BNM close to appointing Pos Malaysia as agent

By HABHAJAN SINGH
THE central bank is on the verge of appointing Pos Malaysia Bhd as the agent for motorists to buy motor insurance from the industry pool, now that most insurers have declined to underwrite directly that segment of the insurance market.
It is understood that Pos Malaysia, the national postal services provider which has been in the red for financial years 2007 and 2008, will secure the contract to ensure that motorists are able to secure the third party insurance cover.
In the past few weeks, more and more motorists found themselves turned away by their insurers when they wanted to renew their third party cover. Instead, they were told to shop around at other insurance companies that may still underwrite that segment, but to little avail as most general insurers and takaful operators have stopped underwriting the risk directly due to the segment's high loss experience.
In light of this increasing difficulty, Bank Negara Malaysia (BNM) which regulates the insurance and takaful industry is understood to be turning to Pos Malaysia to act as an agent on behalf of the motor insurance pool, the insurer of the last resort.
As it is, Pos Malayia is already an agent for various general insurers who provide third party motor insurance, including the likes of Kurnia Insurance (M) Bhd and Allianz General Insurance Company (Malaysia) Bhd.
However, under the new proposed arrangement, Pos Malaysia would act as an agent for the Malaysian Motor Insurance Pool (MMIP), a high-risk insurance pool run collectively by the industry under orders from the regulators, and no longer as a direct agent for the insurers themselves.
At present, MMIP, which is a subsidiary of MNRB Holdings Bhd (MNRB), has appointed two insurance companies to act as its agents.
"With more and more insurers declining to underwrite third party motor insurance risk, their only other resort is the insurance pool run under MMIP. It only makes sense for the pool to be more widely accesible, and not limited to just two insurers who may not have branches throughout the country," said one industry executive.
Sources say BNM would be making the announcement on the alternate and new channels for purchasing third party motor insurance soon. Pos Malaysia seems to be the obvious choice simply due to its nationwide presence.
In 2008, the Government resorted to Pos Malaysia to disburse the fuel cash rebate. Pos Malaysia chairman Tan Sri Dr Aseh Che Mat in the company's 2008 annual report statement referred to this as a recognition that "Pos Malaysia has the widest retail footprint in the country."
On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, and are instead sending their customers to a highrisk insurance pool.
The report also noted that a recent decision by two local insurers — Kurnia and Pacific & Orient Insurance Co Bhd (P&O Insurance) — to completely stop providing third party cover to commercial vehicles is set to see a higher volume of premiums going towards the insurance pool, which had already seen a big jump last year.
Even before the two local insurers made the decision, the motor insurance pool had collectively underwritten total gross premiums of RM13.33 million, which is four times more than the RM3.11 million in premiums in 2007.

(This story appeared in The Malaysian Reserve on June 23, 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)

Motor insurance premium rebate blindsides agents

COMMENT by Habhajan Singh
The central bank should have done better when managing the policy directive on rebates for direct purchases from insurance companies.
The directive is wonderful: It is pro-people and puts money into their pockets should they buy their policies directly from the insurer. It also fits perfectly with Bank Negara Malaysia's (BNM) liberalisation plans for the financial industry.
However, the move jolted some 40,000 insurance agents. They claim that they first knew of the directive when they read it in the newspapers. Little wonder then, that they had a hard time digesting the news that the central bank would now allow individuals to pocket up to 10% of the premium value the next time they renewed their motor insurance directly with the insurer.
At a press conference to announce the initiative last week, BNM deputy govenor Datuk Mohd Razif Abd Kadir used the weight of his office to announce the move, despite protests from various corners.
Effective July 1, individuals who purchase general insurance coverage directly from insurance companies will be eligible to receive premium rebates, with the quantum depending on the type of incover purchased, the central bank said in a statement.
For motor insurance, it stated that an individual would receive 5% of the premium within the first year of implementation and 10% thereafter. For others including businesses, insurance companies have the flexibility in providing these rebates. The direct purchase includes walk-in, through the internet, direct mailing and via the telemarketing channel. In relation to consumers, it is a laudable move.
Consumers will now be able to renew their insurance policies directly, if they choose not to engage an agent, thereby actually saving cost. For insurers', they can no longer book as revenue the commission should customers come to them directly.
But they have been in the loop all this while. Left out in the cold, it would seem here, are the agents.
When asked, BNM officials at the press conference confirmed that they have been talking to officials at the Persatuan Insurans Am Malaysia (Piam), but not directly with any particular outfit representing the interests of the agents.
Here's the beef. Piam represents these companies, and not the agents. True, the agents come under the companies. Therefore, it is possible to argue that when the central bank talks to these companies, the message should reach the agents. But that does not seem to have taken place in this instance. With notice in advance, agents could have planned to weather a potential drop in income.
Some may have been spurred to add value in their offerings to customers. After all, not every customer is going drop their agent in light of the rebate. However if prior notice was offered, agents could have taken preemptive measures to keep their customers. One forward looking car seller cum insurance agent has, for example, been returning a portion of the commission earned to customers. This was to entice customers to stay with them.
With a little bit of warning, others may have come out with such simple but effective game plans.

