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Labuan Insurance Business

WE ARE YOUR INTERNATIONAL BUSINESS INSURANCE

Labuan insurance businesses are an attractive proposition for many as a result of Labuan IBFC’s highly regarded profile and accompanying tax advantages and infrastructure benefits.

Risk management is at the heart of most successful businesses, providing the ability to expand on a global scale without the worry of what happens if something goes awry. Any successful business needs to think ahead and plan for the future. This means assessing the risks that the business might face and managing those risks as effectively as possible. Insurance businesses take good care of companies, and act both as a safety net and enabler should a risky venture not pay off. Labuan IBFC is quickly becoming a key offshore financial centre in the South East Asia region, and already there are 112 insurance companies on the island, and this figure looks set to grow as the island further establishes itself as a major offshore financial centre.

For insurance firms, Labuan provides a strong infrastructure, generous tax laws that allow businesses to maximise on profit and growth, and ample amenities and professional personnel. Combine this with our boutique business model and tailored approach to ensure you can effectively set up and manage a Labuan insurance business, and this island off Malaysia is an ideal location to be based.

WHAT IS LABUAN INSURANCE BUSINESS?

Part VII of the Labuan Financial Services and Securities Act 2010 defines an insurance business as the carrying out of contracts to protect people against loss or liability to loss regarding risks that the insured person may be exposed to, or the payment of a sum of money or other benefit of value in the event of a disaster.

The definition of a Labuan insurance business is one which includes both takaful and retakaful business, and is carried out in a foreign currency.  It does not include Malaysian domestic insurance business.

Below are the different types of insurance licensed in Labuan:

(a) LABUAN INSURANCE BUSINESS

  • Captive insurance: In this instance the insured is a related corporation or associate corporation of the company providing the insurance. The insurance company may also provide insurance or reinsurance for any other person or persons as authorised by the Labuan FSA.
  • Labuan reinsurance: In this instance part of the insurer’s liability under an original contract is transferred to another insurer or reinsurer.
  • General Insurance: This includes accident, surgical, medical, and hospital expenses insurances related to any person, but excludes life insurance.
  • Life Insurance: Payment is made to the insured person’s family in the event of the insured person dying. This type of insurance includes any incidental extension of cover and reinsurances of such business.

(b) LABUAN INSURANCE-RELATED ACTIVITIES

  • Underwriting manager: Someone who is licenced to provide underwriting services, including the administration of the business, to Labuan insurers but who is not a bona fide employee of that insurance company.
  • Insurance manager: A person or corporation with a licence to work as a manager or administrator for Labuan insurance business. Labuan underwriting managers do not fall into this category.
  • Insurance broker: This is a person or corporation who is licenced to arrange Labuan insurance or reinsurance for future or existing policy holders or insurers. They may also analyse the financial circumstances of potential clients and then provide an insurance plan to meet the client’s needs and objectives.

LABUAN INSURANCE BUSINESS AND INSURANCE RELATED ACTIVITIES IN LABUAN

KEY BENEFITS OF SETTING UP INSURANCE BUSINESS AND INSURANCE RELATED ACTIVITIES IN LABUAN

Tax and business incentives: Any trading company, which includes insurance business, will only have to pay tax at the preferential rate of 3%. Alternatively a flat rate of MYR 20,000 (USD 6,700) can be paid.

No withholding tax: Withholding taxes are not imposed on the beneficial owner’s income.

No exchange control imposed: Labuan companies are not subject to The Exchange Control Act 1953 because of their non-resident status (ECM 15).

Extensive double taxation treaty (DTA) network: Labuan is included in Malaysia’s DTA. This means, Labuan can access the extensive double taxation agreements made by Malaysia with its treaty partners.

Minimal renewal fee: The annual licence fees are very reasonable particularly for brokers and managers. The table below outlines the different fees:

ANNUAL LICENCE FEE FOR AN INSURANCE BUSINESS IN LABUAN

Type of Licence Licence Fee (MYR)
General Insurer/Reinsurer 30,000
Life Insurer/Reinsurer 30,000
Underwriting Manager 10,000
Insurance Manager 10,000
Insurance Broker 10,000
General Insurer/Reinsurer 30,000


Strategic location with skilled work force: Labuan operates on the same time zone as a number of large Asian cities, making it ideal for business dealings. Labuan IBFC is just a short flight from Kuala Lumpur and Kota Kinabalu and there are plenty of flights daily. Additionally, Labuan has a highly skilled and talented workforce that is very familiar with international financial business protocol.

Strict confidentiality legislations: a comprehensive regulatory framework ensures that Labuan complies with international standards of service, performance and confidentiality. In addition to this Labuan is a ‘white listed’ jurisdiction and endorses the bilateral exchange of tax information with foreign authorities.

