Page 39 - Digital Edition SIRC Supplement
P. 39
MARKET REPORT - MALAYSIA
view that the real GDP is to grow at relatively slower pace in among domestic cedants hence it is even more crucial for
2015 as the country is dealing with external shocks as well reinsurers to improve their ratings and capitalisations.
as tapering consumer confidence which is expected to limit
upside potentials in domestic demand. Nonetheless, general In Indonesia, the regulator aims at improving and optimising
insurers’ underwriting performance is expected to remain reinsurance capacity within the country and this should
steady due to favourable margins in fire and non-motor classes. deepen the barriers of entry into this market. Rising exchange
This will offset the pressure from adverse claims experience rate volatility in the present environment as the US Federal
in the compulsory motor class despite gradual tariff increases Reserves is moving closer to its first interest rate hike in almost
over the years. a decade should translate into higher foreign exchange risk for
reinsurers that have the business exposures outside of their
From rating agency’s perspective, Fitch Ratings commented country of domicile.
that intensified market competition, under-capitalised insurers
and takaful operators are likely to seek strategic investors or The enactment of Financial Services Act (FSA) and Islamic
alternative capital to meet their capital needs. Fitch believes FSA since 2013 has witnessed a few market consolidations in
the level of Mergers and Acquisitions (M&A) will persist 2014 in the general insurance sector. Under this act, insurers
in the near term, given the attractive growth prospects and takaful operators are required to separate their life and
in Malaysia’s insurance industry. The rating agency also general operations by 2018 to strengthen the regulatory
commented that expected premium growth is underpinned by oversight of BNM.
low penetration rates in many segments. Much has been said
on the implementation of the ASEAN Economic Community In the near term, this is likely to push operating costs
(AEC) and its effects on the insurance sector within the region. higher and translate into capital burden but this should result
The AEC is unlikely to produce any immediate impact to the in operational efficiency in the long run. In relation to Islamic
sector as there remains considerable amount of gaps among FSA, takaful operators are required to meet the capital
ASEAN countries in terms of technical expertise, market requirements in the risk-based capital (RBC) framework in
maturity and non-identical regulatory requirements. aligning takaful operators and general insurers operations.
Key challenges Meanwhile, the effect of the implementation of the Goods and
The rate for motor and fire classes in Malaysia is currently Services Tax (GST) effective 1st April 2015 to the Insurance
governed by the regulator. However, de-tariffication is expected and Takaful industry is expected to be manageable although
to take place in stages. It is anticipated that by the time full the impact on product pricing has not yet been seen. Life and
de-tariffication is in place, free competition and increased Family products, with the exception of riders, are exempted
customer choice will require the industry players to compete from GST.
effectively in the new environment. Insurers are expected to Investment headwinds
focus on improving the overall quality of their business book, On the investment front, (re)insurers would continue to
adopt better use of predictive analysis, innovate better products face an environment of depressing bond yields on abundant
and enhance their distribution channels. liquidity and that is likely to exert a downward pressure
on investment yield. Notwithstanding active foreign
Regulatory changes are also taking place in other participation in the domestic sovereign bond market,
jurisdictions with China implementing the China Risk Oriented insurance funds must also compete with pension funds while
Solvency System (C-ROSS) where offshore reinsurers are volatile equity market performance resulting from persistent
required to provide collateral for reinsurance assets which market anxiety would add more to the challenge. As such,
should translate into a higher cost of doing business. This is (re)insurers that have been relying heavily on investment
likely to translate into lower placement with offshore reinsurers income in their profitability may find it difficult to match
their historical performance.
Back to Contents SIRC Supplement • November 2015 • www.asiainsurancereview.com 37
