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Shariah-Compliant Captive Insurance Will Be Introduced In Labuan

by Mary Swire, Tax-News.com, Hong Kong

13 July 2009


The Labuan International Business and Financial Centre (IBFC) is developing guidelines on shariah-compliant captive insurance for completion in the next 6-9 months. Further Labuan initiatives include provision for protected cell companies and amendments to the 1996 Insurance Act to allow for marine and aviation captive insurance companies.

Speaking at an industry briefing in Kuala Lumpur, Labuan IBFC chief executive officer Martin Crawford said guidelines on Islamic captive insurance are non-existent now, as very few jurisdictions have a legal framework to accommodate Islamic finance with the necessary physical infrastructure. Crawford considers that Malaysia's shariah traditions and the comparatively low-cost nature of doing business in Labuan augur well. The Labuan IBFC already has 32 captive and four rent-a-captive companies in operation and may be the home of 40 captive insurance companies by the end of the year. This compares with 50 captives in the captive insurance market of Singapore.

Legislation for protected cell companies (PCC) has had its first reading in Parliament and could become effective in law by the first quarter of 2010. A PCC is structured with core capital, cellular capital, cellular assets and liabilities, and core assets and liabilities. The various businesses within each 'cell' are ring-fenced and insolvency of one cell should not affect the solvency of the whole entity or the performance of the other cells. For any contract the PCC discloses which cell is contracting or whether it is a 'core' contract. 'Cellular' or 'non-cellular' shares may be issued, depending on whether they represent an equity interest in a specific business cell or in the core assets. The entity keeps accounts showing the corresponding patrimonial divisions among the segregated cells and the core cell.

Under an exemption from subsection 140(1) of the Insurance Act, any marine and aviation risks, including goods in international transit, can now be handled by Labuan-based insurance companies, whereas before April 1, 2009, the risks had to be insured through a local onshore insurance company.

A comprehensive report in our Intelligence Report series which studies the 20 main offshore jurisdictions which offer captive insurance regimes is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report11.asp

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