Welcoming Speech by Datuk Ahmad Hizzad Baharuddin, at Asia Captive Conference 2017
Welcoming Speech by Datuk Ahmad Hizzad Baharuddin, at Asia Captive Conference 2017
“De-Risking Asia: The Growing Role of Self-Insurance”
17 August 2017

Distinguished Guests, 

Fellow Speakers and Participants,

Ladies and gentlemen,

Assalamua’laikum warahmatullahi wabarakatuh; and good morning.

1. It is my pleasure to extend a warm welcome to all participants to the second day of the inaugural Asian Captive Conference 2017. I should say the first day yes-terday was very enlightening and I have learnt a lot of things from the presentations and panel discussions, as well as from the coffee talks. I am indeed delighted to be part of this intellectual discourse with this large group of insurance experts and in-dustry practitioners, who have come together to engage in a strategic discussion; “De-Risking Asia: The Growing Role of Self-Insurance”, and for that I wish to thank the everyone who have come from various parts of the region including Malaysia to participate in this conference. Your presence makes this event and our hosting of the Asian Captive Conference more meaningful.

2. In my remarks today I will relay a quick summary of the first day deliberation and move on to convey some of our thoughts and developments in the captives market.  

Ladies and Gentlemen,

3. During the course of the conference yesterday, we heard from our distin-guished speakers various aspects of risk management including exciting innova-tion and new business model in new insurance technology – insurtech, block-chain, the many benefits of innovative captive structures options; the effects of Base Erosion and Profit Shifting and tax transparency in the changing regulatory landscape today. Let me try to share some of the salient points

4. The Governor opened the conference in his keynote address articulating the developments of the captives over the years, and how it has developed to offshore centres due unsuitable regulatory framework and tax related tendencies. He further articulated the potentials of the captives industry, for the small and medium scale risk owners and technology providers, one of which hinges on the possibility to in-cubate new risks management experience internally, which eventually can be commercially offered. With sufficient prudent safeguards and the right risk based regulatory setting, captives have the potential to advance the insurance industry, and importantly, empowering self risk management by owners of different sizes and for unfamiliar risk types like those of uber.  

5. Similarly in the same vein, the block chain advancements of today articulated by Mr Ruben Tan delivered a very strong possibility that it gives us back the power to control our data and information, thus self risk management if I may allude, in a decentralised technology settings of secured multiple servers and nodes. However, as opaque as the block chain technology is to many including me, captives are also unfamiliar territories for many, with its misconception and misperceptions while opening opportunities. The survey results and the panel discussions led by Peter Cutcher amplify the need for decision makers to appreciate that applying captives help to improve how you manage and finance risk and priorities need to be given to analyse organisation or groups wide risk program.

6. The second panel discussion led by Dato’ Majid deliberated the use of cap-tives by MNCs. Importantly, the understanding of the risks and the appropriateness of the risk arrangements and clarity in setting up the captives would be key. Not all risks can be covered internally and working with service providers in this field is crit-ical. In the last panel led by Mr Michael Vellen explained the BEPS con-cepts that bring forth the reality that there is only two things certain in life - death and the taxman. The panel brilliantly advised the conference with the forthcoming of BEPS adoption and its implementation, tax consideration should not be the pri-mary driver. That is both a very practical suggestion as well as foresight. In Labuan IBFC, substance requirements and information exchange with other tax authorities would be an inevitable outcome as Malaysia is committed to the BEPS framework.

7. Let me now moves on to some of our own thought on captives. The concept of captive insurance is considered comparatively new to the Asian market and re-mains relatively unexplored today. The Asian market only made up 2.4% of the total of 7,006 captive established worldwide in 2016. China is now very fast raising the awareness and interest in alternative risk transfer programmes given the robust economic growth and the resultant growth in insurance penetration. While we heard conservative Japanese companies shy away from tax planning or cost saving endeavours, it is noted that there is a changing of tide in recent years due to possi-bility of new tax regime and the presence of international Japanese subsidiary overseas. The room for growth is therefore enormous in Asia Pacific, since in Asia, the knowledge and understanding of the full capacities of captives is still at its in-fancy stage.

