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

More actuaries are becoming CEOs

Lately we have seen a few actuaries who have been made CEO in the Malaysian market. Based on our knowledge, currently (or in the near future):

• 4 out of 15 conventional life insurance companies CEOs are actuaries
• 2 out of 8 takaful CEOs are actuaries

In the 90's, there were also quite a number of CEOs who were actuaries. In late 90's and early 2000 however, marketing/agency/sales people were the favourite pick for CEO. The trend has since reversed partly due to the introduction of RBC which requires the chieftains to be well versed in risk and capital management.

Increasingly there are also more actuaries who become CFOs.

Source: TAS

Star's article on RBC and liberalisation

I am puzzled with some of the statements in the article:

"The risk-based capital (RBC) framework, which came into force beginning this year, would also spur the insurers’ future earnings growth as it would allow them to be better capitalised"

How would better capitalised spur the insurers' future earnings growth? If an insurer was under-capitalised pre-RBC and now the capital is adequate, there should not be any impact on future earnings growth, or should it? I guess if an insurer has excess capital under RBC and they put it into better use by writing more businesses then there might be a positive impact on future earnings.

"For locally incorporated foreign insurers like Manulife Holdings Bhd and Allianz Malaysia Bhd, an analyst with an investment bank said the recent financial sector liberalisation measures was a boon to their business as it had allowed them to tie up with more than one bank to distribute products."

I thought prior to liberalisation, foreign banks could not tie up with foreign insurers in bancassurance. There was no limit on the number of bancassurance partners though. For example, foreign insurers could tie up with more than 1 local bank. This restriction is of course removed following liberalisation.

I stand to be corrected on the above.

Source: The Star

Individual Capital Assessment Talk

ASM organised a Talk on Individual Capital Assessment (ICA) for its members today at Great Eastern. The Talk was well attended by close to 80 members. Some members arrived at 3:30 pm possibly unaware of the change of time in view of the Puasa month.

ICA is the UK's approach to RBC. During the Talk, Hui In, the Malaysian actuary who returned from UK, highlighted the ICA methodologies, the impact of ICA to the life insurance companies and the differences among ICA, RBC, Solvency II and Swiss Solvency Tests.

Members who attend the Talk are entitled to 1.5 CPD hours.

For other ASM's news, please click on ASM label below.

Lonpac sets targets

Some of the plans/targets set by Lonpac:

• 15% gross premium growth in 2009
• Opening of new branches, at least 5 by 2010, currently 15 branches
• New branches: Klang & Tawau (2009); Johor, Sabah & Sarawak (2010)
• Strengthening agency force, grow by 20% to 1,600 in 2009
• Improve delivery system
• Maintain market share in Fire and Miscellaneous, contributions of these 2 classes to its business stand at 43.2% and 36.7% of gross premium

Lonpac has a CAR of 176%.

Source: Business Times

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

STMB Launches Wakalah-Based Products

Syarikat Takaful Malaysia Berhad (STMB) launched 4 wakalah-based products yesterday: Takaful MyMedicare, MySiswa, MyImpian and MySinar. STMB is moving from mudharabah to wakalah model to be more competitive. The company is also planning to launch 4 more wakalah-based products next year.

Other news on STMB:

• Its unit in Indonesia PT Syarikat Takaful is seeking a strategic banking partner to take up a 30% equity stake by end-2009
• BNM has approved the injection of capital of RM21.825 mil into PT Asuransi Takaful Keluarga to address the minimum solvency ratio requirement deficit under the RBC framework of Indonesia

Source: The Star, Bursa, Business Times

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

Prudential has twice the capital required under RBC

Prudential has twice the solvency capital required under RBC. It also achieved 39% new business growth in Q3 2008. For 1st 3 quarters in 2008, new business sales went up 20%.

While consumer confidence will be affected with the recent financial turmoil, Prudential is confident that it can weather the crisis due to its strong corporate governance and risk management.

Source: Business Times, The Star

Increase Capital to Weather Financial Storm

Daljit Dhesi of The Star has commented that the worldwide credit crunch was a wake-up call for insurers in Malaysia to increase capital to weather the financial storm.

Comment was also made on increasing capital to be in compliance with RBC. "The RBC framework to be implemented in January 2009 will benefit policyholders and insurers as the latter will become stronger and more competitive globally to face the growing challenges."

Source: The Star

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

Citi to Help in RBC

Citigroup said it would help insurers:

• Cope with RBC reporting
• Increase insurance penetration rate

Citi quoted its experience in Singapore in providing securities and fund services. It introduced a format to assist insurers there for easy submission of financial reporting to the regulators.

Source: The Star