Transcript Slide 1

Where is Labuan
as an
Insurance and
Reinsurance market?
LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY AUTHORISED BY THE MALAYSIAN GOVERNMENT TO
1
MARKET LABUAN AS THE PREMIER INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC
First,
a recap
of an
eventful 2011
… for …..
Labuan
– ideal
insurance
domicile
A “catastrophic” year for the insurance industry, particularly in Asia Pacific
Japan earthquake
• Economic loss
estimated at over
US$370bn – more
than 3 times 10 year
average
New Zealand earthquake
• Cost to insurers
estimated at approx.
US$116bn
Thailand floods
2
• Estimate - US$260bn
gap in insured losses
and uninsured who are
financially vulnerable
to such events
… but
industry growth will be driven by Asia Pacific
CONVENIENT.
• Strong growth in the region
over the past decade
• Outlook for the next decade
remains promising
• Driving factors include a
sound economic
environment, improvements
in insurance regulations,
product innovation, and a
leveraging of multiple
distribution channels
• Attracting attention of global
insurers and reinsurers
Labuan
Insurance
Market
4
Labuan
idealinsurance
domicile for
insurance
Labuan- an
– ideal
domicile
for……..
Regulated, talent pool, ability for adaptable products
Insurance/
Takaful
Reinsurance/
Retakaful
Captive
Insurance
Insurance
Brokers
Insurance
Managers
Underwriting
Managers
Centrally Located to access growth markets
5
Participants
- License composition
CONVENIENT.
Type of License
Total as at
end 2011
New approvals
in 2011
Life
3
1
General
9
2
Composite
2
-
Reinsurance
38
7
Captive
34
4
Insurance Manager
6
-
Underwriting Manager
19
2
Broker
70
6
TOTAL
181
22
Distribution
of Gross Premiums
CONVENIENT.
2010: RM1.205bn
Malaysian: 47.1%
Others: 52.9%
30.6% ▲
2011: RM1.574bn
Malaysian: 52.7%
Others: 47.3%
Captive
Gross Premiums
CONVENIENT.
2011
2010
2010: RM232mn
Malaysian: 76.5%
Others: 23.5%
34.5% ▲
2011: RM312mn
Malaysian: 90.2%
Others: 9.8%
Premium
placement by insurance brokers
CONVENIENT.
2010
2011
US$522.9mn
US$722.0mn
Labuan
16.0%
18.2%
Malaysia
42.3%
37.5%
Overseas
41.7%
44.4%
US$112.3mn
US$131.3mn
0.7%
1.1%
Malaysia
-
-
Overseas
99.3%
98.9%
General Business
Life Business
Labuan
Labuan
Insurance - Total assets
CONVENIENT.
USD million
18.8% ▲
26.1% ▲
Underwriting
CONVENIENT.experience
2010 – Earned Premium
Income: US$767.3mn
45.1% ▲
2011 – Earned Premium
Income: US$1,113.3mn
Labuan
Takaful & Retakaful
CONVENIENT.
USD million
Total Gross Contributions
54.9% ▲
26.9% ▲
Labuan as a
domicile for
insurance
business
Bringing the Benefits of Labuan to Asia Pacific
and beyond
Significant growth prospects.
With a population of over 3 billion across the region, and expected to be around 4.5
billion by 2020, the Asia Pacific insurance market is increasingly attractive. A
developing urbanised population, often with the capacity for high household savings,
limited state provision of pensions, income and healthcare insurance, the market
shows potential for growth. Requires the right products for consumer.
Here
or there?
CONVENIENT.
A recent Grant Thornton UK study among 30 global re/insurers from a range of
jurisdictions looked at what main criteria is considered important in
choosing a domicile. The results as follows, in order of importance:
1. Easy access to markets
2. Realistic capital adequacy requirements
3. A respected, credible regulator
4. Low corporate taxation
5. A plentiful pool of talent
6. Attractive living conditions
7. Simple, light-touch regulation
8. Low personal taxation
1.CONVENIENT.
Easy access to markets
Ability to interact with brokers and customers.
• There are 70 licensed brokers in Labuan – including leading local,
regional and global players
• Key major insurers and reinsurers have a presence in Labuan –
enabling the ability to provide access to a wide range of specialist
products & global experience
• Reinsurers can access Malaysian second tier reinsurance business if
licensed in Labuan
Access to numerous and varied support industries
such as lawyers, accountants, claims handlers and back office
providers
• Labuan has a complete support industry for insurers including global
banks, insurance & underwriting managers for those who seek to
outsource their administrative and/or underwriting operations
• Labuan insurers are also allowed to co-locate anywhere in Malaysia to
access infrastructure, human capital, professional services
1.CONVENIENT.
Easy access to markets (cont’d)
• High level of remote work technology and growth of communications
technology mitigate the need to be physically located at traditional insurance
hubs thus affording Labuan opportunities to attract insurers in view of its
strategic location and ties (as part of Malaysia) with regional markets.
