All the best business ideas and models could prove to be futile without the right location. Be it logistics, infrastructure, target market or governance, making the right location choice could determine if your business is primed for success or struggling to survive. It’s much the same for a captive insurance business.
While captives, as a form of self-insurance, operates with a slightly different business model compared to common businesses, location, or domicile as it is known in the industry, is just as crucial for immediate and long-term success, especially navigating through a host of fiscal and regulatory requirements.
In the survey “Attitudes towards Captive Insurance in Asia” commissioned by Labuan International Business and Financial Centre (Labuan IBFC) and conducted by Captive Review, 61% of respondents agreed that access to regulators and strong legal as well as regulatory provisions are the main considerations when choosing a captive domicile.
The availability of local captive infrastructure is also an essential requirement for most respondents. There are more than 60 captive domiciles throughout the world, but a clear and concise strategy and operational plan is required to ensure the right choice is made to ensure long term success of your captive insurance business.
In the Choosing A Domicile: Key Considerations panel discussion, panelists recommended a number of financial and practical factors to be taken into account before deciding on a domicile:
| Financial | Practical |
| Capital and solvency requirements | Receptiveness & stability of regulatory environment |
| Establishment & operating cost | Quality of local infrastructure – availability of expertise |
| Income tax (at captive & parent level) | Accessibility & ease of doing business |
| Freedom of investment | Experience in business under consideration |
An example of a domicile that has been getting rave reviews in recent years is Labuan IBFC, as a springboard for captive insurance companies looking to explore Asia-Pacific. According to Labuan IBFC Director-General Danial Mah, as of June this year, 47 captive insurance companies have been collectively approved, out of which 60% are international firms.
Labuan IBFC has steadily developed into an attractive proposition thanks to its easy accessibility, developed infrastructure, satellite telecommunication, and low cost of operations. It offers a wide range of financial products and services to customers worldwide and shares the same time zone with other major Asian cities.
Having looked at domiciles choice which subsequently leads to establishing a captive company, the next challenge on the horizon will be the operational issues, especially on how a captive will be directed and managed. Efficient and effective management is crucial for the growth and development of a business, especially in a highly competitive environment.
A blog article by Management Services International gave a simple yet apt description on running a captive insurance company. “Overseeing a captive is comparable to managing a football team where the goal is to build the best team possible to achieve success.” The panel discussion put forth the following issues to consider, on managing a captive:
- Parent control
- Reporting lines
- Local substance
- Mind & management
- Regulatory requirements
- Transfer pricing
- Economic rationale
A brief look into licensing activities for domiciles in Asia-Pacific in 2017 puts Singapore at the top of the pile with 70 total active numbers, as of 31 December 2017. Labuan sits comfortably in second spot with 43 and Micronesia, with 23, comes third. Mainland China and Hong Kong recorded four and three respectively while New Zealand and Vanuatu has six each.
