Keynote Address By Mr. Nik Mohamed Din Bin Nik Musa, Director-General of Labuan FSA at the Asian Captive Conference (ACC) 2022

‘Embracing Change and Accelerating Growth: The Way Forward for Self-Insurance’

18th August 2022

Keynote Address By

Mr Nik Mohamed Din Bin Nik Musa
Director-General, Labuan FSA

Y.Bhg. Datuk Iskandar Mohd Nuli, Executive Chairman Labuan IBFC Inc
Distinguished Guests,
Ladies and Gentlemen,

1. A very good morning and welcome once again to the fifth edition of The Asian Captive Conference 2022. It is a pleasure to be able to speak at this conference and to be here in person with all of you rather than virtually, it compelled me to dress properly as everyone now can practically see me from head to toe. I’m delighted to see many familiar faces, including Labuan industry players, regional captive professionals and risk owners, continuing to support this event.

2. The global risk landscape is getting more complicated and demanding, causing constant change and disruption in insurance business. Insurers are concerned about rising inflation, low interest rates, tougher regulation, emerging and new risk such as post pandemic, and cyber as well as climate risks. These issues, together with the strong forces from customers, technology, and shifting market boundaries, are transforming the insurance industry. This game-changing scenario will create opportunities for those who can satisfy the expectations of dominant clients, emerging risks, and quick customer adoption of technology. In other words, demographic, technological, economic, and environmental trends are reshaping the overall insurance sector.

3. A lot of changes have happened in the past two years as the world adjusts to living with COVID-19 and Malaysia has not been spared from its impact. The pandemic had profound impact on global economic prospects and Malaysia has demonstrated its resilience to many challenges arising from the health crisis. However, with the easing of mobility restrictions, recovery of economic activities, favourable employment condition and higher commodity prices, the nation is benefitting from the economic rebound and is on a strong recovery path. Based on Bank Negara Malaysia’s recent report, Malaysia’s economy expanded by 8.9% in the 2nd quarter, the fastest pace in a year. The positive momentum is expected to remain strong in the 3rd quarter. Nevertheless, the government is cautious of a less favourable global outlook owing to weaker-than-expected global growth, further escalation of geopolitical conflicts, prolong supply chain disruptions, heightened financial market volatility and adverse developments post COVID-19.

4. The pandemic has significantly influenced the global risk profile in terms of risk management, crisis management and business continuity planning. According to a survey conducted by the Association of Insurance and Risk Managers in Industry and Commerce (Airmic), the outbreak of COVID-19 in March 2020 has sparked a chain reaction in the captive insurance industry, as risk managers are looking for better alternatives and captive insurance to enable corporations with extensive risk portfolios to better bundle and diversify them, as well as have direct access to global insurance and reinsurance markets. By self-insuring high-frequency, low-severity risks through a captive, a corporate can reduce transaction costs and focus risk transfer on lower-frequency, higher-severity risks for more efficient risk management.

5. As the world places greater emphasis and focus on sustainable finance, Environmental, Social and Governance or ESG is identified as one of the key drivers that could impact the insurance industry. The World Economic Forum Global Risks Report 2021 has ranked climate change as the most likely and impactful threat to stability. In addition, cyber risk is considered as a top global risk for the insurance sector. Digital vulnerability has heightened the increase in cyberattack and according to an estimate, global cyber premiums totalled USD9.2 billion (beginning of 2022) and expects that it will reach approximately USD22 billion by 2025. The offering of protection in digital business models in areas of resilience enhancement measures such as robust network security, access management, would certainly contribute to market sustainability.

Ladies and Gentlemen,

6. Let me now turn to the developments in Labuan IBFC. Despite the challenging global financial landscape, Labuan IBFC continues to forge ahead in its business expansion in 2022. Labuan IBFC is now home to 226 insurance and insurance-related entities, including 64 captives. As of the second quarter of 2022, the total gross premium of Labuan insurance industry recorded at USD933.3 million. A total USD350.7 million worth of premiums was underwritten by Labuan captive insurance in the first half 2022 and about 65% of these premiums are from the international market. In fact, Asia markets have contributed more than 55% of the premiums underwritten by Labuan captives.