(This story appeared in The Malaysian Reserve on June 24, 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)

Asia attractive to major players

IN THE PHOTOGRAPH: (from left) LIAM president Md Adnan Md Zain, Kerzner, Bank Negara Malaysia assistant governor YBhg Dato' Muhammad Ibrahim and Malaysian Host Committee chairman Ng Lian Lu at the 17th Limra/Loma Strategic Issues Conference held in Kuala Lumpur recently

By Alfean Hardy
Asia's relatively young and large population and its growing middle class have made the region an attractive venture for many North American and European life insurance companies looking for opportunities amidst the current economic downturn, Limra, Loma and LL Global Inc president and chief executive officer Robert Kerzner said.
Limra is an association that provides research, consulting and other services to the insurance and financial services sectors. Loma is an international association of insurance and financial services companies. LL Global is their parent organisation.
In his speech at the 17th Limra/Loma Strategic Issues Conference held in Kuala Lumpur recently, Kerzner said, over the last few weeks, capital has once again begun to flow and US firms like Prudential Financial and Metropolitan Life Insurance Co have been raising capital via stock and/or debt offerings, which he sees will help fuel future growth in the global insurance sector. As the sector transforms, he said many firms will begin to decide in which market and country they would want to play.
"Many will look to Asia. What we're seeing worldwide, major players are pulling out of some major green field markets and are choosing to play much harder in others. And it's clear that the growth of the next decade is clearly much more focussed in Asia than the US or Western Europe," he added.
Kerzner said, with the renewed capital within the system, many chief executive officers of major US companies have expressed an intent to make use of the global financial crisis to gain ground and grow market share over their competitors.
"In the US, 79% of chief financial officers (CFOs) say they want to buy life (insurance) companies and 75% want to buy the group operations.
"At the same time, they have their eyes clearly on Asia. Prudential has already bought one company in Japan and is rumoured to be looking at others. At the same time, the president of Metropolitan said he would sleep better at night if they owned another asset in Japan," he added. Speaking to reporters later, Kerzner said Asia's large population and not as mature markets meant there were more opportunities to sell a whole array of products.
"In many Asian countries, you have an ageing population and, there by all accounts, there's simply been not enough money saved for retirement, and this was prior to the crisis," he said.
"Also, Asia has many who are coming into the new middle market of having more assets and your economy is growing wealth at a faster pace and so there's a broad need for more products that life insurance companies have. When you look at the demographics across Asia, over time, the outlook is optimistic," he added.
All countries within Asia, Kerzner said, are attractive. "Japan is mentioned more often because, for some of the western companies have a better understanding of the Japanese economy and there's a more immediate need for retirement products (given its large ageing population) there," he said.
"But I think you're going to see the Europeans, in particular, and the North Americans look broadly within Asia. "When I talked about green field operations of the Europeans being closed down, that may mean more focus is given here in the Asian countries and choose to be a fierce competitor in the markets that they've decided are crucial.
"Also, there's also a history that shows that, when one or two of these (Asian expansions) are announced, then others will feel the need to get in before it's too late. "You could see, over the next year, as capital frees up and companies look to where they really want to expand strategically, then you will see Asia becoming a focus again," he added.
Kerzner said regulatory restrictions and competition would not be major hurdles for western life insurance companies venturing into Asia as many of these firms have already operated in regulated industries in the west.
"The major barrier to entry is culture and really understanding what's crucial within each individual Asian country," he said.
"If you look at history, many have entered the US and Western European markets, that's because that's where there's been a great deal of wealth. "I think companies have traditionally looked at where the needs are the greatest but where's the most activity versus longer-term involvements in countries that will be slower to grow.
"I also think, if you look at Asia, the companies that have done well in Asia for many years, particularly those not based within the Asia region have a stong base in (Asian) countries and, as the country grew, they grew as well.
"So, I believe the new entrants will tend to sometimes look for the more matured markets but those who look for a long-term view will look at the more emerging markets and take more of a five, 10, 15-years view," he added. Kerzner said it had been the European global players that have had the broadest reach worldwide.
"I can't comment on specific companies but if you look at announcements made last week in China and Taiwan, you are seeing and will see many, many more deals being announced or at least companies buying lines of businesses and licenses to expand and leave open opportunities for the future," he added

