Monday, March 30, 2009

Insurance, takaful industry had a difficult 2008, says BNM


By Bhupinder Singh
The insurance and takaful industry came out of a difficult year in 2008, with the industry struggling to maintain premiums and contributions from new businesses amidst strong competition in the industry.
This could be seen from the latest figures released by Bank Negara Malaysia (BNM) in its annual report released concurently with the central bank's Financial Stability and Payment Systems 2008 report.
The figures show that the operating profit of the general insurance and takaful business declined by 44.5% to RM0.7 billion [CORRECTED] mainly due to unrealised losses and deterioration in the motor insurance portfolio as reflected in the higher claims ratio of 84.2% last year as compared to 79.6% in 2007.
Total net premium and contribution income of the industry grew by 2.4% attributed mainly to the expansion in the market share of takaful business.
The general insurance and takaful sectors grew by 5.5 % last year mainly driven by an expansion in the fire segment while the life and family takaful sectors expanded by a modest 1% due to weaker demand in investment linked business. The industry, as a whole, recorded a stronger solvency position of RM16.6 billion for the year as compared to RM11.7 billion previously while the capital adequacy ratio stood at 187.6%, well above the minimum requirement of 100%.
BNM's efforts to strengthen the solvency position of the insurance sector made significant progress with the implementation of the Risk-Based Capital (RBC) framework on January 1, 2009.
The framework provides a strong capital foundation for insurance companies to operate at different risk levels that commensurate with the insurers' risk management capabilities. A similar framework was laid for takaful operators last year. The central bank expects the industry on the whole to remain resilient based on stress tests conducted despite results showing that the profitability and capitalisation of some industry players may be impacted under more adverse scenarios.
In an effort to safeguard the stability of the domestic financial sector, BNM has extended a safety net to the insurance and takaful sectors by allowing them to access the bank's ringgit liquidity facility.
BNM also continues to pursue consolidation and rationalisation exercises to address the fragmentation especially in the general insurance sector.
The central bank has revealed that a review for the further liberalisation of the operating costs control guidelines that would allow for greater cost synergies and product innovation in the sector were at an advanced stage.
It has relaxed guidelines on the utilisation of bancassurance as a key distribution channel for insurance companies to further enhance profitability and increase insurance penetration in the country.

(This story appeared in The Malaysian Reserve on Mar 31 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays, edited by Habhajan Singh.)

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