• Access to markets via Labuan is facilitated by regulations enabling unique
products such as Protected Cells and Captives, not always available or
functional in many “home” jurisdictions in the region. In Q1 2012 - three PCCs
were incorporated in Labuan for insurance business.
• Labuan is also home to the world’s first omnibus Islamic finance legislation
which encompasses all requirements for Sharia-compliant financial services
and streamlines procedures for all Sharia-related activities including Takaful
and Retakaful.
2.CONVENIENT.
Realistic capital adequacy requirements
• Strong push following various events across various jurisdictions for the
introduction of Solvency II – significant impact for insurers in many “western”
jurisdictions especially in the EU but more globally as other locations work
towards some form of equivalency.
• With Solvency II, there will be removal of the group support provision. This
means that insurance subsidiaries will not be able to calculate capital adequacy
on a cross-group basis. Thus, insurers may have to review operating structures.
• Jurisdictions have the option to be subject to equivalency assessment.
Bermuda has been noted to have made significant progress in that direction.
• For Labuan, the capital adequacy requirement is still largely based on margin of
solvency. As such, enhancements to the solvency framework for the insurers
which are in line with the international accepted standards will be introduced in
the near future.
2.CONVENIENT.
Realistic capital adequacy requirements (cont’d)
Snapshot of current capital requirements – Labuan vs Hong Kong vs Singapore
3.CONVENIENT.
A respected, credible regulator
• An important aspect of the regulatory environment factor.
• Notwithstanding that the recent financial crisis has created a stronger push for
greater regulation, many feel there is an over-reaction and that excessive
regulation could put a location at risk as a viable jurisdiction.
• Most are in favor of regulation appropriate to class of insurer i.e. regulation that
reflects the activities of the insurer, with higher risk activities subject to more
stringent supervision.
• One of the common themes to emerge from the GFC and other related financial
events of recent time is not that there is inadequate regulation but that
enforcement has not been as robust as needed to deal with the sophisticated
and complex financial instruments that have emerged over recent years.
• Regulators must have suitable “teeth” to deal with the regulated entities but
also the capability to manage the challenges of the complex products on offer
3.CONVENIENT.
A respected, credible regulator (cont’d)
• At the industry level, Labuan FSA undertakes a consultative approach with
the industry players on issues and developments affecting the business.
• Quarterly and half yearly meetings were conducted with the associations
and council members of the Labuan banks, Labuan investment banks, Labuan
insurance and insurance-related companies, and Labuan trust companies
during the year.
• Maintaining a proactive role, Labuan FSA has issued guidelines for the
insurance industry on the following areas:
 corporate governance
 market conduct
 general reinsurance arrangements
3. A respected, credible regulator (cont’d)
Labuan FSA is also a member of several international organisations that promote
a high level of regulatory standard amongst international financial centres:
Offshore Group of Insurance Supervisors (OGIS)
International Association of Insurance Supervisors (IAIS)
Offshore Group of Banking Supervisors (OGBS)
Asia/Pacific Group on Money Laundering (APG)
International Organisation Securities Commissions (IOSCO)
Islamic Financial Services Board (IFSB)
International Islamic Financial Market (IIFM)
4.CONVENIENT.
Low corporate taxation
• Labuan ranks favourably for this criteria as it has a simple, attractive fiscal
environment.
Description
Tax Treatment
• Labuan Non-Trading Company
- means holding of investments in
securities, stock, shares, loans, deposits
and immovable properties by a Labuan
entity on its own behalf
- Not subject to tax
• Labuan Trading Company
- Banking, insurance, trading,
management, licensing, shipping operations or
any other activity which is not a Labuan nontrading activity
- 3% of net profits per
audited accounts;
or
- RM20,000 upon annual
election
4. Low corporate taxation (cont’d)
• No withholding tax or income tax for investors
• No stamp duty (low transaction costs and speed of execution)
• No capital gains tax, gift tax, inheritance tax, estate duties
• No indirect taxes (eliminating additional layers of tax)
• Access to Malaysia DTAs (at 70+, one of the largest in Asia)
• No exchange controls or foreign investment restrictions
4.How
Low Labuan
corporateachieves
taxation (cont’d)
tax certainty
• Primary issue going forward is governments around the world are
aggressively looking at offshore insurance domiciles as potential source of
revenue. Possible actions include denying certain tax deductions on
reinsurance cessions. Tax treaties could help to mitigate such
developments.
• Tax certainty is also important. For example, in Ireland there is some
uncertainty over the introduction of controlled foreign company and
transfer pricing rules, leading to Brit Insurance Holdings Limited, for
example, choosing the Netherlands to re-domicile. Labuan’s simple and
straight-forward tax rules put’s the jurisdiction in a favorable position in this
aspect.
5.CONVENIENT.
A plentiful pool of talent
• An important component of ‘access to markets’.
• While Labuan has developed infrastructure which includes global
insurance & underwriting managers the option to co-locate to anywhere in
Malaysia enables Labuan insurers to access / attract a wider pool of talent
available in the larger cities in Malaysia.
