BUSINESS ACTIVITY
LEGAL PROVISIONS OF INTEREST TO LABUAN INSURANCE COMPANY
A Labuan insurance company includes Labuan Insurer, Labuan Reinsurer or both, and Captive Insurer (Both Life and Non-Life, Conventional and Takaful). These companies may transact insurance business whether as direct business or as reinsurance accepted business but these companies cannot transact domestic business except as reinsurance and permitted local risks (subject to the approval of the local authority). Every Labuan company is avail to the Labuan IBFC Tax incentive issued by the Malaysian Inland Revenue Board (Refer to the Labuan Financial Services Authority FAQ on Labuan companies).
On the Margin of Solvency Requirement, every Labuan insurer, including an insurance licensee which carries on Labuan captive insurance business, shall ensure that the realisable value of its assets exceeds the amount of its liabilities (net assets) at least the higher of:
a) the required working fund amount; or
b) 20% (10% for captives) of the net premium/ contribution income for the preceding year; or
c) 3% (2.5% for captives) of actuarial valuation of liabilities; or
d) For Captives only, 10% of provision for outstanding claims for the preceding year (net basis).
BROKERS
An insurance broker is a professional with an in depth knowledge of specific insurance and reinsurance classes. His role is to advise his clients on their specific needs and develop an insurance solution from the insurance market that meets these needs. Unlike an agent, who has a limited number of principals, the insurance broker has the ability to secure terms from a multiple number of insurance companies.
Insurance brokers licensed in Labuan are authorized to deal in both insurance and reinsurance, for both Life and General (Non-Life).
CAPTIVE
Captive Insurance companies are established with the specific objective of insuring risks emanating from their parent company or group. Captives can be expanded to insure specific customer related risks as needed. Captive insurance companies are a risk management tool that allows companies to form their own insurance company subsidiary that can develop tailor made solutions to meet the specific needs of the parent company or group.
There are generally 3 types of Captive insurance structure available in Labuan: Pure Captive, Master-Subsidiary Rent-A-Captive and Protected Cell Companies (PCC) Captive.
MANAGER
Under the Labuan Financial Services & Securities Act 2010, entities who are licensed to carry out insurance and insurance-related business have the option of appointing an underwriting or insurance manager in Labuan as an alternative option to establishing its own management office in Labuan.
An underwriting manager is a licensed entity which uses its specialized skills and knowledge in a particular class of insurance or reinsurance to act on behalf of one or more insurer or reinsurer. In general, an underwriting manager represents reinsurers in territories or regions, where they are not represented. Reinsurer’s utilize the expertise of an underwriting manager to solicit, underwrite and manage the specified class of business. Usually, underwriting managers are given authority to accept risks up to agreed limits. Risks are accepted for and on behalf of the reinsurers. The underwriting manager does not carry any of the risk.
An Insurance Manager is a licensed entity that provides management or administration services related to the Labuan insurers / reinsurers but do not provide underwriting management services.
INSURER AND REINSURER
An insurance company protects both individual and corporate entities against losses arising from named perils. A reinsurance company protects the insurance company against either a specific large loss or against a series of smaller losses that could impact the financial strength of the insurance company.
There are mainly 2 types of reinsurance contracts:
1) Facultative Reinsurance is where a specific risk is shared with a panel of reinsurers.
2) Treaty Reinsurance refers to when a reinsurer agrees to accept a share of an entire portfolio of risk. Both types of reinsurance can be placed on a proportional or non proportional basis.
A reinsurance company can in turn also look to use both treaty and facultative reinsurance to protect its own portfolio of risk, such as for the Catastrophic Cover. This is called retrocession.