Feature: How Labuan IBFC stayed on track throughout the pandemic

clock
Feature: How Labuan IBFC stayed on track throughout the pandemic

Despite the disruption wrought by the pandemic, Labuan IBFC posted some impressive growth over the course of 2020. Pedro Gonçalves reports on a Malaysian success story

The wrought brought upon the world economies by the covid-19 pandemic meant that IFCs had to be quick to adapt, and Labuan IBFC is showing its resilience in the face of challenges as it reports growth in key business ventures while driving digital transformation in the financial services industry.

Labuan insurance industry showed a steady topline growth but higher profitability performance for 2019. Total gross premiums were transacted at $1.5bn with 89% of the total premiums originating from the Asian market. The industry's profitability grew by 43.7% to $190.5m mainly because of improved underwriting performance and better cost management. 

Specifically in reinsurance, Labuan IBFC continued to see growth in the insurance industry with 11 new licences being approved.”

New company incorporations continued to grow albeit at a slower place with 981 new incorporations in 2019. Companies hailing from SE Asia continued to show positive trending over the last three years with a 33.3% growth in 2019.

Being located off the coast of East Malaysia - also known as Borneo coast - on an island named Labuan, in the heart of Asia-Pacific, has allowed it to become a connectivity hub for Asian businesses to continue tapping into opportunities in the region.

The positive trend in company incorporations was in tandem with the increase in Labuan trust companies, with five new licences issued in 2019, bringing the total number of trust companies to 61.

Labuan International Business and Financial Centre (Labuan IBFC) continued to attract financial services firms from across the globe in 2020, with more than 800 entities currently operating there.

Labuan Financial Services Authority (Labuan FSA) director-general Datuk Danial Mah Abdullah attributed the encouraging number to the 50% increase in the approval of licensing applications in the first half of this year.

"Notwithstanding the challenges and movement restrictions due to the covid-19 outbreak, we are glad to continue to have growth, [with] an increase in licences approved during the first half of this year.

"Having said that, we remain cautious on the outcome in the second half of the year but optimistic that we will pull through this ‘covid-19 rollercoaster year' on a positive note," he said.


Reinforcing its jurisdictional reign
In reinsurance, Labuan IBFC continued to see growth in the insurance industry with 11 new licences being approved of which seven were captive insurance entities.

"Captive insurance is certainly growing in size as it now attributes 31.4% of total gross premiums underwritten in Labuan IBFC, amounting to $267.9m with 72.8% of the total captive premiums from international markets," the director-general of Labuan Financial Services Authority (FSA) said.

Mah Abdullah added: "This is in line with the status of Labuan IBFC as a regional wholesale risk intermediating centre. In fact, for the first half of 2020, 64.5% of total gross written premiums of the reinsurance industry originated from international markets."

"We expect this percentage to increase as we develop Labuan even further as a centre of risk management and reinsurance through innovation. For instance, Labuan IBFC is the only
jurisdiction in Asia that offers protected cell companies (PCC)," he added.

Labuan IBFC chief executive officer, Farah Jaafar-Crossby said the growth in licenced entities is evidence of Labuan IBFC's relevance as intermediaries look for safe harbour jurisdictions that are well regulated to international standards set by global multilateral organisations.

"Specifically in reinsurance, Labuan IBFC continued to see growth in the insurance industry with 11 new licences being approved of which seven were captive insurance entities, reinforcing its jurisdictional reign in the Asia captive market," she said.


Relief in a time of covid-19
Aware of the challenges this year as global markets took a hit from the impact of the covid-19 pandemic, the regulator launched a set of regulatory reliefs to provide administrative flexibilities and financial support in order to cushion the blow of the crisis and minimise disruption to business operations.

Mah Abdullah said that Labuan IBFC as a midshore jurisdiction takes the approach of proportionality in regulation and market engagement, noting this philosophy is appropriate during times of change and uncertainty, and will serve the jurisdiction well moving forward.

Labuan International Business and Financial Centre, Labuan IBFC's financial services and intermediation community also came together to help local authorities in relief efforts via the pooling of resources.

Labuan IBFC's Cross-Industry Group comprising of all the industry associations representing licenced entities in the jurisdiction led the formation of a pool fund, focused on providing relief to front liners and those in need of aid in Labuan.

"The Labuan IBFC Community is deeply concerned about the growing scale of the covid-19 pandemic and its social and economic impact, particularly on Labuan island. Specifically, this resource pool will fund towards the purchase and distribution of personal protective equipment for hospital staff, healthcare providers, and other frontline service personnel on the island," Labuan IBFC said at the time.

The Cross-Industry Group consists of Labuan Financial Services Authority, Labuan International Insurance Association, Association of Labuan Banks, Association of Labuan Trust Companies, Labuan Investment Banking Group and the Labuan Fintech Association.

Relief, in the form of household necessities, was also provided to those in the B40 income group and to daily wage earners who are impacted by the situation, as well as schools and small businesses.

 

AT THE FOREFRONT OF DIGITAL INNOVATION

Keen to drive digital transformation in the financial services industry, Labuan IBFC continued to attract digital financial services (DFS) setups with its facilitative regulation with 28 new licences being approved. A total of 34 DFS provide digital-based services including insurtech, payment services, and digital exchange in Labuan IBFC.

China Construction Bank has recently partnered with a digital exchange to launch an offshore bond that relies on blockchain in a sign of rising interest in the technology from the country's vast banking system.

The deal, which aims to raise up to $3bn in total, will allow investors to buy digital tokens that are backed by deposits at the bank's branch in Labuan.

Mah Abdullah, Labuan FSA's Director-General stated: "Labuan FSA encourages these kinds of collaborative efforts among Labuan financial institutions to facilitate cross pollination business and generate a more vibrant market."​

With this digital bond, both retail and sophisticated investors globally will have direct access through the FUSANG Exchange with investment amounts of as little as $100.

Labuan IBFC is a "whitelisted" jurisdiction by the EU and deemed compliant by the intergovernmental Organisation for Economic Co-operation and Development (OECD).

With this, coupled with Labuan FSA's continued commitment to adhere to the highest regulatory and supervisory standards, Mah Abdullah is confident that the global financial services industry will continue to regard Labuan IBFC positively even during these unprecedented times.

Pedro Gonçalves is financial correspondent at International Investment

This feature was is taken from this month's special report on Labuan IBFC, Gateway to Asia. You can read the full report here

Subscribe to International Investment's free daily newsletter