7. A key success factor to the sustained growth of Labuan IBFC is the well-regulated business environment which provides confidence to investors to continue using Labuan IBFC. In charting the continued growth and building on the position of strength, Labuan FSA will continue to strengthen the competitiveness of Labuan captive business under the 5-year Labuan IBFC's Strategic Roadmap launched in June 2022. We have identified priorities and key approaches that will anchor our efforts – working together with the Labuan IBFC industry and other stakeholders to further promote the growth of Labuan captive insurance.

8. Approach 1 is on Business Development. Labuan FSA will review the captive framework to provide more regulatory clarity to investors on captive requirements and to optimise the sector’s capacity to better serve the (re)insurance needs of Labuan entities and peer sectors within Labuan IBFC as well as Labuan Island. This includes strengthening the existing Guidelines on Captive Insurance Business by providing greater clarity in term of business parameters and clearer structures allowed in in Labuan IBFC. At the same time, accelerate the awareness level on use of captive to underwrite more contemporary risks which are uninsured or under-insured. This includes captive used to cater for risk relating to cyber disruptions as well as emerging risks such as ESG related, and crypto-currency business. Labuan FSA is also keen to introduce new innovative solutions for captive insurance business in Labuan IBFC and to enhance the complementary roles of Labuan IBFC to Malaysia insurance needs in serving the unserved and underserved segment.

9. Labuan FSA will continue to be supportive, innovative, and responsive at this cutting edge of technology in developing captive insurance industry in Labuan. These include underwriting of new or emerging risks especially in digital era e.g. cyber risk, digital asset risk, data protection risk, technology risk etc.; and developing guidelines to safeguard the conduct of digital business, digital governance, cyber risk management, and AML/CFT compliance.

10. The second approach is regulatory enhancement. Taking cognisant on the latest market developments as well as international standards, we are committed to ensuring Labuan financial institutions including captives adhere to prevailing requirements and adopt modern business practices. There have been conscientious efforts by Labuan FSA to upscale the captive regulations in the recent years which include greater clarity to the solvency requirements for Labuan Protective Cell Companies, introduced solvency control levels to build up contingency buffer to strengthen captives’ financial resilience and allow for pre-emptive supervisory interventions, and enhanced the market’s operational risk management through issuance of regulatory guidance on business contingency management and digital governance in 2021. Labuan FSA is even open to considering elevating the current simple solvency rules to be replaced by risk-based capital regulations akin to those which are being rolled out for Labuan commercial insurance sector.

11. The third approach is to create Labuan as a Takaful Captive Hub. While there is already one takaful captive in Labuan, this has attracted some interest in this space and we can leverage on Malaysia’s strength as a pioneer in takaful development. The plan is to intensify efforts to promote captive to Malaysian authorities and Government-linked corporations to create awareness and entice them to set up Labuan takaful captives. Currently, the state Governments such as Johore and Selangor have already established their captives in Labuan.

12. The fourth approach is targeting captives in the Asian market which is still under developed, particularly Malaysia’s trading partners in Asia which would offer good prospects in the medium and long term. We urge relevant parties, including Labuan IBFC Inc. and the industry to continue to undertake captive awareness campaign or promotional activities to educate market at large on Labuan captives. Labuan Insurance industry, is encouraged to promote more intra-Labuan businesses, fully utilise Labuan captive product offerings, and expand the marketplace to Europe and the Middle East.

Ladies and Gentlemen,

13. Labuan FSA will continue to support the industry to promote captive insurance by a series of business development initiatives.We will continue to upscale regulatory and supervisory enhancements to promote the Centre's orderly business growth and market stability in view of the dynamic changes in the environment over the past decade. My commitment to you and the greater marketplace is that Labuan IBFC will continue to provide a truly robust, varied, and well-regulated ecosystem.

14. With that, I would like to thank the organisers for inviting me today and also to wish everyone a productive conference ahead.

Thank you.

Nik Mohamed Din Bin Nik Musa
Director General, Labuan FSA
Copyright © Labuan FSA 
Generic Popup