(This story appeared in The Malaysian Reserve on June 24, 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)

BNM: Trust and growth essential for insurance sector

By Alfean Hardy
Bank Negara Malaysia has identified four priorities that insurers should adopt and is itself undertaking more measures in the pipeline to insure the growth, and the public trust and confidence in the insurance sector, its Assistant Governor Datuk Muhammad Ibrahim said.
"The first area of priority is ensuring strong capital buffers and sound risk management by insurers. The second area of priority concerns the management of financial risks by insurers," he told delegates in his keynote address at the recent LOMA/LIMRA Strategic Issues Conference in Kuala Lumpur
"Thirdly, there is also a need for more uniform global approaches to the effective regulation of reinsurance activities. Fourthly, as part of the financial system, a key imperative for insurers is re-building the confidence of retail investors and consumers in financial institutions," he added. Muhammad said the recent decades had indicated that the significance of the insurance industry to financial stability has become more pronounced and the adoption of core fundamentals essential.
"Insurance and reinsurance companies have become an important and growing class of financial market participants," he said.
"The involvement of the insurance industry in the capital markets has both deepened and broadened substantially (and), from being important investors, insurers and reinsurers have evolved to become important intermediaries in a broad range of financial markets," he added.
Muhammad said recent problems indicated that the lines between the insurance and banking sectors had become more blurred amd that unregulated activities and failure in internal risk management of a large global insurance group could adversely affect derivatives, and bank counterparties in creditrisk transfer transactions on a scale that had led to unprecedented market failure.
"As an integral and important component of the financial system, building the resilience of the insurance industry is therefore, critical. Unless adequate attention is directed towards promoting resilience in all of the core components of the financial system, efforts to preserve financial stability and prevent the occurrence of a future financial crisis and its consequences would be jeopardised," he added.
Muhammad said achieving more meaningful and consistent protection for consumers was also critical to rebuild confidence. To that extent, he said that in July 2009, all licensed local insurers and takaful operators would be required to comply fully with its guidelines on the introduction of new products.
"A large part of the Guidelines is devoted to addressing the responsibilities of the operators towards consumers in ensuring that the needs and rights of consumers are respected, and that consumers are clearly and fully informed of the nature and risks associated with the products," he added.
Muhammad said the local industry was undergoing a transformation that would provide a strong foundation for a more resilient and competitive industry. He said that the introduction of the risk-based capital framework and other initiatives were part of a broader move to introduce a regulatory regime that would allow greater flexibility to insurers under a rigorous internal supervisory and oversight framework.
"These developments will create opportunities for insurers to build financial solidity, restore consumer confidence and respond proactively to changing consumer needs in a more uncertain environment. Later this year, the bank will also consult the industry on risk management standards that insurers are expected to observe as part of this evolution.
"The priorities of the industry should be equally weighed between preserving the inherent strengths and original purpose of insurance, while committing to meaningful change that is needed to secure long-term viability and contribute to financial stability," he added.