• Further, Talent Corp, a government-owned agency, has been mandated to
recruit and nurture talent locally and from abroad which will enlarge the
talent pool available in Malaysia.
• There are also programs such as the Financial sector Talent Enrichment
Program driven by the local financial services industry to develop talent.
6.CONVENIENT.
Attractive living conditions
• Labuan island itself has attractive living conditions which includes dutyfree status, golf courses, beaches, diving, international schools, etc.
• However, with the option for Labuan insurers to co-locate to anywhere
in Malaysia, access to modern city living is available at lower cost than
other regional financial locations such as HK and Singapore.
7.CONVENIENT.
Simple, light-touch regulation
Regulatory landscape is currently undergoing significant change across many
domiciles, largely in response to the recent and ongoing financial crisis.
An area currently experiencing significant regulatory action is Prudential
Regulation.
• A new suite of Insurance Core Principles (ICPs) was issued by IAIS in October
2011. Essentially require insurance supervisory regimes world-wide to
establish risk-based solvency requirements.
• New ICP on Enterprise Risk Management (ERM) - requires supervisors to seek
high standards of risk management and governance and insurers to apply
Own Risk and Solvency Assessment (ORSA), a forward looking self assessment
of own risks, capital requirements and adequacy of capital resources.
• Expected that insurers will need to substantially upgrade their ERM and
capital management across the region over the next few years.
Potential
impact from regulatory reforms
CONVENIENT.
Reduction of growth rates
Need for new capital infusions, increased regulatory
oversight, Solvency II and now if banking related Basel III
Rising M&A activities
Increase focus to reduce cost on developing back-office
systems potentially leading to more efficient operations
Closing of operations, reduction in capacity, increased
risk management and governance oversight
Improved financial strength, survival of the fittest,
product changes - risk selection.
8.CONVENIENT.
Low personal taxation
Personal income tax exemptions in Labuan:
- 100% foreign directors’ fees
- 50% non-citizen managers’ remuneration
While not the zero percent regimes like Bermuda, this consideration does
not feature as strongly in reviewing possible domiciles.
This could be for a variety of reasons - the domicile may have little or no
operational purpose and would therefore require very few staff on the
ground, or in some cases management would not reside there at all,
making low personal tax rates an irrelevance.
Insurance Market
Outlook
31
What do others think of the future - Survey of 92
regional senior management personnel
-
Source - Norton Rose Asia Pacific Insurance Survey 2011
Potential growth areas …
Corporations and investors globally look to insurance and reinsurance as
ways to deliver higher returns
• Insurance and reinsurance prices typically harden in the wake of various
market influences (cat events, diminishing investment returns etc.).
• We are entering / in that market now
• Ideal opportunities for corporates to establish captives
• Tightening markets force insurers to innovate and develop new products.
• Hedge fund managers look to investment portfolios of the reinsurers they may
assist establishing resulting in returns from both successful underwriting, and
fees from running the reinsurer's money.
• Retirement schemes increasingly see cat bonds, insulated from financial
market volatility, as a good way of counterbalancing exposure to regular stocks
and bonds. Issuance yields of cat bonds post 2011 disasters are also attractive,
having risen to between 5 to 7%.
Potential growth areas …
Corporations and investors globally look to insurance and reinsurance as
ways to deliver higher returns
• We are seeing the development of renewed interest in formation of captives
• Emerging markets looking to solutions for low cost / micro insurance solutions
• Insurers seeking solutions for their treaty challenges, this provides opportunity to
leverage Labuan reinsurers
These challenges require us to drive awareness of Labuan IBFC and assist clients see
solutions available through this jurisdiction.
Catastrophe insurance losses globally reached $105bn in 2011 according to Munich
Re, the economic woes of the Euro zone could potentially hit the balance sheet of
insurers with some insurance companies announcing profit warnings. These
challenges present the case for Labuan IBFC positively, we have a window to
promote so as to strengthen interest and establishment in the jurisdiction.
Potential growth areas …
Labuan‘s growing popularity as a leasing centre
Both the number and value of assets leased via Labuan has reached US$27.6 bn
with growth across various sectors but in particular the oil & gas and aviation
sector, it continues to grow, all leased assets require insurance coverage thus
providing opportunities. To leverage these growing areas requires working across
products to drive and deliver results in growing sectors.
Potential growth areas …
The opportunities in a
hardening global financial
market are real, the
challenges real.
We all have a part to play
in developing Labuan as
the premier regional
International Business
and Financial Centre.
By working together in concert we can
achieve outstanding growth in this
sector, LIBFC will continue to promote
the jurisdiction, we look forward to
increased activities together in our
partnered quest.
Thank you
LABUAN IBFC IS THE OFFICIAL
AGENCY SANCTIONED BY
THE MALAYSIAN GOVERNMENT
TO MARKET LABUAN AS THE
PREMIER INTERNATIONAL
BUSINESS AND FINANCIAL
CENTRE IN ASIA PACIFIC