This article originally appeared in Asia Insurance Review July 2011
One of the great joys of the roving consultant on captive and cell-captive issues is the ability to view, dispassionately, the development and offerings of various financial services jurisdictions. Simplistically there are the good, the bad and the ugly. There are few jurisdictions that have not, at some stage of their development, come under ill-informed scrutiny. In some cases that ill-informed scrutiny reflects the reality of the situation while in others it is because the scrutiny has come too early in the development of the financial centre. In the case of Labuan, few, myself included, appreciated that Labuan is not an offshore centre (other than in the purely geographical sense) and there is far more to it than get to Kuala Lumpur and then fly East for two hours.
If ever a jurisdiction has been misrepresented it is surely the case with Labuan, which now presents itself with modern, and in some cases unique, legislation placing it at the forefront of financial services centres in South East Asia. The following paragraphs examine how and why Labuan is now able to offer credible top flight financial solutions in the insurance sector.
Captive insurance companies have been a feature of risk financing for some fifty years and cell captives now have reached their teenage years1. The so called rent-a-captive, much vaunted in the United States, has all but disappeared from vocabulary and key words now embrace credibility, acceptability, regulation and corporate governance. Add to this IMF review of regulatory regimes and the critical element is no longer the insurance solution, offered by or facilitated through a captive, but the acceptability of the environment from which the captive is to operate.
Multiple articles written over many years expound the virtues of captive oriented techniques. The ultimate focus of any captive technique is to deliver added shareholder value and if the captive does not achieve that goal it is failing its owners. However, in achieving added shareholder value it is undeniable that many organisations benefit en route from improved risk management techniques, better insurance terms, improved cashflow and, frequently, reduced tax burdens.
Captives and cell captives have had, continuously, to evolve. It is not by chance that legislation in many captive centres has not stood the test of time. The simple and lightly regulated vehicle, of the early 1980's and prior, no longer has a viable place in present day corporate regimes and this has demanded, sometimes radical, changes to legislation. Evolution means that lessons are learned and flaws are corrected; it means that core attributes that worked remain...