(This story appeared in The Malaysian Reserve on June 24, 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)

Life insurers urged to focus on fundamentals to ride out storm

By Alfean Hardy
The Life Insurance Association of Malaysia (LIAM) is calling upon the life insurance sector to remain focussed on the industry's key fundamentals in order to ride out the global financial crisis and its president, Md Adnan Md Zain, is predicting single digit growth for the sector in spite of the current economic climate.
In a speech at the 17th Strategic Issues Conference in Kuala Lumpur yesterday, Md Adnan said 2008 had been a challenging year for the indusry, given a global financial turmoil that has been considered the worst since the Great Depression of the 1930s.
"Nevertheless, there are always sliver linings that will appear with untapped business opportunities, multiplied with unexpected growth possibilities. By focussing on key fundamentals, including sound risk management, highly prudential and regulatory standards, and strong corporate governance, we are confident that we'll be able to ride out this stormy crisis," he added.
Speaking to reporters later, Md Adnan said that the country had benefited from steps undertaken by the authorities, like the adoption of the risk-based capital framework in January 2009, which aimed to create a strong risk management structure.
"Players are now more mindful that of ensuring that they put in place good processes and proper management practices to be able to bring out strengths in various areas for the betterment of themselves and their policyholders and, that in itself, will make the players perform at far higher standards," he added.
Md Adnan, who is also the chief executive officer of MCIS Zurich, said the life insurance sector has also been helped by a public at large that has come to a great understanding on the importance of life insurance in their lifes, barring investment-linked products.
"Even as we speak, the economic situation is the one that is not encouraging. Yet, there's still growth in the life insurance industry. Perhaps, because of the investment climate, investmentlinked products may not be featuring very well in terms of growth but the traditional life insurance is still showing good developments. People are still buying insurance. That clearly shows the knowledge, the awareness and people are recognising the importance of life insurance, both in terms of protection as well as savings. Medical is also another area that is shifting up well. And, for a country like ours, these are areas that will really see more growth opportunities with the growing population and the understanding of needs of people protecting themselves. Medical costs are also increasing and people have become more conscious of the good of insurance to provide them with a good position to provide for themselves and their families through insurance coverage," he added.
Md Adnan said, to question about growth forecast for the sector this year was his personal view that the life insurance sector would see single digit growth this year.
"We have been having some double digit growth in the past. You will see growth but it will be single digit growth," he said. "For traditional life insurance, growth is fairing much better. but investment linked is slowing down. It's cyclical and with the measures being undertaken by the authorities, in ensuring the stability of the economy, it's a matter of time that you will find the positive changes taking place and that will again bring back the confidence in the investmentlinked segment," he added.

(This story appeared in The Malaysian Reserve on June 23, 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)

Insurance premium rebate to go ahead, says BNM

By JASON NG
Bank Negara Malaysia (BNM) will proceed with insurance premium rebate, a move that would give “millions of ringgit” back to consumers, said deputy governer Datuk Mohd Razif Abd Kadir.
The latest policy has come under protest from various quarters as it would effectively give consumers the incentive to bypass the use of agents by mandating insurance companies to give rebates for a direct purchase from insurance companies.
"We should look at the broader perspective particularly in fairness toward consumers," Mohd Razif said in a media briefing in Kuala Lumpur last Friday [June 19, 2009].
The policy for direct purchase channels will be effective July 1, 2009 and the quantum of rebates will depend on the type of insurance covers purchased.
Direct purchase includes walk-in, via internet, direct mailing and telemarketing. For motor insurance, individuals will receive 5% premium rebate in the first year of implementation and 10% subsequently. For others including businesses, insurance companies have the flexibility of providing the rebates.
Last year, the general insurance industry recorded gross premiums of RM4.4 billion, half of which are from the motor insurance segment.
According to BNM, about 15% of the gross premium collected are via direct channels.
"This is part of our fine-tuning of policy to put cash back in consumers' pocket. It is not necessary that the livelihood of the agents would be affected. People will still use the service of the agents if (the service) are value-added," Mohd Razif said.
It is understood that insurance companies pay 10% of the premium to agents, numbering around 40,000 with 15,000 working full time, as commission and consumers should be entitled to enjoy rebates that would otherwise, be pocketed by the insurance companies, he added.
Among those reported to be unhappy includes Proton Dealers Association Malaysia that claimed the policy would "destroy" the automotive dealers network while General Insurance Agents Association Malaysia organised a meeting recently to protest the implementation.
"We had a lot of protest and pressures for us to withdraw," Mohd Razif said, adding that "there is nothing much BNM can do" should there be further protest from any quarters.

