This document provides a general overview of Captives with particular information regarding Labuan International and Business Financial Centre (Labuan IBFC).
Kensington Trust Labuan Limited is a licensed trust company in Labuan. Feel free to contact us if you have any questions on establishment and operation of a Captive Insurance Company in Labuan.
WHAT IS A CAPTIVE?
A Captive is simply an insurance company that is owned and controlled by its insured. Captives are normally being domiciled in an offshore jurisdiction because the regulatory environment onshore may not be conducive to the creation and operation of a captive insurance company
- A Labuan Captive Insurer may underwrite direct insurance / reinsurance (general or life) business risks :
- of their own Group; or
- third party risks subject to Labuan FSA’s approval
- A Labuan Captive Insurer may obtain reinsurance coverage from any insurance company in or outside Labuan irrespective of whether it is licensed under the LFSSA.
- Labuan Captive Insurer may deal with direct Malaysian risks for activities as prescribed by law.
TYPES OF CAPTIVE
- Pure / Single Captive - owned and controlled by one owner, typically the parent organization, and is formed as a subsidiary company. The captive subsidiary underwrites policies for the parent, and solely bears the risks of the parent.
- Group Captives / Association captives - owned and controlled by multiple insured. They may or may not be related entities or a part of a homogeneous group like industry or trade groups.
- Master rent-a-captive – acts as a master captive, which provides captive facilities and services to subsidiary rent-a-captive.
- Subsidiary rent-a-captive – an entity with separate licenses, assets and accounts but at the same time using the working capital of master captive.
- Cell captives - Protected Cell Companies (“PCC”) where legislation protects each individual cell or account from the liabilities of other cells within the captive.
- Multi owner captive - owned by two or more unrelated persons or organisations and writing the risks of its owner and/or affiliates and is designed to insure the risks of these different entities.
REASONS FOR FORMING A CAPITIVE INSURANCE COMPANY
- Lower insurance costs
- Cash flow
- Risk retention
- Unavailability of coverage
- Risk management
- Access to the reinsurance market
- Writing unrelated risks for profit
- Tax minimization and deferral
- Every Labuan Captive Insurer must -
(a) Have an operational management office in Labuan managed by a management team that has an adequate knowledge and expertise in insurance business including captive; or
(b) Appoint a licensed Labuan underwriting manager.
- At least 2 directors (preferably a natural person) with insurance or insurance related experience. There is no residency requirement with respect to the
- Paid-up Capital / Working Funds
(a) Pure/Single captive / Group, Association & Multi-owner captives
Unimpaired by losses of RM300,000 or its equivalent in any foreign currency
(b) Rent-a-captive / Master-rent-a-captive / Cell captive / Other similar vehicles
Unimpaired by losses of RM500,000 or its equivalent in any foreign currency
- Margin of solvency
(a) A Labuan Captive Insurer is required to maintain at all times a surplus of assets over liabilities, which is equivalent to, or more than the amount of its working fund; or
(b) 20% of the net premium income for the preceding year in respect of the general insurance business, or 3% of the actuarial valuation of the liabilities for life insurance business as at the last valuation date,
whichever is greater.
LABUAN IBFC TAX SYSTEM
“Labuan trading activity” includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity. The Labuan entity shall pay either 3% of net profits as per audited accounts OR RM20,000/- upon election annually.