Company guided by Islamic principles to be established in Labuan this year

Despite the fact that guidelines on shariah-compliant captive insurance were developed by the Labuan International Business and Financial Centre (IBFC) in 2010, such a captive has yet to be established in the Asia-Pacific region.

That is all about to change, according to Daniel Koepfer, who runs NMG Risk Solutions’ captive-management and consulting business in Asia. “So far we haven’t got a shariah-compliant captive structure in Asia, but we are in the process of setting the first one up this year,” Koepfer told Strategic RISK Asia. “This is something that has not been on the radars of many captive-management companies, but we are focusing on it as we speak.”

Koepfer said that this process involved “more than just changing a few names”. “You need shariah-compliant insurance structures, compliance and investment arrangements, and the whole way the captive works is also a bit different,” he said.

Shariah-compliant captives must comply with Islamic principles, so they cannot issue cover for or invest in alcohol, armaments, gambling or pork, or in assets that generate interest or any penalty on debt.

Under the Labuan guidelines, a shariah-compliant captive’s investments must be approved by the company’s shariah adviser or the Labuan Financial Services Authority’s (FSA) Sharia Supervisory Council. The captive is allowed to deal with its group ‘in house’ Malaysian risks for activities approved by Labuan FSA or Bank Negara Malaysia.

With the world’s largest Muslim population, Indonesia is another potential market for shariah-compliant captives. However, Koepfer said it might take some time for interest in the concept to translate into concrete business. “The problem in Indonesia is the market is very competitive; there’s a lot of small insurance companies offering low insurance premiums and deductibles,” he said. “If you think of a captive as a vehicle to retain risk, that may not be the main value proposition at this point because the local market is very soft.”