(This story appeared in The Malaysian Reserve on June 22, 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)

Motor insurance needs an overhaul

By Habhajan Singh
Motor insurance in Malaysia requires a serious overhaul, with the perennially unprofitable third party coverage demanding a separate treatment altogether, says a senior industry executive.
The issue has come to a boil for general insurers and takaful providers active in the motoring sector, with most of them now no longer providing third party motor insurance coverage due to the high claims ratio.
"I'm proposing a rethink of our Road Transport Act 1987 and a review of the motor insurance policy. A new government agency should be set up to handle at least the Act cover, while redesigned insurance policies should only cover one's own damage, leaving third party claims to the agency. An industry pool could provide base underwriting," said Datuk Syed Moheeb Syed Kamarulzaman, the newly appointed chairman of the Malaysian Takaful Association (MTA).
Under this proposal, a new industry pool would be setup to manage third party made compulsory by the Act, commonly referred to as the Act cover.
Here, Syed Moheeb proposes that each vehicle licensed holder should contribute individually to the pool. Currently, third party insurance is pegged to the vehicle, irrespective of the number of drivers nor the name it is insured under. A family car may be insured under the head of the family, when in fact it could be driven by all children. This could result in a situation of inadequate premium against the risks exposed.
The suggestion by the seasoned insurer is for everyone with a valid licence to bear a portion of the risk.
"When you pay for your motor licence, a portion automatically goes to cover third party claims. This way, the third party risk is automatically handled by the new pool," said Syed Moheeb who is also the president and chief executive officer of Takaful Ikhlas Sdn Bhd.
This would also mean insurers and takaful operators will only provide coverage for claims other than those mandated under the Act.
The pool could replace the Malaysian Motor Insurance Pool (MMIP), a high-risk insurance pool run collectively by the industry under orders from the regulators, which acts as the insurer of last resort.
Under the present set-up, when a vehicle owner is unable to get any insurer to provide him liability cover for third party, MMIP would step in to provide the cover, at a rate higher than what insurers are allowed to charge. Industry players have been lobbying for years to change the tariff-driven premium structure for motor insurance, claiming that providing coverage mandatory under the Act is almost a sure loss-making proposition.
The move has not yielded results thus far, industry executives said.
"So far, we have been looking at tweaking insurance premiums rather than changing the whole structure. Perenially, we have a problem of inadequate premiums to pay for the increasing third party claims.
"This year, several insurers have found it difficult to continue writing third party risks. So, if we want different results, we need to do things differently. We need to reengineer. This suggestion, if it happens, will be headed by a new body supported by the government," said Syed Moheeb.
Syed Moheeb, a seasoned insurer with experience in reinsurance, was involved some years ago when the general insurance association, Persatuan Insurans Am Malaysia (Piam), was actively discussing with Bank Negara Malaysia (BNM) suggested changes to the motor insurance premium tariffs.
In the meantime, industry executives said writing third party motor cover had become more and more untenable from the profit standpoint, forcing players to steer clear of the segment.
On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, thus sending their customers to the highrisk insurance pool instead.
On June 1, this newspaper also reported that Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, was set to pull out completely from the third party motor insurance segment, following the trend of other insurance providers in Malaysia who have stayed clear of the sector.
The general insurer, a subsidiary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.
From latest figures released, Piam said combined loss ratios for the motor insurance business in 2007 and 2008 stood at 114% and 115% respectively. It said insurers have also expressed their concerns over the rapidly increasing claims pay-outs especially for third party bodily injury claims. The claims ratio for third party bodily injury claims skyrocketed to 262% in 2007 and 288% in 2008, it added.
Industry sources estimate that the standalone motor 'Act' insurance, which is the portion compulsory for all motorists, has generated gross premiums of close to RM600 million last year, with Kurnia Insurans and P&O Insurance conducting close to half of the industry's total.
The motor 'Act' insurance policy provides protection against death and injury to third parties. The third party motor insurance also provides protection against other legal liabilities such as damage to the property of a third party (usually somebody else's car or motorcycle or a neighbour's gate) and certain specified legal costs.
Under the third party cover, a policyholder may opt to include protection for loss or damage to his own vehicle due to fire or theft only.

