25 August 2022: Labuan Financial Services Authority (Labuan FSA) had issued the Insurance Capital Adequacy Framework (ICAF), a set of risk-based capital (RBC) regulations for its insurance industry yesterday. This is a paradigm shift as the Centre departs from the traditional factor-based solvency margin requirement to RBC approach which is contemporary, risk-focused, and future-proof capital measurement. ICAF is regarded as timely to be practised especially for Labuan IBFC as it has a rapidly expanding international insurance market.

ICAF essentially enhances the market’s overall financial resilience by requiring insurers to maintain sufficient Capital Adequacy Ratio above the minimum regulatory stipulated threshold. ICAF also, among others, promotes sound capital management practices amongst the insurers. The capital buffer created by ICAF is considered timely as it serves as a shock absorber for insurers to withstand any risk exposures from market uncertainties especially in the post-pandemic environment. The new regulatory framework would also modernise the market’s risk management practices as ICAF disciplines insurers to maintain sufficient capital that is commensurate with their business risk appetite. ICAF therefore ensures that key risk exposures to insurers are actuarially quantified and managed prudently as part of their ongoing financial management.

Through the implementation of ICAF, Labuan IBFC would be on par with other peer insurance centres in meeting the regulatory standards as set by the International Association of Insurance Supervisors (IAIS). With ICAF in place, it is expected that Labuan IBFC’s stature as one of Asia’s preferred international insurance hubs would be further elevated. For greater details, the Guidelines on ICAF are available on Labuan FSA’s website at www.labuanfsa.gov.my.