Setting up a Labuan captive insurance business in 2024

Since 2003, Healy Consultants Group has been providing our multinational Clients with Labuan business set up services, including in the growing captive insurance sector. A Labuan captive insurer may i) underwrite direct insurance/reinsurance (general or life) business risks of their own group and/or ii) third-party risks.

What is a Labuan captive insurance business?

A captive insurance business includes: i) pure captives that may include a single parent company but which includes only the risks of the owner/affiliates ii) group captives including multi-owned insurance companies with only the risks of their owners and/or affiliates iii) master rent-a-captives which act as a master captive iv) subsidiary rent-a-captives which have separate licenses v) Cell captives, that may include a protected cell captive and vi) a multi owner captive, owned by two or more unrelated individuals or organisations.

Why set up a Labuan captive insurance business?

• A Labuan captive insurance business is a cost-effective way for organisations to i) underwrite Group risks and avoid premium volatility in the commercial market ii) help reduce insurance coverage costs iii) manage risk more effectively and iv) offer insurance coverage for customers;
• A Labuan captive insurer may have reinsurance coverage from any insurance company in or outside Labuan irrespective of whether it is licenced by Labuan Financial Services Authority (LFSA). Furthermore, a Labuan captive insurer may deal with direct Malaysian risks for activities as prescribed by law;
• Labuan International Business and Finance Centre (IBFC) is an Asian insurance/reinsurance hub with more than 200 licenced entities. Labuan accounted for 50% of all captive insurance formations in Asia in 2018 alone, more than Singapore;
• Labuan IBFC was awarded the Best Asian Domicile at the Asia Captive Review Awards 2019 in recognition of the performance of captive insurance service providers in Labuan;
• Captive formations in Labuan are regulated by the internationally-recognised LFSA;
• Despite the requirement for captive formations to have a physical presence, and management staff, in Labuan, it is a low-cost jurisdiction from which to operate, with i) competitively-priced office rent and ii) affordable talent. The cost of living and doing business in Labuan is one third that in Singapore;
• Although Labuan captive insurers are subject to the same operational requirements as commercial insurers, licence fees and capital requirements are significantly lower;
• Labuan IBFC is the only Asian jurisdiction offering a Protected Cell Company (PCC) structure, which is a cost-effective method for captive formations to i) meet Labuan economic substance requirements and ii) meet Asian risk management requirements;
• Labuan has a well-established banking and corporate services industry which supports captive insurance company growth;
• Labuan’s tax regime appeals to captive formations, which enjoy a minimum 3% tax on net profits per year. There is no withholding tax on payments to non-residents, and fees paid to non-citizen directors are tax-exempt;
• Providing all legal and regulatory formalities are met, registering a Labuan captive insurance business is straightforward. Licence applications are made through LFSA.

Disadvantages of a Labuan captive formation

• Every Labuan captive insurer must i) have an office in Labuan managed by an experienced team of captive insurance professionals or ii) appoint a licensed Labuan underwriting manager;
• Labuan IBFC requires all companies to meet minimum capital adequacy thresholds. This amounts to a paid-up capital (unimpaired by losses) of RM300,000 (or equivalent in foreign currency) for a pure/single-owner group, association or multi-owner captive. Rent-a-captive, master rent-a-captive and cell captives must have a paid-up capital unimpaired by losses of RM500,000 (or equivalent in foreign currency);
• A Labuan captive insurer must maintain a surplus of assets over liabilities at all times, as i) equivalent to, or more than the amount of, its working fund; or ii) 20% of the net premium income for the preceding year in respect of the general insurance business, or iii) 3% of the actuarial valuation of the liabilities for life insurance business as at the last valuation date, whichever is greater. The FSA can impose higher capital requirements based on the Labuan captive insurer’s business activities and risk exposure;
• All Labuan captive insurers, as well as Protected Cell Company (PCC) captives, must submit a Statement of Solvency to Labuan FSA based on the financial year-end positions within six months of the end of each financial year;
• A Labuan captive insurance business must submit to the Labuan FSA the following: i) four copies of its audited financial statements within six months of financial year close and ii) if a branch business, the latest audited financial statements in respect of its entire operations both inside and outside Labuan within three months of being filed with the home regulatory authorities;
• A licenced Labuan captive insurance business must pay an annual fee to Labuan FSA as follows:
  • single/pure, group, association or multiple owner captive (RM10,000);
  • master rent-a-captive (RM13,000);
  • subsidiary rent-a-captive (RM3,000);
  • Captive using PCC structure: i) core (RM30,000) ii) each cell (RM10,000);
• A Labuan captive formation may have difficulty attracting talent.

Please refer to this page for more information on the Advantages/Disadvantages of setting up a business in Labuan.

Setting up a Labuan captive formation business

Healy Consultants Group will efficiently assist our Client to establish their Labuan captive insurance business and meet all regulatory requirements. Our services include i) Labuan captive insurance business registration ii) Labuan captive insurance licence application to the Labuan IBFC and LFSA iii) opening a corporate bank account for the business iv) assisting our Client to recruit qualified management personnel v) assisting our Client to obtain work visas for management personnel and vi) assistance with finding office premises. Healy Consultants’ local representative will complete all steps on your behalf. Our Client is not required to visit Labuan.

Please refer to this page for more information on Labuan company registration.

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