2014 General Insurance 06 PDF

Session 6 General Insurance and Takaful
industry market trend in Malaysia
NurulSyuhadaNurazmi,FCAS,FASM
8/25/2014
General Insurance and Takaful Industry

Market Trends in Malaysia
Nurul Syuhada Nurazmi, FCAS, FASM
Partner, Actuarial Partners Consulting
General Insurance and Takaful Industry Market Trends in Malaysia
BUSINESS OVERVIEW
8/25/2014
BUSINESS GROWTH
There has been persistent and significant growth in General Takaful
business in Malaysia. This growth has consistently outpaced the
growth of the conventional General Insurance business.
7%
16,000,000
8%
8%
14,000,000
9%
6%
RM'000
12,000,000
8%
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
GeneralTakaful(RM'000)
ConventionalGeneralInsurance
(RM'000)
28%
21%
14%
10%
9%
19%
2007
2008
2009
2010
2011
2012
2013
767,600
873,800
1,053,700
1,345,900
1,599,800
1,746,500
1,918,500
10,046,400
10,894,000
11,531,200
12,584,700
13,604,900
14,692,200
15,721,300
ConventionalGeneralInsurance(RM'000)
Source:BankNegaraMalaysiaAnnualInsurance/TakafulStatistics,FinancialYears2007to2013
GENERAL INSURANCE
BY LINE OF BUSINESS
GrossPremiums DirectBusiness(Jan Dec2013)
NetPremiums Direct Business(Jan Dec2013)

(RM'000)
(RM'000)
WC&EL,
RM232,400,
1%
Liability,
RM464,000,
3%
PA&Medical,
RM2,129,400,
14%
CAR&Eng,
RM601,700,
4%
MAT,
RM1,451,800,
9%
Fire,
RM2,622,700,
17%
Others,
RM771,700,
5%
Motor(Total)
Fire
MAT
CAR&Eng
PA&Medical
WC&EL
Liability
Others
Motor(Total),
RM7,447,600,
47%
WC&EL,
RM227,500,
2%
Liability,
RM253,600,
2%
PA&Medical,
RM1,927,600,
15%
Others,
RM555,600,
4%
Motor(Total)
Fire
MAT
CAR&Eng
PA&Medical
CAR&Eng,
RM314,200,
2%
WC&EL
Liability
Others
MAT,
RM464,500,
4%
Fire,
RM1,873,100,
14%
Motor(Total),
RM7,315,600,
57%
Source:BankNegaraMalaysiaAnnualInsuranceStatistics,FinancialYear2013
Predominance of Motor, especially net of reinsurance.

MAT, CAR & Eng and Liability are more heavily reinsured than PA &
Medical, Motor and WC & EL, with Fire and Others showing moderate
retention.
8/25/2014
GENERAL TAKAFUL
BY LINE OF BUSINESS
GrossContributions DirectBusiness(Jan Dec2013)
(RM'000)
PA&Medical,
RM191,200,
10%
WC&EL,
RM10,200,1%
Liability,
RM33,000,2%
Others,
RM61,500,3%
Motor(Total)
Fire
GrossContributions DirectBusiness(Jan Dec2013)

(RM'000)
PA&Medical,
RM161,000,
11%
MAT
CAR&Eng,
RM56,200,3%
CAR&Eng
PA&Medical
CAR&Eng,
RM11,100,
1%
WC&EL
MAT,
RM44,700,2%
Fire,
RM386,600,
20%
Liability
Others
Motor(Total),
RM1,135,200,
59%
Liability,
WC&EL,
RM9,000,1%
RM7,400,1%
Motor(Total)
Others,
RM29,500,
2%
Fire
MAT
CAR&Eng
PA&Medical
WC&EL
MAT,
RM6,200,0%
Fire,
RM221,200,
16%
Liability
Others
Motor(Total),
RM955,300,
68%
Source:BankNegaraMalaysiaAnnualTakafulStatistics,FinancialYear2013
Predominance of Motor in Takaful is even more distinct than in

