News Digest 20100309-20100320

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News Digest 20100223-20100301

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News Digest 20100203-20100223

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News Digest 20091116-20100106

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No change in voluntary cessions

Malaysian Reinsurance Berhad has received confirmation from BNM that the Voluntary Cessions (VC) levels in 2010 would remain the same as 2009. Specifically:

1. VC on Motor, PA, H&S: 4% quota share, no cession limit
2. VC on other classes: 5% quota share, no cession limit
3. Auto-Facultative and Auto-Treaty: 15% VC. Retrocessions: 20% VC

For years 2011 and 2012:

1. 4% revised to 2.5%
2. 5% remains
3. 15% and 20% remain

Source: Bursa

Main points of Governor's Keynote Address

Main points related to the insurance industry in the Governor's Keynote Address at the 21st Federation of Afro-Asian Insurance and Reinsurance Conference:

• The insurance industry has remained resilient throughout the current financial crisis
• Maintaining strong capital buffers and sound risk management is imperative to ensure the continued resilience of the insurance industry especially the domestic and external conditions are expected to remain volatile
• Insurance and pensions will have a greater role especially with the ageing population
• Prospects for higher insurance penetration rate: in 2008, Asia (5.95% of GDP), Africa (3.57%) compared with America (7.29%) and Europe (7.46%)
• The demand for investment-linked and wealth management products are strong with changing priorities of the young workforce in the middle income group
• Insurers need to strategise to increase the accessibility of insurance products e.g. through bancassurance and internet
• Public-private partnership between Government and the insurance industry are needed to cope with catastrophe losses
• High growth in Takaful: between 2004 and 2007, the average annual growth rate of the global takaful industry is estimated at 25%, compared to 10.3% for conventional insurance
• More integrated approach to the prudential regulation of the insurance industry together with the other segments of the financial sector, such as the one practised in Malaysia, enables the regulator to form a more complete assessment of the risks to financial stability while ensuring consistency in the treatment of risks across the different industries

Source: BNM

Articles on insurance/takaful over the weekend

Some of the articles appearing in StarBizWeek Special on 8 August that may be worth reading:

Keeping abreast with changes: Various insurance chieftains touch on issues like financial planning, bancassurance, professionalism, sustainability of business and future challenges and growth drivers.

Innovation key to growth for takaful: Leaders of takaful industry talk on sustainability of takaful industry, liberalisation, bancatakaful, human capital and retakaful.

Linking markets with Islamic finance: Towards the end of the article, BNM governor mentions that the insurance industry has a long way to go and develop products for retirement, pension schemes, annuities and medical coverage. Professionalism and capitalisation need to be increased. There should be more mergers in the domestic sector and the need for setting up enabling infrastructure.

Source: The Star

LIfe after FSMP

What is next after Financial Sector Master Plan (FSMP)? Here are some clues:

• A new blueprint for significant expansion of the financial system
• More emphasis on the development of a vibrant regional financial market that can support the expansion in trade and investment activities within the region

Source: The Star

Perwakim picketed outside BNM

Perwakim, an association of general insurance agents, picketed outside BNM in protest of the introduction of premium rebates. The premium rebates come into force on 1 July 2009.

A memorandum was handed to Prime Minister's office, the Ministry of Finance and the Ministry of Human Resources.

Source: Business Times

BNM moves to principle-based regulatory regime

BNM is moving towards principle-based regulatory regime, away from the rule-based regime in the past.

In early 2009, RBC was introduced. In July, "Guidelines on Introduction of New Products" will be implemented to ensure that consumers are clearly and fully informed of the nature and risks associated with the products.

Towards end of 2009, the Bank will consult with the industry on risk management standards.

Source: The Star, Business Times

BNM firm on premium rebates

BNM is pushing through premium rebates on general insurance policies bought directly from insurance companies, despite a strong protest from insurance agents.

Apparently, the rebates do not apply only to motor insurance policies as previously announced but to other general insurance policies as well. The rebates for non-motor policies vary by type of insurance and are between 5% and 25%.

Insurance agents are encouraged to transform themselves to financial advisors. BNM also said that there were no plans to introduce premium rebates for life policies.

