFC reports 2019 captive growth in premiums and licences

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