conventional insurance.
Heavy reliance on Motor, and Fire and PA & Medical to a lesser extent,
with low penetration and retakaful retention for the other classes.
OBSERVATIONS
Mix of business between conventional General Insurance and
Takaful is similar, with Motor and Fire forming the bulk of the
business.
Conventional insurers tend to have higher exposure to
commercial risks such as MAT and CAR & Eng as compared to
Takaful Operators (TOs). These risks require higher capacity and
expertise to write, hence the reason why the smaller and
younger TOs are providing less or no such cover.
On the other hand, TOs are writing less Medical business as
compared to their conventional peers. This follows the
conventional insurers trend 15 years ago, where Medical was
predominantly written by their Life counterparts. This has
changed with the introduction of Sihat Malaysia in 1998/1999.
8/25/2014
GeneralInsuranceandTakaful
Market
GROWTH
ON GROSS BASIS
ByLineofBusiness
BY LINE
OF BUSINESS
MOTOR
Motor Takaful exhibits strong growth, consistently outpacing the
growth in the conventional General Insurance market, although
Takaful is still only 13% of the combined Motor market.
8,000,000
9%
8%
7,000,000
7%
13%
RM'000
6,000,000
7%
10%
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
(RM'000)
16%
28%
28%
23%
18%
10%
2007
2008
2009
2010
2011
2012
2013
374,800
436,300
557,600
715,600
878,300
1,036,100
1,135,200
4,447,700
4,893,900
5,254,200
5,922,200
6,317,100
6,845,600
7,447,600
Source: Bank Negara Malaysia Annual Insurance/Takaful Statistics, Financial Years 2007 to 2013
8/25/2014
FIRE
The growth in Fire Insurance is more stable than in Fire Takaful,
although at a lower average growth rate.
3,000,000
9%
8%
2,500,000
RM'000
2,000,000
7%
3%
6%
7%
1,500,000
1,000,000
500,000
14%
9%
0
37%
17%
17%
6%
2007
2008
2009
2010
2011
2012
2013
211,800
191,900
218,900
299,200
280,800
329,900
386,600
1,786,900
1,910,000
2,029,500
2,100,300
2,240,100
2,410,000
2,622,700
MAT
The growth of this business in both General Takaful and Insurance
markets has been more volatile than for Motor and Fire.
1,600,000
2%
5%
10%
1,400,000
1%
10%
1%
RM'000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
30%
0
(RM'000)
3%
67%
28%
23%
44%
2007
2008
2009
2010
2011
2012
2013
36,400
47,200
48,600
81,400
104,200
80,400
44,700
1,186,200
1,179,500
1,168,600
1,283,600
1,412,500
1,478,500
1,451,800
8/25/2014
CAR & ENG

The conventional market has been growing consistently except in
2010 as opposed to the Takaful market which has been more
volatile.
700,000
6%
600,000
16%
RM'000
500,000
25%
1%
6%
5%
400,000
300,000
200,000
124%
100,000
27%
28%
38%
14%
50%
2007
2008
2009
2010
2011
2012
2013
43,700
55,600
34,400
44,000
98,600
49,500
56,200
385,600
407,500
410,700
391,700
488,200
567,600
601,700
PA & MEDICAL
PA & Medical Takaful business has grown significantly since 2011;
its growth continues to outperform the conventional market, except
in 2010.
2,500,000
5%
5%
14%
2,000,000
RM'000
12%
1,500,000
1,000,000
500,000
2%
0
15%
15%
22%
2009
2010
2011
2012
2013
117,000
118,900
136,700
157,000
191,200
1,523,200
1,699,300
1,930,100
2,030,100
2,129,400
8/25/2014
WC & EL
The WC & EL business in the conventional market has been
growing steadily, whilst the Takaful market has had mixed success,
barely having grown from 2009 to 2013.
250,000
14%
20%
200,000
8%
RM'000
8%
150,000
100,000
50,000
2009
(RM'000)
19%
12%
7%
32%
2010
2011
2012
2013
9,100
7,400
8,300
7,700
10,200
146,200
158,500
170,500
204,700
232,400
LIABILITY
The growth in Liability Takaful business outpaced that of the
conventional market except in 2012.
500,000
0%
12%
450,000
9%
400,000
2%
RM'000
350,000
300,000
250,000
200,000
150,000
100,000
19%
50,000
0
2009
2010
21%
2011
21%
2012
28%
2013
22,700
27,000
32,700
25,700
33,000
374,900
381,000
414,100
465,000
464,000
8/25/2014
OTHERS
This consists of all other classes of business such as Bonds, All
Risks, Machinery & Equipment, Fidelity Guarantee and Burglary. Both
the conventional and Takaful markets are consistently growing over
the years except in 2011 for conventional and in 2012 for Takaful.
800,000
12%
700,000
9%
2%
4%
RM'000
600,000
500,000
400,000
300,000
200,000
100,000
0
16%
15%
0%
2%
2009
2010
2011
2012
2013
45,300
52,400
60,200
60,200
61,500
623,900
648,100
632,200
690,800
771,700
DISTRIBUTION CHANNEL
8/25/2014
DISTRIBUTION CHANNEL
Depends on each companys business profile.
Companies that focus on writing Motor business
would depend heavily on their agency force.
Companies that focus on commercial risk would rely
on their brokers.
Banca tied-up companies would depend on their
banca partner to distribute their products e.g. via
DMTM.
NUMBER OF AGENTS
CAGRfrom2007
to2013
NumberofGeneralInsuranceandTakafulAgentsinMalaysia
80,000
GeneralTakaful
70,000
NumberofAgents
60,000
48%
50,000
22%
47%
49%
48%
29%
34%
40,000
10%
30,000
78%
71%
52%
53%
51%
52%
66%
GeneralTakaful
2007
10,856
2008
15,975
2009
32,997
2010
31,391
2011
33,970
2012
37,543
2013
18,820
39,165
38,766
35,930
35,236
35,609
35,354
36,374
20,000
10,000
0
Conventional
GeneralInsurance
-1%
GeneralTakaful
Source: Actuarial Partners analysis of Takaful and Insurance Statistics by Bank Negara Malaysia
8/25/2014
REGULATIONS AND
GUIDELINES
GENERAL INSURANCE / TAKAFUL