KEY FEATURES OF A LABUAN INSURANCE COMPANY

  • Appointment of actuary: Any Labuan insurance company providing life insurance will need to appoint an actuary every year within the time frame specified by the Labuan FSA.
  • Margin of solvency: A Labuan insurance company dealing in captive insurance business needs to ensure that the realisable value of its assets is more than its liabilities, as follows:

    • Single Owner / Multiple Owner Captive: MYR 300,000
    • Rent-A-Captive/Cell Captive or Similar Vehicle: MYR 500,000 or 20% of net premium income of the preceding year or 3% of the actuarial valuation of liabilities for life insurance, whichever is greater.
    • General: MYR7,500,000 or 20% of net premium income of the preceding year, whichever is greater
    • Life: MYR7,500,000 or 3% of the latest actuarial valuation of liabilities, whichever is greater.
    • Composite: MYR7,500,000 or aggregate of 20% and 3% requirements in the above general and life business, whichever is greater.
    • Reinsurance: Similar to that of direct insurance business but the minimum requirement is MYR10,000,000 instead of RM7,500,000 million.
  • Separate accounts to be kept: Labuan insurance companies must keep accounts and funds separate in the following situations:

    • From other funds
    • Life insurance business must be kept separate from general insurance business
    • Labuan insurance business must be kept separate from any domestic insurance business carried on in Labuan.
  • Set up an office or establish subsidiary: As long as it has prior approval from the Labuan FSA, a Labuan insurance company can establish a subsidiary or open any office other than its main place of business in Labuan.
  • Restrictions on the duties of a Labuan insurance manager, underwriting manager, and broker:

    • Licenced insurance managers and underwriting managers are not permitted to provide services other than underwriting or administrative services.
    • Licenced underwriting managers are not permitted to provide underwriting services in or from Labuan to people who are not licenced under this act, including any insurer registered under the Insurance Act 1996, or the Takaful Act 1984.
    • Licenced brokers are not permitted to act as a broker in respect of domestic insurance business, unless handling the reinsurance of domestic insurance which is transacted in Malaysian currency.
    • Licenced insurance managers and underwriting managers must not use the funds of a Labuan insurer for their own expenses or liabilities.

REQUIREMENTS FOR SETTING UP A LABUAN INSURANCE BUSINESS

In order to set up an insurance business in Labuan, certain minimum criteria must be met:

  • The company must be a Labuan company or a foreign Labuan company incorporated or registered under the Labuan Companies Act 1990 OR
  • A branch of Malaysian insurer that holds a valid insurance licence
  • The business must have a working capital of:

    • Single Owner/Multiple Owner Captive: MYR 300,000
    • Rent-A-Captive/Cell Captive or Similar Vehicle: MYR 500,000
    • General: MYR 7,500,000
    • Life: MYR 7,500,000
    • Composite: MYR 10,000,000
    • Reinsurance: MYR 10,000,000
However, the applicant may apply for the flexibility to pay less than 100% of the working funds needed. The difference in the amount would need to be subject to an adequate guarantee that is acceptable to the Labuan FSA.

  • The company will need to provide a banker certificate issued by a bank in Labuan, as evidence of the necessary working capital.
  • The person in control, director, and principal officer applicant must be deemed fit and proper persons to be associated with a Labuan insurer.
  • The company will need to establish a management office in Labuan or appoint a licenced underwriting manager or Labuan insurance manager in Labuan. A licenced underwriting manager can only be appointed to carry out Labuan captive insurance business.
  • The application shall made in writing by or on behalf of the applicant to Labuan Financial Services Authority (“Labuan FSA”), and be accompanied, but not limited, to the following documents, statements and information below:
1. A comprehensive business plan of the proposed company.

2. An authenticated copy of the following statutory documents of the applicant company:

  • Proposed Memorandum of Association and Article of Association
  • Resolutions of the Board and the general meeting, if any, authorising the applicant to apply for a licence
  • Certificate of Incorporation
  • Three years consecutive audited accounts of the applicant
3. A comprehensive corporate profile, which includes:

  • The name, place and date of establishment of the applicant
  • The names, addresses, qualifications and experience of the directors and officers responsible for the overall management of the affairs of the applicant, and
  • The name and address of each member who holds 10% or more of the voting shares of the applicant.
4. A letter of awareness issued by the applicant’s origin authority. This requirement does not apply for a captive insurance business.

5. A declaration by the applicant on the probity of the directors and officer who would be concerned in the management of the proposed Labuan insurer.

