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

Asia's Insurance Industry is Strong

Asia's insurance industry is strong enough to withstand the current financial market turmoil, according to S&P. "Rated insurers that have strengthened their balance sheets over the past 5 years are expected to ride out the storm without major rating changes".

Other points mentioned in the S&P's report:

• Negative outlooks on Singapore and Taiwan's life insurance sectors.
• Operating performance is likely to deteriorate in 2008 due to plummeting investment profits.

Source: The Star

Impact on Malaysia Insurance Industry

How is the local insurance industry affected if the financial crisis that has hit the US and Europe worsens? The Star reported the following views from the industry players:

Unnamed insurer: “If the credit crunch persists, it may affect the performance of insurance companies as it will have an impact on the local economy, hence affecting spending.”

Allianz Malaysia Bhd: Minimal impact on the company as has minimal exposure in foreign investments, difficult to predict the outcome should the credit crisis persist.

Manulife: Growth might be slow but sales would continue to grow.

Hong Leong Assurance: Business expected to grow as economic downturns create a need for insurance protection. Investments are maily in the local markets, no exposure to CDOs and exotic instruments. Exposure to stock market kept to a minimum and in sound dividend-yielding stocks.

Weak Investment Returns for Insurers

The Star is predicting weak investment returns for insurance companies due to the poor performance of the financial markets following the crisis in the US.

However, investment returns will remain positive over the longer period.

The solvency ratio was 120.6% at end of 2007, well above the regulatory minimum.

Manulife meanwhile believes that insurance is counter-cyclical and people tend to save more and cut back discretionary spending during current market conditions.

Source: The Star

Inflation will Affect Motor Insurance Business

The recent fuel price hike and the high inflationary environment is expected to have negative impact on the motor insurance business. The demand for vehicles, especially the large capacity vehicles, will likely to be depressed. The motor insurance premium growth is expected to be affected as a result.

The gross written motor insurance premiums reached RM4.67 bil in 2007, a growth of 1.4% over 2006.

Kurnia expects that inflation will also put pressure on management expense. The slowdown in vehicle sales however may be temporary as cars are still a neccessity for Malaysians.

Source: Business Times

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