Labuan IBFC Reinsurance And Retakaful Business

Labuan IBFC’s insurance industry continues its vibrant growth in the past few years. Comprising not just reinsurers and direct insurers, Labuan IBFC also provides unique underwriting vehicles in the form of captives. Aside from conventional (re)insurance services, Labuan IBFC also offers Islamic (re)insurance, also known as (re)takaful, for those seeking Shariah-compliant protection. Other insurance-related businesses such as Insurance brokers, underwriting managers as well as insurance managers complete the supply chain by offering the needed services within the sector.

A Labuan insurance business is defined as an insurance business that is transacted in foreign currency and includes general, life, reinsurance, Labuan takaful and retakaful windows and captive insurance.

 

DEFINITION OF LABUAN REINSURANCE BUSINESS

An insurance business whereby the reinsurer assumes a part of the liability under an original contract of insurance of another insurer or reinsurer. A Labuan reinsurer may be conducting either a general or life reinsurance business.

 

DEFINITION OF LABUAN RETAKAFUL BUSINESS

A business in compliance with Shariah principles whereby the Labuan retakaful operator assumes a part of the liability under an original contract of takaful of another takaful operator or retakaful operator.

 

APPLICATION FOR LABUAN REINSURANCE LICENCE

Application for a licence to carry out Labuan Insurance and Insurance-related activities can be made to the Director General of Labuan FSA.

The setting up of takaful or retakaful windows do not require a separate licence and there is also no additional licence fee involved. Labuan retakaful operators are expected to observe the objectives, management and activities of investments are in compliance with Shariah principles at all times.

Kensington Trust Labuan Limited is a licensed trust company in Labuan and may assist you with license application, establishment and administration of your Labuan Company or branch.

 

LICENSING AND OPERATIONAL REQUIREMENTS

  1. The Labuan licensed entity must be a member of the Labuan International Insurance Association.
  2. The Labuan licensed entity must provide a letter of guarantee or undertaking from the parent company to Labuan FSA.
  3. The Labuan reinsurance entity must establish:
    • an operational management office in Labuan with minimum four (4) full time employees in Labuan and an annual operating expenditure in Labuan of RM150,000. The management team must have adequate knowledge and expertise in the insurance business; or
    • appoint a licensed Labuan underwriting manager.
  4. Appointment of any person in control, director or principal officer (PO) of a Labuan reinsurer must obtain prior approval from Labuan FSA. Notwithstanding, Labuan reinsurers that are established as a branch are not required to obtain approval on the appointment of their directors.
  5. The person in control, director and PO of a Labuan reinsurer must be fit and proper persons and shall not be subject of any adverse report from any reliable sources.

 

ANNUAL LICENCE FEE REQUIREMENTS

Type of Licence

Licence Fee (RM)

 

General Insurer50,000
Life Insurer50,000
Composite Insurer100,000

 

CAPITALISATION / WORKING FUND AND SOLVENCY REQUIREMENTS

                                                                                          Minimum Capital and Capital Adequacy/Solvency Requirements
Type of LicenseSubsidiaryBranch
Labuan Reinsurance
(including retakaful)
  • paid-up shares capital of RM10 million unimpaired by losses; and
  • General Reinsurer/ Retakaful Operator RM10 million or 20% of net premium/contribution income of the preceding year, whichever is greater.

    Life Reinsurer / Family Retakaful Operator RM10 million or 3% of the latest actuarial valuation of life insurance / family takaful liabilities, whichever is greater.
  • a surplus of assets over liabilities of RM10 million 1 unimpaired by losses; and
  • General Reinsurer/ Retakaful Operator RM10 million or 20% of net premium/contribution income of the preceding year, whichever is greater.

    Life Reinsurer/ Family Retakaful Operator RM10 million or 3% of the latest actuarial valuation of life insurance / family takaful liabilities, whichever is greater.

Notes:

1 The surplus of assets is to be maintained by the branch licensee in the books of its office in Labuan.

The Labuan licensed entity must maintain a minimum paid-up capital or working funds as required above with a bank in Labuan.

“Capital requirement” and “Capital adequacy” shall be applied to the insurance licensees of subsidiary and branch set-ups as illustrated below:-

Insurance Licensees Minimum Paid-up Capital Minimum Working Funds Margin of Solvency

Entry / Licensing

 

Subsidiary                      √  
Branch                   √ 
On-GoingSubsidiary                  √
Branch                  √

The term “unimpaired by losses” means that the paid-up capital amount and/or working funds shall be maintained at all times and shall not be impaired by any losses. In the event it is impaired, further capital injection is required to restore it to the required level.

 

LABUAN IBFC TAXATION SYSTEM

  • Labuan Business Activity Tax Act 1990 (“LBATA”) governs the imposition, assessment and collection of tax on a Labuan business activity carried on in, from or through Labuan.
  • Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).
  • “Labuan business activity” means:
    > a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan,
    > excluding any activity which is an offence under any written law.
  • “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 3% of net profits as per audited accounts.
  • “Labuan non-trading activity” means an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf. Such activity is not subject to tax under LBATA.
  • Labuan companies carrying on both Labuan trading and non-trading activities will be deemed to be carrying on Labuan trading activities. Hence, it will have the same tax treatment as those undertaking Labuan trading activity mentioned above.

 

DEALINGS WITH RESIDENT

All Labuan entities are allowed to conduct transactions with residents of Malaysia in Ringgit Malaysia. “Resident” here means:

  • in relation to a natural person, a citizen or permanent resident of Malaysia; or
  • in relation  to any other person, a person who has established a place of business, and is operating in Malaysia.
  • and includes person who is declared to be a resident pursuant to s.43 of the Malaysian Exchange Control Act 1953.

The amount of deductions allowed in respect of payments made by Residents to Labuan entities are as follows:-

>  Interest expense67% deductible
>  Lease rental67% deductible
>  General reinsurance premiums100% deductible
>  Other type of payments3% deductible

The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.