The Insurance Capital Adequacy Framework (ICAF) is a set of risk-based capital (RBC) regulations for the general and life insurance industry in Labuan International Business and Financial Centre (Labuan IBFC). It is a paradigm shift as the Centre departs from the traditional factor-based solvency margin requirement to RBC approach which is contemporary, risk-focused, and future-proof capital measurement. The ICAF is regarded as timely to be adopted especially for Labuan IBFC as it has a rapidly expanding international insurance market.

ICAF essentially aims to:

• enhance the market’s overall financial resilience by requiring insurers to maintain sufficient Capital Adequacy Ratio above the minimum regulatory stipulated threshold;
• ensure that key risk exposures to insurers are actuarially quantified and managed prudently as part of their ongoing financial management;
• provide incentives for insurers to put in place appropriate risk management infrastructure and adopt prudent practices; and
• promote convergence with international practices so as to enhance comparability across jurisdictions and reduce opportunities for regulatory arbitrage within the financial sector.

It further complements the Risk-based Supervisory Framework (RBSF) as it allows for:

• risks to be addressed in a systematic manner by reflecting their materiality;
• dynamic and pre-emptive risk-based supervision where risks are identified and addressed early through monitoring of insurers’ internal target capital; and
• an improved supervisory decision making via the comprehensive financial risk information of individual insurers.