Jan
1992
1st Jan1992
Guidelineson
Accountingfor
InsuranceBusiness
Dec
1993
31st Dec1993
Guidelineson
Mathematical
EstimationofIBNR
ClaimsProvision
August
2003
1st August2003
GuidelinesonMedical
andHealthInsurance
Business
&
MinimumStandardon
ProductDisclosure
andTransparencyin
theSaleofMedical
andHealthInsurance
Policies
Jan
2004
31st Jan2004
MinimumStandard
onProduct
Disclosureand
Transparencyin
Marketingof
MedicalandHealth
TakafulPlans
10
8/25/2014

Dec
2004
9th Dec2004Test
ExerciseonDraft
Guidelineson
ReservingforGeneral
InsuranceBusiness
Dec
2004
15th Dec2004
ConceptPaperofthe
RiskBasedCapital
Frameworkfor
Insurers
Jan
2006
1st January2006
GuidelinesonMedical
andHealthInsurance
Business(Revised)
&
Hospitalisation&
SurgicalInsurance
(HSI)Underwriting
Guide
Jan
2008
2nd January2008
Guidelineson
MedicalandHealth
TakafulBusiness

Dec
2008
1st Dec2008
GuidelinesonStress
TestingforInsurers
&
GuidelinesonStress
TestingforTakaful
Operators
Jan
2009
Jan
2010
1st January2009
RiskBasedCapital
(RBC)Frameworkfor
Insurerswithparallel
calculationinApril
2007
1st January2010
Guidelineson
Product
Transparencyand
Disclosure
Sept
2010
September2010
Guidelineson
Introductionof
NewProductsfor
Insurance
Companiesand
TakafulOperators
11
8/25/2014

May
2011
July
2011
1st May2011
1st July2011
TemporaryMeasure
Guidelineson
ontheCapital
ValuationBasisfor
Requirementsforthe LiabilitiesofGeneral
MalaysianMotor
TakafulBusiness
InsurancePool
&
(MMIP)Liabilities
Guidelineson
undertheRiskBased FinancialReporting
CapitalFrameworkfor forTakafulOperators
Insurers
Jan
2012
1st January2012
Guidelineson
TakafulOperational
Framework
&
Guidelineson
FinancialReporting
forInsurers
Sept
2012
1st Sept2012
Guidelineson
InternalCapital
Adequacy
Assessment
Process(ICAAP)for
Insurers

June
2013
June
2013
7th June2013 30th June2013

AppointedActuary:
FinancialServicesAct
Appointmentand
2013(exceptsection
DutiesConceptPaper 129andSchedule9)
&
IslamicFinancial
ServicesAct2013
(exceptparagraphs1
to10ofSchedule9
andparagraphs13to
19ofSchedule9)
Jan
2014
1st January2014
RiskBasedCapital
(RBC)Framework
forTakaful
Operators
April
2014
28th April2014
AppointedActuary:
Appointmentand
DutiesGuidelines
12
8/25/2014
FINANCIAL SERVICES ACT /

