Labuan Financial Services Authority’s 2017 latest annual report makes for interesting reading and shows that a whopping 941 companies were incorporated in Labuan International Business and Financial Centre (Labuan IBFC) last year, bringing the total number of companies in the jurisdiction to 14,201.
While the range of financial business undertaken in Labuan IBFC encompasses areas as diverse as wealth management and debt capital markets, insurance and risk management business form a significant core of the total.
Growth in insurance
“Insurance contributes a lot to the substance in Labuan,” Labuan IBFC CEO Farah Jaafar-Crossby said. “The insurance and risk-management industry in Labuan is probably the most vibrant license sector. We have close to 250 license holders. At the start it was largely Malaysian business but it is now predominantly foreign,” she said.
The growth story of the jurisdiction is one that has seen the centre adapt to new opportunities as they have arisen. “My understanding is that in a lot of instances, the excess capacity coming out of Malaysia would go to Labuan first,” Ms Jaafar-Crossby said. “So the first right of refusal went to Labuan licensed entities and that is why, in the beginning, around 1996, the risk management, insurance and reinsurance sectors started to grow in Labuan because they couldn’t be covered domestically.
“Over the years the proposition has grown to the point where now 61% of everything we do is foreign and a lot of the business is retained in Labuan now. So over the past 28 years it has morphed and this maturity can be seen across the board. It’s not just about insurance and reinsurance, it is also in captives.”
With the globalisation of business, and the breaking down of international barriers in financial services, Labuan has grown to accommodate a wider range of business. “With Labuan you have a jurisdiction that has grown from meeting the needs of a Malaysian marketplace into an ASEAN intermediating centre,” said Ms Jaafar-Crossby. “The proposition for Labuan has always been about allowing Malaysians to regionalise. I believe that insurance is one of the most important industries in Labuan.”
Takaful and captives
Naturally enough, since the Takaful segment is a significant contributor to Malaysia’s insurance landscape, it is well represented in Labuan IBFC’s landscape too. “Last year we had an amazing reTakaful year,” said Ms Jaafar-Crossby. “Growth in contributions was up almost 70% and that is due to one player that was licensed back in 2011. It is not a Malaysian player but they have been very active in the Malaysian domestic motor market and they have really ramped up their activity. Between that and growth in other areas like fire and other areas, contributions have gone up substantially.”
The increasing importance of captive insurance has also been represented in the growth story of the jurisdiction. “The focus on captives has been significant because it is starting from a lower base,” said Ms Jaafar-Crossby. “We feel that the Asian market is ‘under captived’ and because of that we feel that the upside is larger than other sectors within insurance. The regulator is looking at the insurance industry to see how we can improve our offering, the category of licenses, to facilitate that growth even more. So on the surface it may feel like we are very captive-focused but that is because we really need to get that generic message out there about captives.”
Driving the message home
In some ways the pitch to firms to consider captives as a realistic, modern solution to their risk requirements is one that involves educating them about the benefits that setting up a captive can have.
“Part one of the message is that self-insurance is an option for a lot of companies. You don’t have to be huge to want to have one,” Ms Jaafar-Crossby said. “Part two is that we don’t just offer pure single-parent captives. So we will go to Japan and talk to people who may want to have an association or mutual captive. Our offering is a lot more flexible.
“Part three is that Labuan, as a jurisdiction, has protected cell companies and we even have a Shari’ah-compliant protected cell company. So even a captive can be run in a Shari’ah-compliant manner. And you have a one-stop regulator who will answer your call,” she said.
Which markets does Labuan IBFC target with its message? “We target businesses coming into Asia as well as intra-Asia,” said Ms Jaafar-Crossby. “We feel that Asia is still the strongest growth centre globally. I am also very excited about the potential growth in ASEAN states and, for instance, you have seen tremendous growth in Vietnam and eventually you will get that with Laos, Myanmar and Cambodia. That alone will be significant.”
And then there’s China
No analysis of any entity’s business in Asia would be complete with acknowledging the growing significance of China and Labuan IBFC is no exception. “Within Asia, we do a lot of business in China,” Ms Jaafar-Crossby said. “Insurance and reinsurance in China is interesting because a lot of the risk has to flow back. We are trying to position ourselves for Chinese risk that is already outside of China.
“So when we are in China the focus is more on getting intermediaries being licensed in Labuan. When a Chinese intermediary is licensed in Labuan, then the business can be done outside of China. If you look at belt and road initiatives in Malaysia, there is a whole delegation of service providers which is needed to manage the risk. Hence, it is important for us to on-board more Chinese risk management insurance intermediaries because they are the ones that, in turn, will secure the Chinese business.”
And the other mega market too
Curiously, India poses more challenges for the jurisdiction than even China, according to Ms Jaafar-Crossby. “India is a market that we have started to look at – but our understanding is that it is also a very closed market,” she said. “We don’t understand it well enough but, having said that, there are a lot of Indian reinsurers and brokers that are looking at Labuan as a regional home. We have already attracted Indian entities like GIC Re and we are presently waiting for a huge Chinese reinsurer to get approval from China to come in. Last year we brought in some Lloyd’s syndicates and we have also brought in entities such as Swiss Re Corporate Solutions and one of the largest South Korean reinsurers.” A