Labuan bridging gaps in Asia-Pacific

Although some international companies may look to the likes of Hong Kong and Singapore as captive domiciles of choice, Labuan has been making great strides over the last few years in establishing itself as one of the key players in Asia-Pacific insurance centres.

Situated off the north coast of Borneo and a federal territory of Malaysia, the island of Labuan has the benefit of falling within the same time zone as Singapore, Hong Kong, Indonesia and much of India and China.

As one of the biggest and fastest-growing domiciles in Asia-Pacific for captives, the midshore centre prides itself on being a cost-efficient, substance-enabling jurisdiction, having an internationally-recognised framework with business-friendly legislation.

At the heart of the jurisdiction’s promotional activities—where key conversations are had with stakeholders and prospective international clients—is Farah Jaafar-Crossby, CEO of the Labuan International Business and Finance Centre (Labuan IBFC) Inc, a wholly-owned unit under the Labuan Financial Services Authority.

Speaking with Captive International, Jaafar-Crossby explains that Labuan is not looking to compete with the other Asia-Pacific domiciles, but rather to complement them.

“We believe we are unique in our own way especially in terms of our offerings. For example, we offer Shariah-compliant captive insurance structures such as the Takaful captive and we have a legal framework that specifically deals with Shariah-compliant structures.

“Labuan IBFC is probably the only jurisdiction in the region that offers Shariah-compliant Takaful captives, making us a key player in the global Islamic captive insurance sector,” she says.

As at December 2016, the total earned premium for Labuan’s captive insurance business was $252 million, an increase of 18.8 percent from 2015.

In between 2011 to 2016, the collective premiums were in the range of between $320 million and $430 million. The engineering sector continued to contribute the highest to gross premiums with 37.7 percent or $131.3 million of the total of $348.6 million in 2016.

In fact, for 2016 the majority of risk underwritten was foreign, amounting to 54 percent, reflecting Labuan IBFC’s increasing role as a regional risk management centre. Jaafar-Crossby envisages the trend to remain the same in 2017.

Driving growth in the region

There are many types of captive insurance vehicles available in Labuan IBFC, such as single/pure captives, group/association captives, master rent-a-captives, subsidiary rent-a-captives and cell captives—the latter of which includes protected cell companies (PCCs). Labuan IBFC is the only jurisdiction in Asia to offer both conventional and Shariah-compliant PCCs.

Labuan formed six new captives and surrendered two licences in 2017—compared to forming two and surrendering three in 2016—bringing the total number of active captives to 43.

The jurisdiction’s 43 captives in 2017 comprise 33 pure captives, three master rent-a-captives, one rent-a-captive, two subsidiary rent-a-captives, and four PCCs.

All the new captives set up in 2017 and 2016 are pure captives.

Figures provided by Labuan IBFC show that there were a total of 14 new captives in 2017: Labuan contributing six, Micronesia adding five, China adding two and Mauritius forming one.

Jaafar-Crossby believes these figures show not only a continued interest in the growth of the captive insurance business in the region, but also that Labuan is ahead of the other established domiciles of Hong Kong and Singapore in terms of formations.

“While some of the corporates look towards Hong Kong and Singapore, the reality is that Labuan is the only jurisdiction out of these three in the Asian region to incorporate captives last year—not one but six—bearing in mind that both Singapore and Hong Kong did not.

“We believe Labuan IBFC’s being a cost-efficient, substance-enabling midshore centre certainly has an edge in this aspect,” says Jaafar-Crossby.

Going forward, Labuan IBFC is encouraging greater uptake in group or association captives.

“It is a suitable solution for medium-sized business, or even groupings with shared interest, for example a group of professionals such as lawyers, medical practitioners and others where there are advantages and cost-efficiencies to be had in the pooling of risk,” Jaafar-Crossby continues.

“For instance, tech startups often have unique business models and risk profiles—with very much of their competitive edge stemming from concepts and technologies that are new to the market—and their unique risks can be tailored underwritten by setting up a group or association captive and this could be used alongside the traditional insurance approach.”

As well as the different type of captives available, Jaafar-Crossby adds, there is a wealth of readily available talent and expertise, and insurance capacity due to the presence of reinsurance company, managers and underwriters.

In total there are more than 240 risk management-related licence holders in Labuan IBFC alone. This excludes the onshore Malaysian market which, Jaafar-Crossby says, creates a rich eco-system for the benefit of captives.

Spreading the word

Labuan IBFC Inc regularly hosts events in various countries within Asia-Pacific, including in Singapore and Hong Kong. It actively participates in conferences and events to promote the jurisdiction.

Along with organising masterclasses with Brighton Management in Osaka and Tokyo, Japan, Labuan IBFC also produces research on attitudes towards captive insurance in Asia, and will be involved in Asian conferences.

This year will be Jaafar-Crossby’s first Asian Captive Conference (ACC) since taking on her position as CEO on January 1, 2018.

The ACC this year is jointly organised by Labuan IBFC and the Labuan International Insurance Association (LIIA), and is dedicated to the development of self-insurance in the region. It aims to highlight the challenges and disruptors risk managers are facing from technology while required to meet growing demands of tax transparency and substance brought about by multilateral organisations and regulators.

“The concept of captive insurance is still relatively new to the region and Asia’s understanding of the full capabilities of captives is still in its infancy. The level of awareness among the Asian corporates is still relatively low. However, more and more Asian corporations and associations are starting to view captives as a viable risk management tool,” says Jaafar-Crossby.

She continues: “We acknowledge that many companies will continue to depend on traditional insurance, but those with greater know-how will start to explore greater business opportunities and risk management via captives.

“With the Asia’s robust economic expansion and increase in cross-border trade activities over the years, this is certainly a positive indicator.”