ISLAMIC FINANCIAL SERVICES
ACT 2013 (FSA / IFSA 2013)
FSA/IFSA 2013
SCOPE OF APPLICABILITY
Appliestoall
Banksand
Insurers/Takaful
Operatorsin
Malaysia
Includes
reinsurers/
retakafulplayers
Includesthose
inLabuan,
Malaysia
13
8/25/2014
FSA/IFSA 2013
IMPLICATIONS
1.RequirementtosplittheLife/Familyand
GeneralInsurance/Takafulbusinesses
Likely to see a number of M&A activities in the next few
years.
Currently RM100 million paidup capital is required for
each company, even for composite company that writes
both General and Life / Family businesses.
From July 2018 onwards, splitting would mean a
separate capital requirement for each entity, where a
composite company would need RM200 million capital
to support its General and Life / Family businesses.
FSA/IFSA 2013
IMPLICATIONS
2.Requirementtosetupaholding
company
Enable insurer / TO access to money from holding
company.
Capital requirements of insurance subsidiaries outside
Malaysia potentially at least as large/strong as Malaysia.
Potentially challenging to be competitive in other markets
with weaker capital requirements compared to other local
players.
Impact on group capital requirements, corporate
governance, risk management standards etc.
14
8/25/2014
FSA/IFSA
IMPLICATIONS
3.IncreasedonusonBoardofDirectors
Criminal offence punishments; i.e. imprisonment up to
8 years or fine up to RM25 million.
Policyholders interest is prioritized when in conflict
with shareholders interest.
APPOINTED ACTUARY:
APPOINTMENT AND DUTIES
15
8/25/2014
BACKGROUND
The current statutory role of an Actuary in the General Insurance
/ Takaful industry is limited to reserving / valuation work with
minimal pricing work on Medical products only.
General / Casualty / Non-Life Actuary is given the title Signing
Actuary (SA) as compared to Life / Family Actuarys Appointed
Actuary (AA).
The current practice is that most companies would engage
external consultants as their SA, due to the limited number of
General Actuaries in the market (i.e. around 15 qualified General
Actuaries in Malaysia).
AA: APPOINTMENT AND DUTIES

The Concept Paper was issued on 7th June 2013 for comments
from the industry, and was finalized on 28th April 2014.
This new guideline aims to create a level playing field for
Actuaries in both the General and Family industry where the
General Actuaries would be required to perform the same roles
as the Family Actuaries, which encompass valuation,
preparation of the companys Financial Condition Report
(FCR) and providing recommendations on surplus
distribution.
The AA will also need to provide an opinion on pricing matters
(e.g. appropriateness of assumptions and adequacy of buffers in
premiums). However, the AA will not assume accountability for
product pricing. Hence, this implies the need for a separate
Pricing Actuary role. This is to reduce conflicts of interest and
enhance the objectivity and independence of the role of an AA.
As a result, one company would need to hire 2 Actuaries.
16
8/25/2014
AA: APPOINTMENT AND DUTIES

In addition, the AA role will be restricted to in-house only (instead
of using external consultant). However, in the short-term, BNM
may grant an exemption under exceptional circumstances.
At the moment, there are around 15 qualified General Actuaries
in Malaysia to support 23 General insurers and 8 General
Takaful Operators.
Given the current limited number of qualified General Actuaries
in Malaysia, the General Insurance and Takaful companies
would need to start setting up and enhance their own in-house
actuarial teams, and groom them up for the AA and Pricing
Actuary roles in the future.
APPOINTMENT AND DUTIES

The following time frame has been set by BNM for General insurers
and Takaful Operators to fully comply to the following requirements
of the guidelines:
By 1 January 2015
The AA must prepare the FCR and be responsible for engaging
the Board and senior management in communicating the key
analyses of the FCR.
By 1 January 2017
The AA must be an in-house Actuary. Also, he/she must readily
investigate and provide an opinion on matters related to
product pricing.
17
8/25/2014
CHALLENGES AND
OPPORTUNITIES
CHALLENGES AND OPPORTUNITIES

MOTOR
Problemarises
whenrateis
Tariff
(underpriced)
MalaysiaTakaful
experience to
refrain
Recentproposal
istoincludeall
GeneralTOsinto
MMIPtogether
withthe
conventional
insurers
Provides
volumetocover
overheads
Compulsory
cover
18
8/25/2014

DE-TARIFFING MOTOR
In 2011, BNM issued a New Motor Cover Framework which paved

the way for de-tariffing of the Motor business. Under this
Framework, the Act component of the Tariff rate is revised upwards
every year from 2012 onwards leading up to the de-tariffing in 2016.
2014 marks the third year of the premium revision with an average
premium increase of around 10% to 15% p.a.
However, it is still not clear how the Motor pricing structure would
look like once de-tariffing comes into effect in 2016:
Will the revised Act rates still serve as the minimum / floor
rates?
Would NCD still be applied to the total Act and Non-Act
premiums? Still maintain the current structure of maximum
55%? Will we even have / need an Act and Non-Act split?
How about the loadings structure? Would it be made the
same for Comprehensive and Third Party covers? What limits
would be imposed on loadings or discounts?

