Mossack Fonseca Singapore - Labuan IBFC - Mike Grover 2 August 2011 Where is Labuan as an Insurance and Reinsurance market? LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY AUTHORISED BY THE MALAYSIAN GOVERNMENT TO MARKET LABUAN AS THE PREMIER INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC

New Zealand earthquake PBEC Presentation Labuan – ideal insurance domicile for ….. First, a recap of an eventful 2011 … A “catastrophic” year for the insurance industry, particularly in Asia Pacific Japan earthquake Thailand floods New Zealand earthquake Economic loss estimated at over US$370bn – more than 3 times 10 year average Cost to insurers estimated at approx. US$116bn Estimate - US$260bn gap in insured losses and uninsured who are financially vulnerable to such events

CONVENIENT. … but industry growth will be driven by Asia Pacific Strong growth in the region over the past decade Outlook for the next decade remains promising Driving factors include a sound economic environment, improvements in insurance regulations, product innovation, and a leveraging of multiple distribution channels Attracting attention of global insurers and reinsurers

Labuan Insurance Market

Reinsurance/ Retakaful PBEC Presentation Labuan – ideal insurance domicile for ….. Labuan - an ideal domicile for insurance … Regulated, talent pool, ability for adaptable products Reinsurance/ Retakaful Captive Insurance Insurance Brokers Insurance/ Takaful Insurance Managers Underwriting Managers Centrally Located to access growth markets

Participants - License composition CONVENIENT. Type of License Total as at end 2011 New approvals in 2011 Life 3 1 General 9 2 Composite - Reinsurance 38 7 Captive 34 4 Insurance Manager 6 Underwriting Manager 19 Broker 70 TOTAL 181 22

CONVENIENT. Distribution of Gross Premiums 2010: RM1.205bn 30.6% ▲ 2010: RM1.205bn Malaysian: 47.1% Others: 52.9% 2011: RM1.574bn Malaysian: 52.7% Others: 47.3%

Captive Gross Premiums CONVENIENT. 2010 2011 34.5% ▲ 2010: RM232mn Malaysian: 76.5% Others: 23.5% 2011: RM312mn Malaysian: 90.2% Others: 9.8%

Premium placement by insurance brokers CONVENIENT. 2010 2011 General Business US$522.9mn US$722.0mn Labuan 16.0% 18.2% Malaysia 42.3% 37.5% Overseas 41.7% 44.4% Life Business US$112.3mn US$131.3mn 0.7% 1.1% - 99.3% 98.9%

Labuan Insurance - Total assets CONVENIENT. 18.8% ▲ 26.1% ▲ USD million

Underwriting experience CONVENIENT. 45.1% ▲ 2010 – Earned Premium Income: US$767.3mn 2011 – Earned Premium Income: US$1,113.3mn

Labuan Takaful & Retakaful CONVENIENT. Total Gross Contributions 54.9% ▲ USD million 26.9% ▲

Labuan as a domicile for insurance business Asia Pacific Tax Training (PwC) Labuan as a domicile for insurance business 13

Bringing the Benefits of Labuan to Asia Pacific and beyond Labuan IBFC - Mike Grover - In Congress KL 12 May 2011 Bringing the Benefits of Labuan to Asia Pacific and beyond Significant growth prospects. With a population of over 3 billion across the region, and expected to be around 4.5 billion by 2020, the Asia Pacific insurance market is increasingly attractive. A developing urbanised population, often with the capacity for high household savings, limited state provision of pensions, income and healthcare insurance, the market shows potential for growth. Requires the right products for consumer. 14

Here or there? CONVENIENT. 1. Easy access to markets A recent Grant Thornton UK study among 30 global re/insurers from a range of jurisdictions looked at what main criteria is considered important in choosing a domicile. The results as follows, in order of importance: 1. Easy access to markets 2. Realistic capital adequacy requirements 3. A respected, credible regulator 4. Low corporate taxation 5. A plentiful pool of talent 6. Attractive living conditions 7. Simple, light-touch regulation 8. Low personal taxation

1. Easy access to markets CONVENIENT. Ability to interact with brokers and customers. There are 70 licensed brokers in Labuan – including leading local, regional and global players Key major insurers and reinsurers have a presence in Labuan – enabling the ability to provide access to a wide range of specialist products & global experience Reinsurers can access Malaysian second tier reinsurance business if licensed in Labuan Access to numerous and varied support industries such as lawyers, accountants, claims handlers and back office providers Labuan has a complete support industry for insurers including global banks, insurance & underwriting managers for those who seek to outsource their administrative and/or underwriting operations Labuan insurers are also allowed to co-locate anywhere in Malaysia to access infrastructure, human capital, professional services

1. Easy access to markets (cont’d) CONVENIENT. High level of remote work technology and growth of communications technology mitigate the need to be physically located at traditional insurance hubs thus affording Labuan opportunities to attract insurers in view of its strategic location and ties (as part of Malaysia) with regional markets. Access to markets via Labuan is facilitated by regulations enabling unique products such as Protected Cells and Captives, not always available or functional in many “home” jurisdictions in the region. In Q1 2012 - three PCCs were incorporated in Labuan for insurance business. Labuan is also home to the world’s first omnibus Islamic finance legislation which encompasses all requirements for Sharia-compliant financial services and streamlines procedures for all Sharia-related activities including Takaful and Retakaful.