(This story appeared in The Malaysian Reserve on June 15, 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)

Motor claims a major drag on profits of insurance firms

By Habhajan Singh
Claims for motor insurance were a major drag on the operating profits of general insurance and takaful operators last year, according to an analysis of statistics released by Bank Negara Malaysia (BNM).
For 2008, operating profit of the general insurance and takaful business, which declined by 44.5% to RM0.7 billion, was affected by a higher claims ratio of 84.2%, mainly from due to claims by motor vehicle.
Last year, the claims ratio stood at 79.6%, which meant that for every ringgit of premium collected by these insurers and takaful operators, close to 80 sen went to claims. And the situation is expected to worsen, going by the caution thrown in by the the central bank's Financial Stability and Payment Systems Report 2008 released in March.
The BNM report said claims are expected to intensify due to higher incidences of theft and fraud as well as less regular maintenance. This will certainly put more pressure on providers of motor insurance, many of whom are pulling the plug when it comes to providing third party motor coverage.
"Bodily injury makes about 90% of third party claim. It is increasing, making it very painful for insurers.
"To make matters worse, there are fears that fraud syndicates are reaping big, big money from fraudalent third party bodily injury claims," said Takaful Ikhlas Sdn Bhd president and chief executive officer Datuk Syed Moheeb Syed Kamarulzaman.
Major players in the motor insurance sector include Kurnia Insurance (M) Bhd, Allianz General Insurance Company (Malaysia) Bhd, AmG Insurance Bhd, Tokio Marine Insurans (M) Bhd, Pacific & Orient Insurance Co Bhd, Berjaya Sompo Insurance Bhd and Uni.Asia General Insurance Bhd.
The high claims ratio has seen insurers steering clear from underwriting third party liability coverage, the minumum insurance cover mandated by the Road Transport Act 1987. Besides providing insurance protection against death and injury to third parties (which is provided under the 'Act Only' motor insurance policy), third party motor insurance also provides protection against other legal liabilities such as damage to the property of a third party (usually somebody else's car or motorcycle or a neighbour's gate) and certain specified legal costs.
Under the third party cover, a policyholder may opt to include protection for loss or damage to his own vehicle due to fire or theft only.
"It is the Act claim that is rising, and rising fast," Syed Moheeb said.
For this year, the central bank report released three months ago noted that the Malaysian insurance and takaful sector will also be affected by the potential lower demand for protection and related products in a highly competitive industry.
"In particular, the expected decline in vehicle sales will negatively impact the motor insurance and takaful business which constituted 45% of gross insurance premiums in 2008. Premiums are also likely to be affected due to an increase in surrender rates and lower sums insured as a result of policyholders' efforts to reduce costs during these difficult periods.
"In addition, claims are expected to intensify due to higher incidences of theft and fraud as well as less regular maintenance," the report said.
In the report, the central bank also noted that the insurance and takaful sector, while maintaining a comfortable solvency position, faced challenges in maintaining the growth in premiums and contributions from new businesses, compounded by intense competition in the industry. It said total net premium and contribution income grew by 2.4%, mainly attributed to the expansion in takaful business.
It also noted that demand for general insurance and takaful coverage on motor and marine, aviation and transportation related businesses moderated in tandem with the slower trade activities and a more subdued automotive demand outlook.
It said the gross direct premium and contribution for the general insurance and takaful business registered an increase of 5.5% to RM11.5 billion, driven mainly by the expansion in the fire segment.