Some statistics:

• 40,000 general insurance agents in Malaysia
• RM4.4 bil premium in general insurance (2008)
• Motor insurance is the largest class with 50% share
• 15% of motor insurance business was direct business

Source: Business Times 1 & 2, The Star, BNM

BNM assumes control of Tahan

BNM has assumed control of Tahan Insurance Malaysia Bhd as the latter failed to comply with capital requirements and non-fulfilment of the capital restoration plans. PwC has been appointed to assume control of the insurer and the aim is to turn around the insurer within a year.

Tahan had a shortfall of RM29.22 mil in capital as at end of 2006, failing to meet the absolute minimum capital of RM50 mil. It is understood that Tahan's CAR is 100%, below RBC minimum CAR of 130%.

Related stories: Resignation of Tahan's CEO, Various M&A proposals on Tahan

Source: The Star, Business Times 1 & 2, BNM

Lot of enquiries on liberalisation

BNM received a lot of enquiries on all areas related to the recently announced financial liberalisation, including issuance of new licences.

Source: Business Times

Liberalisation of financial sector

The details of the liberalisation of the financial sector announced by PM and BNM (those relevant to insurance and takaful):

• Up to 2 new family takaful licences to be granted in 2009 (all existing takaful licences are composite, the new ones seem to be restricted to family takaful business only)
• Limit on foreign shareholding in insurance and takaful companies increased to 70%
• Case-by-case consideration for limit beyond 70% if players can facilitate consolidation and rationalisation of the insurance industry
• Restriction on establishment of branches imposed on locally-incorporated foreign insurers and takaful operators uplifted
• Restriction on bancassurance tie-up imposed on locally-incorporated foreign insurers and takaful operators uplifted
• Greater flexibility to employ specialist expatriates
• Offshore insurance companies licensed under Lofsa can have physical onshore presence from 2011 after meeting predetermined criteria

Industry statistics:

• Financial sector contribution to GDP: 9.2% (2000), 11% (2008)
• 2006-08: Finance and insurance sector grew 8.8%, GDP growth 6%
• 2004-08: Islamic banking and takaful sector grew 20%
• >140,000 workers employed in banking institutions and insurance companies

Source: BNM's Press Statement, PM's Press Statement, Issuance of Family Takaful Licences

BNM's Annual Report 2009

Some of the salient points from BNM's Annual Report 2009 related to insurance and takaful industry:

• The finance and insurance sub-sector recorded a growth of 7.7% against 11.1% in 2007 to account for 11% of GDP at end 2008
• Solvency position of the insurance and takaful industry was sustained during 2008
• Total income for life insurance sector fell to RM26.779 bil in 2008 from RM28.440 bil in 2007, while its outgo increased to RM19.238 bil from RM14.617 bil
• General insurance sector's operating profit fell to RM588.9 mil in 2008 from RM1.339 bil in 2007
• Family takaful income rose to RM2.834 bil from RM2.376 bil, while outgo rose from RM1.294 bil to RM1.441 bil
• The general takaful operating profit rose to RM171.6 mil from RM24.5 mil
• Insurance and takaful sectors will be affected by lower demand and higher competition
• Motor insurance and takaful to be affected by expected decline in vehicle sales
• Potential higher surrender rates
• Potential lower sum assured (smaller policies)
• Potential higher incidences of theft and fraud

Source: The Star 1, 2 & 3, Bernama

Bakarudin now AG of BNM

Encik Bakarudin bin Ishak was appointed as Assistant Governor of BNM effective 5/3/2009. Bakarudin held the post of Director of the Islamic Banking and Takaful Department prior to his appointment as AG of BNM.

Source: BNM

BNM Met with Insurance and Takaful Leaders

BNM held a dialogue with leaders of the insurance and takaful industries today to discuss the developments in the economy and wide ranging issues facing the industries.

Among others, the insurers are ready for the implementation of RBC come 1 Jan 2009. The insurers and takaful operators will be more vigilant against fraudulent claims and potential fraud. BNM has also make available liquidity facility to insurance companies and takaful operators.