2. Realistic capital adequacy requirements CONVENIENT. Strong push following various events across various jurisdictions for the introduction of Solvency II – significant impact for insurers in many “western” jurisdictions especially in the EU but more globally as other locations work towards some form of equivalency. With Solvency II, there will be removal of the group support provision. This means that insurance subsidiaries will not be able to calculate capital adequacy on a cross-group basis. Thus, insurers may have to review operating structures. Jurisdictions have the option to be subject to equivalency assessment. Bermuda has been noted to have made significant progress in that direction. For Labuan, the capital adequacy requirement is still largely based on margin of solvency. As such, enhancements to the solvency framework for the insurers which are in line with the international accepted standards will be introduced in the near future.

2. Realistic capital adequacy requirements (cont’d) CONVENIENT. Snapshot of current capital requirements – Labuan vs Hong Kong vs Singapore

3. A respected, credible regulator CONVENIENT. An important aspect of the regulatory environment factor. Notwithstanding that the recent financial crisis has created a stronger push for greater regulation, many feel there is an over-reaction and that excessive regulation could put a location at risk as a viable jurisdiction. Most are in favor of regulation appropriate to class of insurer i.e. regulation that reflects the activities of the insurer, with higher risk activities subject to more stringent supervision. One of the common themes to emerge from the GFC and other related financial events of recent time is not that there is inadequate regulation but that enforcement has not been as robust as needed to deal with the sophisticated and complex financial instruments that have emerged over recent years. Regulators must have suitable “teeth” to deal with the regulated entities but also the capability to manage the challenges of the complex products on offer

3. A respected, credible regulator (cont’d) CONVENIENT. At the industry level, Labuan FSA undertakes a consultative approach with the industry players on issues and developments affecting the business. Quarterly and half yearly meetings were conducted with the associations and council members of the Labuan banks, Labuan investment banks, Labuan insurance and insurance-related companies, and Labuan trust companies during the year. Maintaining a proactive role, Labuan FSA has issued guidelines for the insurance industry on the following areas: corporate governance market conduct general reinsurance arrangements

3. A respected, credible regulator (cont’d) Labuan FSA is also a member of several international organisations that promote a high level of regulatory standard amongst international financial centres: Offshore Group of Insurance Supervisors (OGIS) International Association of Insurance Supervisors (IAIS) Offshore Group of Banking Supervisors (OGBS) Asia/Pacific Group on Money Laundering (APG)  International Organisation Securities Commissions (IOSCO) Islamic Financial Services Board (IFSB) International Islamic Financial Market (IIFM)

4. Low corporate taxation CONVENIENT. Labuan ranks favourably for this criteria as it has a simple, attractive fiscal environment. Description Tax Treatment Labuan Non-Trading Company - means holding of investments in securities, stock, shares, loans, deposits and immovable properties by a Labuan entity on its own behalf - Not subject to tax Labuan Trading Company - Banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity - 3% of net profits per audited accounts; or - RM20,000 upon annual election

4. Low corporate taxation (cont’d) No withholding tax or income tax for investors No stamp duty (low transaction costs and speed of execution) No capital gains tax, gift tax, inheritance tax, estate duties No indirect taxes (eliminating additional layers of tax) Access to Malaysia DTAs (at 70+, one of the largest in Asia) No exchange controls or foreign investment restrictions

4. Low corporate taxation (cont’d) How Labuan achieves tax certainty Primary issue going forward is governments around the world are aggressively looking at offshore insurance domiciles as potential source of revenue. Possible actions include denying certain tax deductions on reinsurance cessions. Tax treaties could help to mitigate such developments. Tax certainty is also important. For example, in Ireland there is some uncertainty over the introduction of controlled foreign company and transfer pricing rules, leading to Brit Insurance Holdings Limited, for example, choosing the Netherlands to re-domicile. Labuan’s simple and straight-forward tax rules put’s the jurisdiction in a favorable position in this aspect.

5. A plentiful pool of talent CONVENIENT. An important component of ‘access to markets’. While Labuan has developed infrastructure which includes global insurance & underwriting managers the option to co-locate to anywhere in Malaysia enables Labuan insurers to access / attract a wider pool of talent available in the larger cities in Malaysia. Further, Talent Corp, a government-owned agency, has been mandated to recruit and nurture talent locally and from abroad which will enlarge the talent pool available in Malaysia. There are also programs such as the Financial sector Talent Enrichment Program driven by the local financial services industry to develop talent.

