Tuesday October 18, 2011

Labuan IBFC attracting captive insurance business

KUALA LUMPUR: The Labuan International Business and Financial Centre (IBFC) in Malaysia is fast gaining popularity as a destination for captive insurance companies and is starting to take away businesses from Hong Kong, Seychelles and Singapore, said Labuan IBFC chief executive officer David Kinloch.

As of 2010, Labuan had some 34 captive companies with total assets of some US$3.07bil (RM9.21bil) and total gross premiums of US$1.21bil (RM3.63bil).

Out of the 34 captive companies, 14 are Malaysian companies. Kinloch said that there should at least be 100 Malaysian companies setting up captive insurance businesses.

Kinloch: ‘There is growing recognition that Labuan is a hidden gem.’

Sime Darby Bhd is an example of a Malaysian company which has its captive insurance company in Labuan.

Kinloch expects the number of captive companies to increase in Labuan next year, driven by its many incentives, particularly its significantly lower cost structure.

“The Malaysian market alone is huge, but we are also focused on taking away businesses back from other regions.

“Labuan today and what it was in 2006 is vastly different.

“It’s like night and day. There is growing recognition that Labuan is a hidden gem,” said Kinloch.

He added that the captive market is still at its infancy.

“Bear in mind that Labuan only started some five to six years ago.

“However we are now gaining momentum and are in fact taking away business from other popular destinations as there are a lot more things that can now be done in Labuan,” said Kinloch.

For example, there have been an introduction of new structures such as limited liability partnerships and protected cell companies in Labuan IBFC.

“There is no tax on non-trading activities, no stamp duty on documentation and a 3% tax on audited net profit or a flat rate of RM20,000 on trading activities among others.

“Furthermore cost is significantly lower.

“This cost includes the start-up cost and operational cost,” said Kinloch.

Captive insurance companies are insurance companies established with the specific objective of financing risks emanating from their parent group or groups, but they sometimes also insure risks of the group’s customers as well.

Using a captive insurer is a risk management technique by which a business forms its own insurance company subsidiary to finance its retained losses in a formal structure.

Labuan has a further advantage because Malaysia is the pre-eminient hub of Islamic finance.

Labuan IBFC has worked closely with the Malaysian International Islamic Financial Centre to issue the first global sukuk and the world’s first sovereign sukuk.

To date, more than 7,400 holding companies, which include 60 banks and 150 other insurance and reinsurance entities, have named Labuan IBFC as their business address.

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