Is Lloyds pulling out from LOFSA?

Our sources told us of an imminent pull-out by Lloyds from Labuan Offshore Financial Services Center and therefore deregistering Lloyds Labuan from the Labuan Offshore Financial and Services Act (LOFSA). Main reason sighted, Lloyds’ members were not accorded the same status as the other companies that are registered under the same Act. When Lord Levene, Lloyds chairman launched Lloyds Labuan on 1 March 2007 that was done with understanding that all members of Lloyds irregardless of their place of operations would be deemed to be LOFSA registered and therefore enjoyed the status similar to what the Lofsa registrants.

There are three tiers of access to Malaysian reinsurance business. Malaysian law states that all reinsurance must be offered to Malaysian authorised reinsurers first (1st tier) before offering that business to reinsurers licenced in Labuan (2nd tier). Only after these two options have been exhausted may business be offered to non-Malaysian (so-called ‘offshore’) carriers (3rd tier). Prior to obtaining the licence, Lloyd’s underwriters without a specific operation in Labuan were considered offshore providers. The new licence extends the benefits of being Labuan-based to all Lloyd’s underwriters.

In the last two years Lloyds syndicates have started to set up base in Singapore but not in Malaysia, and in the process enjoyed the 2nd tier benefits for business transacted with Malaysian insurers. This sort of created unhappiness among many LOFSA registered reinsurers and when the Risk-based Capital (RBC) became effective on 1 Jan 2009, things were reversed amidst this was never made official. This reversal has been widely circulated in the market that all Lloyds syndicates operating outside Malaysian shores are deemed to be overseas reinsurers contrary to what was originally indended back in 2007. Bank Negara may have felt allowing Lloyds syndicates to enjoy the tier 2 status would result in more syndicates making Singapore their operation base rather than on Malaysian shores.  From the RBC perspectives, being tier 2 would enabled the syndicates’ cedants to enjoy a credit capital risk charge of 1.6% similar to those registered under the Insurance Act or those LOFSA registered reinsurers having “A” rating plus parental guarantee . Thus reversing the tier 2 privileges, Lloyds syndicates not operating from any Malaysian base can no longer enable their cedants to enjoy the 1.6% risk charge but instead a bloody 4%.

Perhaps after a few rounds of negotiation with authority, the decision may be a drastic pull out…..as Lloyds no longer sees any benefit for planting its brand here.

Anyway please do not quote us…… possibly a rumour…. 

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