Labuan International Business and Financial Centre (Labuan IBFC), an Asian financial hub known for its insurance, reinsurance, Islamic finance, and digital business solutions, achieved significant growth in 2023, with continued expansion expected in 2024 due to its strong regulatory framework and creative strategies, according to Datuk Iskandar Mohd Nuli, Executive Chairman cum CEO.
In a recent interview with Reinsurance News, CEO Nuli discussed the performance of the Labuan IBFC in 2023 and so far in 2024, as well as the centre’s views on the captive market, and importantly, its ambitions in the reinsurance industry.
“Labuan IBFC has a flexible and robust regulatory framework that meets international standards,” said Nuli. “While providing the flexibility needed for reinsurers to operate efficiently, attractive tax incentives including low corporate tax rates and exemptions, business-friendly policies, streamlined incorporation processes and supportive regulatory oversight.”
Nuli expressed optimism that this favourable environment would attract global reinsurers to establish domicile in Labuan, optimising their tax positions.
He also highlighted the fact Labuan IBFC’s strategic location in Asia provides reinsurers with easy access to the rapidly growing insurance markets in the region.
“This geographical advantage facilitates cross-border reinsurance transactions and enables reinsurers to tap into diverse market opportunities,” said Nuli.
Another factor which Nuli hopes will entice reinsurers to the region, is the fact Labuan IBFC adheres to international regulatory standards and best practices, such as those set by the International Association of Insurance Supervisors (IAIS).
“The adoption of a risk-based supervision approach allows the Labuan Financial Services Authority (Labuan FSA) to effectively monitor and manage the risks associated with reinsurance activities. This enhances the stability and resilience of the reinsurance market in Labuan,” he explained.
Additionally, Labuan IBFC actively promotes itself as Asia’s risk management hub through marketing and outreach efforts. This includes participating in international conferences, hosting flagship events, and engaging with key stakeholders to highlight the benefits of operating in Labuan IBFC.
“Collaborating with industry associations such as the Labuan International Insurance Association, as well as service providers and Labuan Trust Companies (LTCs) create a supportive ecosystem and help reinsurers navigate the regulatory landscape. These partnerships facilitate knowledge sharing, professional development, and the adoption of best practices,” said Nuli.
While the Labuan IBFC clearly has ambitions to become more prominent in reinsurance, growth in the sector is already happening. In 2023, explained Nuli, total gross written premiums rose by 3.8% to USD 1 billion at Labuan IBFC, comprising 77.2% reinsurers, 20.5% insurers, and 2.3% others.
Building on this, Nuli noted that Labuan IBFC also “has a strong presence in the Islamic insurance market, offering both Takaful (Islamic insurance) and Retakaful (Islamic reinsurance) services, given that the setting up of Islamic windows does not require a separate license and no additional fee is involved.”
Additionally, the leasing business in Labuan IBFC intersects with insurance services in sectors such as oil and gas, aviation, shipping, and heavy equipment leasing. In 2023, explained Nuli, Labuan leasing’s topline performance showed “significant revenue improvement of USD 961 million,” reflecting year-on-year growth of 39.4%.
While these areas of insurance, as well as Protected Cell Companies (PCCs), clearly help to boost the position of Labuan IBFC, it is perhaps best known for captive insurance, an area which has driven significant growth.
Nuli emphasised the substantial growth observed in the global captive insurance landscape, driven by evolving corporate risk management needs and heightened recognition of captives as effective alternatives for transferring risks.
Labuan IBFC foresees continued interest in captives, as they allow companies to “tailor risk coverage by addressing specific risks that may not be adequately covered by traditional insurance.”
“Companies are also able to retain and manage risks within captives, resulting in cost savings as well as better management of cash flow. Likewise, businesses with international operations will find captives beneficial for global risk and diversifying their risk portfolio across different regions. Coupled with the advances in technology, such as data analytics and risk modelling, this will enhance the ability of captives to assess, manage and mitigate risk effectively,” added Nuli.
Regarding Labuan IBFC’s achievements in the insurance markets in 2023, Nuli highlighted how these were influenced by various factors.
These include comprehensive and modern regulations that form the foundation of the jurisdiction, providing a wide array of risk management solutions such as direct insurance, reinsurance protection, and innovative vehicles like captives.
The supportive ecosystem also encompasses industry associations, professional services, and LTCs serving as company secretaries.
“Labuan IBFC’s rigorous efforts to develop and effect a risk-based capital framework through the Insurance Capital Adequacy Framework (ICAF) have provided insurers with the needed financial buffers and an advanced risk management approach to better weather external adversities,” commented Nuli.
According to Nuli, the ongoing regulatory enhancements have bolstered market resilience against external shocks and emerging risks.
He stated: “In 2023, Labuan FSA issued a set of comprehensive regulations for the captive sector. This included the expansion of insurable risks that can be underwritten by Labuan captives, new structures for rental captives and enhanced procedures for the establishment of new cells under PCCs.”
“An updated regulation by Labuan FSA regarding this structure is the enhanced procedure for establishing new cells for PCCs. This allows multiple insured parties to be segregated within a single legal entity. This unique structure provides operational efficiencies and cost savings, making it an attractive option for businesses looking to manage distinct pools of risk,” continued Nuli.
Looking ahead, Nuli discussed Labuan IBFC’s priorities for the remainder of 2024 and into 2025, emphasising increased collaboration between the regulator, Labuan FSA, and domestic agencies to explore new business opportunities leveraging Labuan IBFC’s unique structures.
As Labuan IBFC enters the third year of its Strategic Roadmap 2022-2026, the focus remains on sustaining growth through several key initiatives.
Labuan IBFC aims to become a leading international and sustainable financial centre, focusing on Islamic finance, captives, family offices, and digital business. Nuli added that one of the initiatives is the “completion of thorough preparation for FATF 5th Round Mutual Evaluation 2024/2025 for Labuan IBFC.”
Alongside this, Labuan IBFC is enhancing prudential regulations for Islamic financial institutions, digital financial services, and intermediaries, aligning with global best practices.
Lastly, Nuli mentioned that Labuan IBFC is enforcing “rigorous cybersecurity measures and enhancements to the COR@L system (Company Registry).”