Source: BNM

BNM Gives Assurance on Financial System

BNM has released a press statement assuring that the Malaysian Financial System can weather the current global financial turmoil. Among the points relevant to insurance industry:

• Ample liquidity in the financial system
• Insurance industry is operating with adequate capital and liquidity buffers
• Negligible exposure to both sub-prime related securities and to the affected financial institutions of other countries
• More than 90% of total assets in ringgit denominated assets
• All foreign financial institutions are locally incorporated
• The insurance industry recorded high solvency surplus of RM16.5 bil as at end-August 2008

Source: BNM

Revised Capital Framework Key Priority

BNM said that the implementation of the revised capital frameworks for the banking and insurance industries would remain as its key priority this year.

Earlier there was some confusion that Basel II deadline for the banking industry would be extended, it has since been clarified that the deadline remains at 2010.

Source: The Edge Daily

Takaful Annual Statistics 2007

The takaful industry saw a 3-fold increase in the agency force from 15,194 in 2006 to 43,843 in 2007. However, net contributions income only improved by 49%.

It is believed that the increase in the number of agents was caused by the new licensees such as Prudential BSN, HLTMT and MAA. Although the new licenses were granted in 2006, most of the new licensees only started business in 2007. Another new licensee HSBC Amanah Takaful does not have agency force but distributes mainly through HSBC bank.

It is interesting to note that the number of employees for the takaful industry only increased by 200-300 from year 2005, despite the entry of the 4 new players. This is because the new players mainly adopt shared resources model (sharing with their traditional insurance business) and this helped to improve efficiency as the management expense ratio for general takaful has decreased from 34.3% to 29.7%.

The per capita contributions on family and general takaful were still low at RM73.2 and RM20.8 respectively compared with the traditional counterparts of RM695 and RM369.

Is the Malaysia Takaful market growing too slowly? Our earlier article has highlighted the threat that MIFC may not achive its targets as GCC has already claimed to be the largest takaful market in the world.

By class of business, we saw investment-linked and motor takaful increase in share in new business in 2007. This may be a result of the new licensees' strategies. It is worth noting that the claims ratio for general takaful has deteriorated from 59.2% to 71.5%, mainly due to the poor performance of motor business.

Source: BNM

2007 Annual Statistics for Insurance & Takaful

BNM recently released annual statistics for insurance and takaful industries for 2007. This is the 2nd year BNM publishes only the statistics as opposed to full annual reports as per year 2005 and earlier.

We make the following initial observations on the insurance industry (more may be posted in future as we have time to digest the statistics):

• Number of Financial Adviser licensees is still low at 7, an increase of 5 over the year. Number of financial advisers is 43 (6 in 2006), meanwhile the number of life agents increased by 3,247 to 78,587.
• There was a decrease in 1 direct general insurer and an increase of 1 general reinsurer.
• Premium as a % of Gross National Income dropped from 4.5% to 4.3%, total insurance fund assets (life & general) also dropped from 5.0% to 4.9% of total assets of the financial system.
• In absolute terms, the per capita insurance premium expenditure on life and general insurance increased from RM644 to RM695 and from RM362 to RM369 respectively
• The claims ratio for general insurance industry worsened from 60.6% to 65.7%. The main deterioration occured in Contractors' all risk & engineering and Motor Act.

Source: BNM

BNM Publishes Guidelines on Web

The wait is finally over. You can now download selected guidelines and circulars issued by BNM on its website.

This is definitely good news to the practitioners as they do not need to worry anymore on whether they are referring to the outdated documents.

It is hoped that in the near future, BNM will upload its complete set of guidelines and circulars on the web.

http://www.bnm.gov.my/index.php?ch=18&pg=55&ac=584

Kenneth Wong Leaving BNM

Kenneth Wong, the Senior Actuary of Bank Negara Malaysia (BNM), today announced that he was leaving BNM, after 3 and 1/2 years with them. His last day with BNM is apparently 31 March 2008.

There is no news on where he is heading to.

A replacement apparently is being identified and will be announced soon. Meanwhile, Kenneth announced that business was as usual in BNM as they have a strong and capable actuarial team in the Bank.