Labuan Captive Insurance
A captive insurance company is set up by its parent to underwrite the risks of that parent company, its associated, affiliated and / or subsidiary companies and, in some cases, risks associated with the companies’ dealings with their customers.
Traditionally, captive insurance companies have been set up in offshore jurisdictions to ensure cost effective access to global reinsurance markets and to maximize investment potential for corporate funds retained within the captive. Despite international competition, Labuan has had considerable success in attracting both international and domestic Malaysian captives. As at November 2008, 32 captives were resident in the domicile with premiums generated totalling USD187 million, a growth of 47% over the previous year.
- A mature, pragmatic and business-friendly environment
- Sound legislative and administrative structures
- Well established international banking, investment and communication systems and
- A broad range of experienced service providers
Captive insurance companies may be licensed to underwrite business in one or all of the following classes:
- Pure captive
- Group captive
- Association captive
- Rent-a captive
- Protected cell captive
Examples of risks that have been managed by Labuan-domiciled captives include:
- Marine (ships, barges)
- Oil and Gas
- Product Extended Warranty
- Personal Accident
An applicant is required to submit to the Director General Labuan FSA, which should include, but is not restricted to the following information
- An authenticated copy of the proposed Memorandum and Articles of Association of the applicant
- Approvals of authorities concerned, board resolutions and minutes of a general body meeting in respect of carrying on business as a Labuan captive insurer
- A business plan for the first three years of operations, which should include but is not limited to the following:
- A description of the nature of risks that are to be written
- An explanation of the strategy for managing risks, particularly in relation to reinsurers
- Details of previous loss history, stating the source of the information and past actuarial studies, if appropriate.
- Confirmations that the financial projections which should be consistent with loss history and acturial studies
- The rationale for setting up the company in Labuan
- An outline of the exposure to be written and the reinsurance to be obtained
- A summary of the programme, including reinsurers and security ratings
- If applying for a cell of a Protected Cell Company and the cell is reliant on the core for solvency, a solvency projection showing the allocation of core capital to all of the individual cells.
- A summary of the fronting arrangements, including fronting company, security rating and commission structures
- A summary of how the loss reserves are to be calculated, and
- Details of the forms of business to be undertaken
- Audited annual accounts for the three years immediately preceding date of the application, if the business is licensed and authorised to conduct insurance business outside of Labuan
The applicant must:
- Be incorporated or registered as a Labuan company, a foreign Labuan company under the Labuan Companies Act 1990, a protected cell company or a special purpose vehicle set up to undertake captive insurance business
- Have a management office in Labuan or appoint a licensed underwriting manager
- Appoint at least a director and a resident secretary. The resident director (if appointed) and resident secretary must be trust officer(s) of a trust company in Labuan
- Ensure that its person in control/director/principal officer is a fit and proper person, whose appointment requires prior approval from Labuan FSA
- Establish a management team of fit and proper persons, with adequate knowledge and expertise to manage a captive or appoint a licensed underwriting manager
- Carry on business in any currency other than the Malaysian currency, except as permitted by the relevant authorities
- Have no adverse reports from reliable sources on the shareholders, directors and senior management of the applicant company.
In relation to a Labuan company which is:
- A single/multiple owner, Group and Association captive: a paid-up capital which is unimpaired by losses of at least MYR300,000, or its equivalent in any foreign currency, or
- Rent-a-captive, master rent a captive, cell captive or similar vehicle: a paid-up capital which is unimpaired by losses of at least MYR500,000, or its equivalent in any foreign currency. In relation to a foreign Labuan company or a branch of an existing insurer:
- A single/multiple owner, Group and Association captive: a surplus of assets over liabilities of at least MYR300,000, or its equivalent in any foreign currency, to be maintained in the books of its office in Labuan, or
- Rent-a-captive, master rent a captive, cell captive or similar vehicle: a surplus of assets over liabilities of at least MYR500,000, or its equivalent in any foreign currency, to be maintained in the books of its office in Labuan.
A captive insurer is required to maintain at all times a surplus of assets over liabilities, which is equivalent to or more than the amount of its working funds and specifically when the captive is involved in:
General Insurance and/or Reinsurance
- To maintain a surplus of assets over liabilities or 20% of the net premium income for the preceding year in respect of the general insurance business, whichever is the greater.
Life Insurance and/or Reinsurance
- To maintain a surplus of assets over liabilities or 3% of the actuarial valuation of the liabilities for life insurance business as at the last valuation date in respect of the life insurance business, whichever is the greater.
- Labuan captives are required to submit within six months after close of each financial year-end, 4 copies each of its audited financial statements, as approved in accordance with its constituents documents
- The latest audited financial statements in respect of its entire operations both in and outside Labuan within 3 months after being filed with the home regulatory authorities. (only applicable to branch)
- Provide statistics and information required in relation to prudential regulation and business operation to Labuan FSA from time to time.
Qualifications and Conditions
The following entities may apply to undertake Sharia Captive Activities:
- A Labuan Company or Protected Cell Company
- Special Purpose Vehicles, as well as any other category of persons approved by Labuan FSA
- The application directed to the Director General, Labuan FSA, must include the following:
- Certified extracts of Board Resolutions and minutes of meetings in respect of the decision to set up a Sharia compliant captive.
- The proposed Memorandum of Association stating that the operations of the captive are to be Sharia compliant and detailing the setting up of the captive’s Sharia Advisory Board.
- A business plan for the first 3 years of operations
- The applicant’s corporate profile, including the name, place and date of the establishment of the applicant as well as details of the directors and officers responsible for the a management of the applicant
- Shareholding structure of the applicant and a declaration by the applicant on the probity of its directors and officers responsible for the management of the Sharia Captive
- Where applicable, audited annual accounts for the three years immediately preceding application if the business is a licensed insurance entity outside Labuan.
A Sharia Captive insurer may underwrite direct general and life insurance risks of their own group and may also obtain reinsurance cover from any insurance company, irrespective of whether it is licensed under the Labuan Islamic Financial Services and Securities Act 2010.
In case there is a need to obtain conventional insurance coverage, either from a Labuan based insurance firm or otherwise, the Sharia captive is first encouraged to obtain takaful coverage before considering the reinsurance/conventional option.
- The Sharia Captive is required to maintain at all times a surplus of assets over liabilities which is equivalent to or more than the amount in its working fund, or
- 20% of net contribution income for the preceding year in respect of the general insurance business or 3% of the actuarial valuation of the liabilities for family takaful business as at the last valuation date in respect of the family takaful business
In addition, the Labuan Sharia Captive is required to submit to Labuan FSA;
- Within six months after the close of each financial year, two copies of its audited annual balance sheet and profit and loss account as approved in accordance with its constituent documents, and
- Statistics and information required in relation to prudential regulation and business operations as requested by Labuan FSA from time to time.
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