8. In addition, underinsurance phenomenon remains a typical feature in many Asian economies and over time, captive would naturally be an attractive solution for many business enterprises as they evolve alongside with Asia’s robust economic expansion, in particular cross-border trade activity and proliferating infrastructure development. These would certainly present a strong case for captive business to flourish. As corporations in this region gets larger and more sophisticated, with the continuous education to create awareness of captive, coupled with the heightened level of risk exposures and coverage required, there will be more corporations look-ing at captive propositions as a viable alternative risk transfer vehicle and eventual-ly see the economic merits of keeping and self-insuring some of their risks in-house.

9. In satisfying these developments, even though international financial cen-tres such as Bermuda and Guernsey remain the popular domiciles for captives, we are happy to note that domiciles such as Labuan and Singapore, are emerging leading destinations in the region for captives as they are very attractive in terms of capital requirements and solvency regimes, flexibility of investments, as well as reputation and effectiveness of supervision.

State of the Labuan IBFC Insurance Industry/Captive Business

10. In Labuan IBFC, its developments over the years have seen a rich pool of financial institutions, including many international insurers and reinsurers that have established their presence to tap the rising Asian potential. Labuan IBFC is now home to 203 insurance and insurance-related entities, including 43 captives. The captive business contributed to an aggregated written premium of USD348.6 million in 2016. Majority of the captive business are derived from outside Malaysia, with engineering sector and other class of business contributed the highest share of the gross premium of USD131,293 and USD178,036 of the total captive gross premium while the premium retention rate is high at 69.3% in 2016. For geograph-ical contribution, Asia is the main contributor of almost 75% of the premium and the remaining 25% are EU and the US parented captives. There are of course, still considerable room for Labuan’s captive industry to continue to position itself to serve the Asian market.  

11. These opportunities in captive market are further supported with an enabling environment created by a facilitative regulatory framework. The Authority through engagement with the relevant stakeholders including the industry players, continue to review the legislation to ensure that it is at par with international standards and best practices as well as to allow for diversification and broadening of niche prod-ucts and services offerings in Labuan IBFC. The current Labuan legislations is re-garded as the most market adaptive comparing to other captive markets, especially the provision on protected cell companies (PCC), both conventional and Islamic. In addition, to further enhance the business proposition and provide certainty to pro-spective investors, Labuan FSA has issued a clarification note on the solvency re-quirements for Labuan PCC, in 2016.  

12. Leveraging on the critical mass of the insurance expertise, robust and yet flexible regulatory regime and wide spectrum of risk management products, Labuan IBFC is well positioned to progress into the next phase of development as one of Asia's leading captive insurance hub.

Moving Forward

13. Moving forward, the international financial centres including Labuan IBFC will continue to be shaped by the shifting market dynamics and global financial devel-opments. Labuan FSA as the authority, will continue to focus on strengthening La-buan IBFC’s position as a hub for captive domicile, by working closely with the in-dustry to create captive development plan for the future; i.e increasing capacity and attracting new players into Labuan; building the talent pool of experienced and competent expertise needed in the specialist business lines. We all need to work together as the new term we heard yesterday of “distributed consensus problem” that relates to difficult mathematic equation, which I think is equally tough on build-ing consensus amongst different stakeholders with varied and vested interest. We, therefore encourage industry professionals like yourselves and the industry associ-ations to take the lead in promoting professional education and upgrading of indus-try’s competencies. To support such endeavours, Labuan FSA will also continue to conduct professional training programmes to enhance the knowledge and skills for the industry.


14. To conclude, let me make reference again to the conference theme of “De-Risking Asia: The Growing Role of Self-Insurance". Asia is in an exciting phase of growth; and captive insurance is certainly an important component of the evolving business infrastructure and financial markets. The prospects for captive are bright and all of us here can play a greater role to serve the needs of the captive industry in Asia, by offering solutions for risk diversification and for more efficient capital and balance sheet management.

With this, I wish all the conference participants a fruitful time ahead.

Thank you.

Ahmad Hizzad Baharuddin
Director General of Labuan FSA
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