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Captives to remain a vehicle of choice: Sivanesan, Labuan IBFC

15th June 2023 - Author: Saumya Jain

Against a backdrop of market-hardening effects, Labuan International Business and Financial Centre (Labuan IBFC)’s captive sector continued to gain momentum with five new players and total gross premiums of USD 571 million in 2022. More than 62% of the premiums were generated from the international insurance business.

lalitha-sivanesan-labuan-ibfc-2“This underscores Labuan IBFC’s prominence as the captive market of choice regionally and globally,” said Lalitha Sivanesan, Manager for Media & Strategic Communications, Labuan IBFC Incorporated Sdn Bhd (Labuan IBFC Inc.), in a recent interview with Reinsurance News.

As at year-end 2022, Labuan IBFC is the home of 67 captives, including the subsidiaries of well-known global firms. The involvement of such prominent names in the region’s captive sector, she explained, highlights that captives are a viable solution and have a significant role to play in today’s business world.

“We forecast that there will be further growth for Labuan IBFC’s captive market in 2023. Given that it is still a hard market with increased premiums, captives will remain a vehicle of choice for companies, especially with bigger corporations. In addition to being cost-effective, captives can also be used as risk vehicles in underserved risk categories such as cyber and agriculture,” said Lalitha.

According to her, as interest in captives expands in a hard market environment, there are three key factors that should be considered by potential sponsors.

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“The first of which should be if the market they are investing in has a robust and comprehensive regulatory framework that has a proven track record in allowing for the establishment and support of captives. This is important to ensure that the establishment and subsequent operations of captives is legal and guided to a certain extent.

“The second key factor to be considered is if the market is tax-compliant, in a sense that they adhere to international tax laws and regulations. This is doubly important to ensure that any established captives will automatically follow global tax laws and guidelines.

“Thirdly, potential sponsors should consider the availability of an ecosystem that caters to the establishment and operations of captives. This includes agency providers that provide end-to-end services from the establishment of captives to the support of already established captives,” she explained.
Expanding on this, Lalitha offered some advice for how potential captive sponsors can get up to speed on the range of opportunities available in Labuan IBFC.

“Labuan IBFC Inc. is the official marketing and promotional arm for the Labuan jurisdiction. We are more than happy to guide prospectives in all things captive-related.”

“Potential captive sponsors can also attend Labuan IBFC Inc.’s flagship captive event, the Asian Captive Conference 2023 which is taking place on 7 September 2023 at the Sime Darby Convention Centre, Kuala Lumpur, Malaysia. This will give them a golden opportunity to meet key stakeholders in the captive space, which will encompass representatives from the regulatory and marketing arms of the jurisdiction, companies that have already established captives within Labuan IBFC, as well as service providers from the jurisdiction that specialise in end-to-end services regarding the establishment of a captive,” said Lalitha.

She went on to highlight some of the reasons market participants should look to Labuan and specifically Labuan IBFC.

“The Labuan IBFC Strategic Roadmap 2022 – 2026 rightfully positions the jurisdiction as the region’s captive hub. This positioning is based on several factors, first and foremost of which is that the jurisdiction operates based on a comprehensive legal framework, making it an ideal jurisdiction for the intermediation of risk,” she noted.

“Labuan IBFC also ensures that regulatory requirements are continuously reviewed and met, with IAIS (International Association of Insurance Supervisors) core principles and captive guidance duly observed as well as adherence to global standards to preserve a business-friendly market environment.

“In addition, Labuan IBFC provides a cost-efficient operating base with a wide range of innovative captive solutions, such as protected cell companies (PCC), master-rent-a-captive (incorporated cell company), mutual captives and association captives. This broad range of solutions enables businesses that establish their operations in the jurisdiction maximum flexibility as they develop and mature over their individual lifecycles, which has led to sustained global interest.

“It also provides fiscal neutrality and certainty in a currency-neutral operating environment,” added Lalitha.
Discussing the captive market more broadly, Lalitha told Reinsurance News that one of the exciting developments in the market right now, and where she sees an opportunity for Labuan IBFC, is with environmental, social and governance (ESG).

“Globally, there have been significant developments in the ESG space, particularly now that ESG standards have become an additional yet vital parameter in assessing a company. Cyber-related risks have also become a significant concern for companies, especially those operating in the finance and banking sphere.”

“Captives can play a role in addressing both a company’s ESG and cyber-security concerns by providing low-cost, ‘in-house’ cover for both these risks via the formulation of an ESG framework. This can encompass ESG governance, underwriting both risks, incorporating sustainability goals in investment guidelines and fulfilling ESG reporting requirements,” said Lalitha.

“This framework will enable captives to help parent companies understand their overall risk profile and mitigate risks on the ESG spectrum,” she added.

To conclude, Lalitha explored some of the potential opportunities for 2024 and beyond.

“Labuan IBFC’s comprehensive digital services and offerings have resulted in an influx of digital financial services providers. Among these are insurtech providers, which have revolutionised the conventional forms of financial offerings in the centre, including the possibility of setting up purely digital captives.

“Captives are poised to play a significant role in the ESG space as they are well-positioned to formulate an ESG framework aimed at identifying, rectifying and implementing a company’s ESG undertakings. This framework allows captives to help parent companies understand their overall risk profile and mitigate risks on the ESG spectrum to reduce the probability or severity of potential claims, thus reducing the company’s total cost of risk,” said Lalitha.

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