6. Attractive living conditions CONVENIENT. Labuan island itself has attractive living conditions which includes duty-free status, golf courses, beaches, diving, international schools, etc. However, with the option for Labuan insurers to co-locate to anywhere in Malaysia, access to modern city living is available at lower cost than other regional financial locations such as HK and Singapore.

7. Simple, light-touch regulation CONVENIENT. Regulatory landscape is currently undergoing significant change across many domiciles, largely in response to the recent and ongoing financial crisis. An area currently experiencing significant regulatory action is Prudential Regulation. A new suite of Insurance Core Principles (ICPs) was issued by IAIS in October 2011. Essentially require insurance supervisory regimes world-wide to establish risk-based solvency requirements. New ICP on Enterprise Risk Management (ERM) - requires supervisors to seek high standards of risk management and governance and insurers to apply Own Risk and Solvency Assessment (ORSA), a forward looking self assessment of own risks, capital requirements and adequacy of capital resources. Expected that insurers will need to substantially upgrade their ERM and capital management across the region over the next few years.

Potential impact from regulatory reforms CONVENIENT. Reduction of growth rates Need for new capital infusions, increased regulatory oversight, Solvency II and now if banking related Basel III Rising M&A activities Increase focus to reduce cost on developing back-office systems potentially leading to more efficient operations Closing of operations, reduction in capacity, increased risk management and governance oversight Improved financial strength, survival of the fittest, product changes - risk selection.

8. Low personal taxation CONVENIENT. Personal income tax exemptions in Labuan: - 100% foreign directors’ fees 50% non-citizen managers’ remuneration While not the zero percent regimes like Bermuda, this consideration does not feature as strongly in reviewing possible domiciles. This could be for a variety of reasons - the domicile may have little or no operational purpose and would therefore require very few staff on the ground, or in some cases management would not reside there at all, making low personal tax rates an irrelevance.

Labuan IBFC - Mike Grover - In Congress KL Insurance Market Outlook

What do others think of the future - Survey of 92 regional senior management personnel Source - Norton Rose Asia Pacific Insurance Survey 2011

Potential growth areas … Labuan IBFC - Mike Grover - In Congress KL 12 May 2011 Potential growth areas … Corporations and investors globally look to insurance and reinsurance as ways to deliver higher returns Insurance and reinsurance prices typically harden in the wake of various market influences (cat events, diminishing investment returns etc.). We are entering / in that market now Ideal opportunities for corporates to establish captives Tightening markets force insurers to innovate and develop new products. Hedge fund managers look to investment portfolios of the reinsurers they may assist establishing resulting in returns from both successful underwriting, and fees from running the reinsurer's money. Retirement schemes increasingly see cat bonds, insulated from financial market volatility, as a good way of counterbalancing exposure to regular stocks and bonds. Issuance yields of cat bonds post 2011 disasters are also attractive, having risen to between 5 to 7%. 33

Potential growth areas … Labuan IBFC - Mike Grover - In Congress KL 12 May 2011 Potential growth areas … Corporations and investors globally look to insurance and reinsurance as ways to deliver higher returns We are seeing the development of renewed interest in formation of captives Emerging markets looking to solutions for low cost / micro insurance solutions Insurers seeking solutions for their treaty challenges, this provides opportunity to leverage Labuan reinsurers These challenges require us to drive awareness of Labuan IBFC and assist clients see solutions available through this jurisdiction. Catastrophe insurance losses globally reached $105bn in 2011 according to Munich Re, the economic woes of the Euro zone could potentially hit the balance sheet of insurers with some insurance companies announcing profit warnings. These challenges present the case for Labuan IBFC positively, we have a window to promote so as to strengthen interest and establishment in the jurisdiction. 34

Potential growth areas … Labuan IBFC - Mike Grover - In Congress KL 12 May 2011 Potential growth areas … Labuan‘s growing popularity as a leasing centre Both the number and value of assets leased via Labuan has reached US$27.6 bn with growth across various sectors but in particular the oil & gas and aviation sector, it continues to grow, all leased assets require insurance coverage thus providing opportunities. To leverage these growing areas requires working across products to drive and deliver results in growing sectors. 35

Potential growth areas … Labuan IBFC - Mike Grover - In Congress KL 12 May 2011 Potential growth areas … The opportunities in a hardening global financial market are real, the challenges real. We all have a part to play in developing Labuan as the premier regional International Business and Financial Centre. By working together in concert we can achieve outstanding growth in this sector, LIBFC will continue to promote the jurisdiction, we look forward to increased activities together in our partnered quest. 36

Thank you LABUAN IBFC IS THE OFFICIAL AGENCY SANCTIONED BY THE MALAYSIAN GOVERNMENT TO MARKET LABUAN AS THE PREMIER INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC