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MARKET REPORT - MALAYSIA
Market growth in line with
economy
As the economy grew at a higher rate in 2014, so did the (re)insurance market.
However, market growth may slow this year in line with views that the GDP may
grow at a relatively slower pace, says Mr Zainudin Ishak, CEO, Malaysian Re,
The Malaysian economy posted higher growth of 6.0% impact on domestic general insurance industry, with the bulk
in 2014 (2013: 4.7%), due to better-than-expected of risks reinsured in the global aviation market.
exports performance during the first half of 2014, Impact of lower investment yield
cushioning the negative effect of lower oil price to the Lower investment yield seems to be an issue across the globe.
economy in general. Global (re)insurers for instance extend the maturity profile of
Market performance fixed income investment in search for yield. In some extreme
The Malaysian general insurance and takaful industry recorded cases, (re)insurers raised the gear in adding more risk to
a Gross Written Premium (GPW) growth of 6.6% in 2014 to investment portfolio by going down the credit curve by buying
MYR19.3 billion (US$4.38 billion) as compared to 7.1% growth more lower-rated bonds, and increased asset allocation into
recorded in the previous year largely due to slower magnitude equities.
of GPW growth along the motor segment. With the GPW of
MYR9.2 billion in 2014, the growth rate in motor segment The local sovereign fixed income market saw a huge increase
stood at 7.0% in comparison to 7.5% growth witnessed in the in foreign participation where foreign holdings of Malaysian
year before. Government Securities (MGS) climbed beyond 45% of the total
outstanding amount, the highest in history.
For the record, the growth trend in GPW along the general
insurance sector has been on a declining trend since the year This outcome is a manifestation of rising liquidity level
2010. However, GPW growth in 2014 was still above the Gross globally where it is estimated that the US Federal Reserve
Domestic Product (GDP) growth. Meanwhile, the Net Written expanded its balance sheet from US$800 billion before the
Premium (NPW) increased by 7.4% to MYR18.9 billion over Global Financial Crisis (GFC) of 2008/09 to about US$4.5
the corresponding period. trillion via various Quantitative Easing (QE) programmes
and monetary policy easing steps taken by the likes of the
On the liability side, Net Claims Incurred (NCI) along the Bank of Japan, Bank of England and European Central Bank,
industry came in at MYR7.5 billion, translating into a stable yield compressions look likely to persist. As a result, domestic
NCI ratio of 55.6%. The NCI however looks likely to move insurers and takaful operators which also participate actively in
higher in 2015 given major East Coast flood in late 2014 this market for their asset and liability matching are affected as
which had also triggered fiscal injection by the government lower sovereign bond yields pushed the investment yields lower.
in its rebuilding plans. Despite this unprecedented floods, Capitalisation and profitability
Bank Negara Malaysia (BNM) in its 2014 Financial Stability During the year, general insurers recorded a higher Capital
Report said that the potential impact on insurers arising from Adequacy Ratio (CAR), partly following refinements to the
the severe floods in selected states at year-end is not expected treatment of premium liabilities under Risk Based Capital
to be significant, with losses on a gross basis expected to be (RBC) framework. Specifically, the CAR ratio for general
contained below 1.0% of total capital of impacted companies. insurance rose from 235% to 274%, ensuring that the sector
is well capitalised against the minimum requirement of 130%
That marginal increase also reflects improvements in the under the framework. Concluding the sector’s robustness is
fire and motor which formed bulk of NCI. The loss ratio for the general insurance industry’s aggregate technical reserves
motor was at 70.3% in 2014 and it averaged 74.9% over the position where it currently stands at 132% of net premiums.
last five years. The combined ratio for general insurance and
general takaful operators stood at 87.6% and 82.0% respectively In terms of profitability, earned premium income among
indicating underwriting gains across the sector. On another general insurers and takaful operators stood at MYR2.9billion
note, the unfortunate tragedy that befell Malaysia Airlines in 2014 with underwriting profit of MYR1.8 billion. Investment
(MAS) Flight MH17 in July 2014 did not have a significant
yields continued to trend lower as easing monetary policy
adopted by global central banks in their effort to boost the
respective economies witnessed foreign funds flooding
the domestic sovereign bond market. In addition to this,
ample liquidity in the domestic financial market in the
form of rising banking sector’s excess deposits and growing
investible funds among domestic institutional investors also
continued to drive bond yields lower.
Key drivers of growth
According to a report by the General Insurance Association
of Malaysia (PIAM), the general insurance sector is set to
record a 5.5% to 6.0% growth in GPW in 2015, slightly
lower than growth recorded in the previous year. Slower
growth expectation is somewhat in line with the core
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