Malaysia’s AirAsia Cleared to Launch Captive Insurer in Labuan

Malaysia's low-cost airline, AirAsia Corporate Services Ltd., has been cleared to set up a Labuan captive insurance business with approval from the Labuan Financial Services Authority, the regulator of Malaysia's offshore financial center.

The Labuan captive business will provide access to the commercial insurance market and to enhance flexibility in managing and retaining the company's own risks, said AirAsia in a statement.

With the approval, AACSL, a subsidiary of AirAsia, will be able to insure and reinsure many of the risks within the group. An airline spokesperson declined to comment on the company's existing insurance program and its future alignment with the new captive unit.

The Labuan captive unit will directly insure AirAsia's international aviation, maritime and liability risks. AirAsia will pay its insurance premiums to the captive unit instead of paying through local insurers.

With the setup of its own captive business, AirAsia said it will have a choice of which risks and how much risk the company intends to retain within the group, thus giving greater flexibility in managing its risks.

The Labuan captive business will have inherent tax and investment advantages, and it offers AirAsia an opportunity to set up a profit center within the group. With enough funds, the captive business is expected to transfer some of its capital to AirAsia through the payment of dividends, according to the airline.

With 82 aircraft, AirAsia has operations in Malaysia, Indonesia and Thailand, servicing 18 countries across Asia. Its total revenue rose 11% to 3.18 billion ringgit (US$992 million) in 2009. Profit after tax was 549 million ringgit, up from a loss of 497 million ringgit a year earlier, according to AirAsia's financial statement.

Labuan International Business and Financial Center, an offshore financial hub of Malaysia, had 32 captives in 2008. The center's major captive business lines were oil and gas with US$69.9 million in gross premiums, accounting for 55% of total gross premiums in 2007.

Marine and fire were the next largest captive business lines, with gross premiums of US$14.5 million and US$11.9 million, respectively, in 2007.

Labuan IBFC was set up in 1990 as Malaysia's official offshore financial center for financial services such as insurance, captives, banking and asset management.

The offshore center harbors particular expertise in marine and cargo, aircraft, petrochemical, mining and professional liability coverages. The domicile generated premiums on more than US$127 million in 2007, according to Labuan IBFC.

(By Iris Lai, Hong Kong bureau manager: [email protected])