6. A letter of undertaking, if applicable, shall provide the guarantee that:

  • The applicant shall comply with the financial obligation and requirement imposed by the Act, and meet liabilities in respect of a Labuan insurance business.
  • No participation of the applicant, who holds more than 10% shares, shall be changed without proper approval from the Labuan FSA.
  • The person in control, director, and principal officer applicant must be fit and proper persons, and would only be appointed upon approval of Labuan FSA.

This will not apply to captive insurance if the policy owner is a related corporation or associated corporation of the Labuan insurer.

REQUIREMENTS FOR SETTING UP A LABUAN INSURANCE-RELATED ACTIVITIES

In order to set up insurance-related activities in Labuan, certain minimum criteria must be met:

  • The applicant must hold a valid insurance licence and have working capital of MYR 300,000 million.
  • The applicant must be able to maintain sufficient funds in its business to cover the expense of operating in Labuan for at least six months.
  • The person in control, director, and principal officer applicant must be deemed fit and proper persons to be associated with a Labuan Insurer.
  • The Labuan insurance manager or Labuan under writing manager will establish

    • A management office in Labuan or will
    • Appoint a licenced underwriting manager or Labuan Insurance manager in Labuan. A licenced underwriting manager may only be appointed to carry out Labuan captive insurance business.
  • A Labuan insurance broker:

    • Has established or undertakes to establish a management office in Labuan or will appoint a licenced insurance manager in Labuan
    • Has obtained or undertakes to obtain a professional indemnity insurance policy of not less than 2.5 million
    • Holds the necessary qualifications specified by the Labuan FSA
    • Undertakes to become a member of an association of Labuan Insurers.

The application shall be made in writing by or on behalf of the applicant to Labuan Financial Services Authority (“Labuan FSA”), and should be accompanied, but not limited, to the following documents, statements and information below:

1. A statement on the nature of the business to be carried out.

2. An authenticated copy of the following statutory documents of the applicant company:

  • Proposed Memorandum of Association and Article of Association
  • Resolutions of the Board and the general meeting, if any, authorizing the applicant to apply for a licence
  • Certificate of Incorporation
  • Three (3) years consecutive audited financial statement of the applicant

3. A letter of awareness issued by the applicant’s origin authority.

4. Comprehensive corporate profile, which includes:

  • The name, place and date of establishment of the applicant
  • The names, addresses, qualifications and experience of the directors and officers responsible for the overall management of the affairs of the applicant
  • The name and address of each member who holds 15% or more of the voting shares of the applicant.

5. Declaration by the applicant on the probity of the directors and officer who would be concerned in the management of the proposed Labuan insurer.

6. A letter of undertaking, if applicable, shall provide the guarantee that:

  • The applicant shall comply with the financial obligation and requirement imposed by the Act, and meet liabilities in respect of Labuan insurance business.
  • No participation of the applicant, who holds more than 10% shares, shall be changed without proper approval from Labuan FSA.
  • The person in control, director, and principal officer applicant must be fit and proper persons, and would only be appointed upon approval of Labuan FSA.

REPORTING REQUIREMENTS FOR A LABUAN INSURANCE BUSINESS AND INSURANCE-RELATED ACTIVITIES

  • Labuan insurers are required to submit within six months after the close of each financial year-end, 4 copies each of their audited annual balance sheet, profit and loss account, revenue account and, in the case of life insurance business, also an actuarial valuation report
  • A foreign Labuan insurer established as a branch in Labuan is also required to submit the latest audited annual balance sheet of its parent company
  • In the case of other Labuan insurance-related entities, they are only required to submit 4 copies each of their audited annual balance sheet and profit and loss account
  • Labuan insurers must provide the necessary statistics and information required in relation to the prudential regulation of business operations to the Labuan FSA from time to time
  • Labuan insurance managers are required to submit within 30 days from the close of the financial year, a list of all Labuan insurers that they provide administration services for. Labuan underwriting managers must provide a list of all the Labuan insurers that they provide underwriting services for

SETTING UP PROCEDURE

Upon receiving the duly completed and signed documents, we will proceed with the application to the authority as follows:

WHY WE ARE THE RIGHT PEOPLE TO HELP YOU SET UP A LABUAN INSURANCE BUSINESS OR INSURANCE-RELATED ACTIVITIES

We are a fully licenced trust company with a highly experienced team of dedicated professionals. We can help you plan, establish and structure a Labuan insurance business or insurance related-activities ensuring you get a bespoke service that meets your particular business needs and that your company fulfils all the necessary requirements laid out by the Labuan FSA. We also offer some of the most competitive prices in the industry.

To find out more about how we can help you set up your Labuan insurance business or insurance related-activities, contact us on our live support or email us at info@labuanborneotrustees.com.