To give a sense of the size of Labuan IBFC as a domicile, as of October 2016 it had 41 captive insurance companies (including PCCs). This was on the back of a solid year of growth in 2015 when it licensed three new captive insurers and five protected cells, while the gross written premiums for captive insurance business increased by 4 percent to $355.9 million in 2015, compared with $341.6 million in 2014.
The captives based in Labuan IBFC are mainly owned by Asian companies. Almost 75 percent of its captives are from Asia- Pacific; other companies from Europe and the US account for the rest. In terms of the type of company using captives based there, the engineering sector contributes the highest market share of 59.3 percent of the total gross premiums. Other lines including catastrophic and professional indemnity risks accounted for 28.9 percent while fire (8 percent), marine (4 percent) and motors (0.1 percent) made up the rest.
“There is a growing awareness around the benefits of captives in Asia, which Labuan IBFC is benefiting from, as more companies look to use the risk transfer tool as a complement the traditional insurance,” says Mah.
“Asia is seeing a growing interest for captive insurance and PCCs as a self-risk management solution.”
He says more companies that prefer to have the flexibility of managing their own perils as part of their own risk management are looking at using unique underwriting vehicles in the form of captives as risk solutions.
The growth of captives in Labuan IBFC is precipitated by increasing demand from Malaysian risk owners who seek cost-effective and flexible solutions to managing their own risks, especially as their businesses mature and a cross-border risk profile emerges, the CEO adds.
“Growing interest in captives has also been seen from among the developing ASEAN economies, in tandem with their increasing economic growth,” he says.
Labuan IBFC has specifically seen heightened interest from ASEAN corporates as well as Japanese companies looking for an alternative jurisdiction, especially in light of more stringent tax transparency requirements that are expected to be introduced globally, which assess whether companies have a substantive presence in domiciles in which they base certain operations—such as captives.
The new rules, being crystallised under the OECD’s base erosion and profit shifting (BEPS) report, are designed to stop companies avoiding taxes but by default also cover areas including risk transfer, and thus captives.
Partly because of these potential new laws, Labuan IBFC is also seeing an increase of interest from current captive owners who are considering redomiciling their captives there.
“We are able to offer a substance-enabling operating environment, which is what will be needed in the not-too-distant future once the changes to the international tax landscape kick in,” Mah says.
“BEPS will focus on whether a company has a tangible and physical presence in a domicile, which will really work in our favour,” he says.
“It also helps that we have a very robust infrastructure in place with insurers, reinsurers, brokers, banks, legal firms and accountants all here. In short, there is a strong risk management ecosystem in place to support captives in Labuan IBFC. The fact that Labuan is BEPS-compliant and is a substance-enabling jurisdiction is really the icing on the cake.”
“Because of the changes in the landscape of international tax, it’s more natural for an Asian company to have a domicile closer to home, in order to facilitate substance creation.”