DE-TARIFFING FIRE
Fire class is also expected to be de-tariffed in 2016.

De-tariffing would have an impact on the Fire rates, especially in
the case of the Houseowner and Householders policies which are
strictly based on tariff rate.
Given the current low loss ratio of the Fire business, the
expectation is that the loss ratio for Fire class will deteriorate upon
de-tariffing due to competition.
19
8/25/2014

DE-TARIFFING: FIRE AND MOTOR
Upon de-tariffing of the Fire and Motor businesses in 2016, the
premium rates are expected to:

Go down for Fire business due to steep competition which would
result in an increase / deterioration in the Fire loss ratio.
Go up for Motor business which would result in an improvement to
the Motor loss ratio from the current loss making or breakeven
position. Nonetheless, as the market gets more competitive, there
is a possibility of rate undercutting which would push the loss ratio
up before it stabilizes as the market becomes more disciplined.
Hence, we expect that the de-tariffing would result in an increase to
the Houseowner Takaful loss ratio while Motor loss ratio would
improve over time.

SHARIAH-COMPLIANT MMIP ISSUES AND CHALLENGES
HowtomakeitShariahcompliant?
ThefutureofMMIPwhende
tariffingcomesintoeffectin2016?
Cantseemtoagreeonthebasisof
sharing?
20
8/25/2014

MOTOR REINSURANCE/RETAKAFUL
Reinsurance / Retakaful arrangement for Motor is mainly on an

Excess-of-Loss (XOL) cover.
With RBC / RBCT implementation and current rate still under Tariff,
more and more insurers / TOs are taking up Quota-Share (QS)
arrangement for capital relief.
As a matter of fact, the reinsurers / retakaful operators who are
offering such QS cover are multinationals and foreign companies.
This implies that there are underlying profits in the Motor business.
Furthermore, this would change the net-to-gross or retention ratio
of Motor business in the future.

DE-TARIFFING PRICING IS AN ITERATIVE PROCESS
Insurance / Takaful companies that have already begun the

pricing exercise will be able to identify and target the more
profitable sectors.
But technical pricing based on a certain set of assumptions prede-tariffing may not hold once the landscape changes.
Market leaders need to be able to react to changes in the market,
be it to prevent anti-selection or to gain market share.
Followers may end up with undesirable risks.
21
8/25/2014
syuhada.nurazmi@actuarialpartners.com
Q&A
22

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Session 6 General Insurance and Takaful

industry market trend in Malaysia

General Insurance and Takaful Industry

General Insurance and Takaful Industry Market Trends in Malaysia

NetPremiums Direct Business(Jan Dec2013)

Predominance of Motor, especially net of reinsurance.

GrossContributions DirectBusiness(Jan Dec2013)

Predominance of Motor in Takaful is even more distinct than in

General Insurance and Takaful Industry Market Trends in Malaysia

CAR & ENG

General Insurance and Takaful Industry Market Trends in Malaysia

General Insurance and Takaful Industry Market Trends in Malaysia

GENERAL INSURANCE / TAKAFUL

GENERAL INSURANCE / TAKAFUL

GENERAL INSURANCE / TAKAFUL

GENERAL INSURANCE / TAKAFUL

GENERAL INSURANCE / TAKAFUL

7th June2013 30th June2013

General Insurance and Takaful Industry Market Trends in Malaysia

FINANCIAL SERVICES ACT /

General Insurance and Takaful Industry Market Trends in Malaysia

AA: APPOINTMENT AND DUTIES

AA: APPOINTMENT AND DUTIES

APPOINTMENT AND DUTIES

General Insurance and Takaful Industry Market Trends in Malaysia

CHALLENGES AND OPPORTUNITIES

CHALLENGES AND OPPORTUNITIES

In 2011, BNM issued a New Motor Cover Framework which paved

CHALLENGES AND OPPORTUNITIES

Fire class is also expected to be de-tariffed in 2016.

CHALLENGES AND OPPORTUNITIES

premium rates are expected to:

CHALLENGES AND OPPORTUNITIES

CHALLENGES AND OPPORTUNITIES

Reinsurance / Retakaful arrangement for Motor is mainly on an

CHALLENGES AND OPPORTUNITIES

Insurance / Takaful companies that have already begun the

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