(This story appeared in The Malaysian Reserve on June 15, 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)

Takaful Malaysia sees light at the end of tunnel

By Alfean Hardy
Syarikat Takaful Malaysia Bhd is seeing the light at the end of the global economic crisis tunnel and is planning to leverage on the improving e conomy and increasing customer appetite for investment products, its group managing director Datuk Mohamed Hassan Md Kamil said in a recent email interview with The Malaysian Reserve.
"We are of the view that the global economy will slowly stabilise towards the end of this year considering the massive stimulus packages and accommodative monetary policies introduced worldwide to support the downturn," he said. "Since equity markets normally recover a few months ahead of the economy, we expect the local market to steadily recover in the second half of this year.
"Hence, it is timely to offer an investment-linked product with equity exposure to take advantage of the upside when market recovers.
"We believe that investors are constantly looking for the best investible asset to invest in and Takaful myInvest provides them more alternatives to diversify their portfolios while at the same time obtain takaful protection," he added.
Takaful Malaysia recently launched an open-ended investment-linked product, Takaful myInvest, to cater to investors who want takaful protection while looking for alternatives to diversify their portfolios.
The product offers takaful protection in the event of death or total permanent disability during the investment period. It has four different investment funds — Dividend Fund (Irad), Blue Chips Fund (Istifad), Index Tracker Fund (Ihfaz) and Growth Fund (Ittihad) — that can be mixed to suit different investment appetites.
The funds will be invested in Bursa Malaysia-listed Shariah-compliant stocks approved by the Securities Commission's Shariah Advisory Council. The product is also designed to be invested in Islamic deposits and the money market.
Mohamed Hassan said Takaful myInvest is for all types of investors who hold an optimistic view on the equity market's recovery locally and would like to position their investment portfolios to take advantage of that recovery as well as the unlimited upside of potential returns that equity investments offer.
"While we are aware of the opportunities offered in the overseas markets as a result of the financial meltdown, we opine that the risks are also higher, which we need to avoid.
"The local market is more defensive in nature but it also offers tremendous growth," he said. "With the current economic condition, domestic investments would be the most prudent and best way to contain risk exposure.
"The domestic equity market still offers decent earnings in terms of dividend as compared to other regional markets, and money market investment ensures that liquidity is intact while at the same time offering the opportunity of stable returns," he added.
Asked whether Takaful Malaysia had an overseas variant of Takaful myInvest in the pipeline, Mohamed Hassan said the company was constantly working to offer innovative products to its valued customers.
"As such, there are plans on launching more investmentlinked products that will be associated with the performance of foreign investments, for example, structured products, provided that the global sentiment improves and that economic recovery is forthcoming," he said.

(This story appeared in The Malaysian Reserve on June 10, 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)

Malaysian Re’s IFS rating affirmed by Fitch

Malaysian Reinsurance Bhd (Malaysian Re) has had its A — insurer financial strength (IFS) rating — affirmed by Fitch Ratings with a stable outlook, incorporating the firm's dominant position in the local market, its healthy capital position and prudent management.
A unit of MNRB Holdings Bhd, Malaysian Re is the country's leading reinsurance company and is an underwriter of general reinsurance business. Fitch is a global rating agency that covers entities in 90 countries, including IFS ratings of about 2,000 insurance companies worldwide.
In a recent statement, Fitch Ratings said Malaysian Re, as the national reinsurer, is the largest player in the local maket and it believes that its dominance is likely to remain unchallenged, mainly due to the voluntary cession arrangements that exist in the local market, which provide a sustainable premium base.
"Under the existing voluntary cessions market agreement, all local general insurance companies are required to cede a portion of their business to Malaysian Re.
"Consequently, Malaysia is the core market for (the firm), constituting over 80% of its total business. The company also actively participates in various local industry initiatives, which has helped strengthen its relationships with domestic insurance companies," it added.
Fitch said it viewed Malaysian Re's capital position as healthy and of very good quality, which consists of ordinary equity and retained profits with no debt issuance.
It said a RM20 million capital injection from its MNRB parent in April 2009 had further boosted paid up capital to RM500 million from RM480 million previously.
"Additionally, at the holding company level, there is above RM500 million of surplus capital, which could be a source of support if required," it added.
However, Fitch warned that, due to Malaysian Re's limited business geographical diversification, it faces the challenge of maintaining its good operating performance under current market conditions as well as the potential risk that the existing voluntary cession agreements could be reduced due to market liberalisation.
"Against the backdrop of a challenging business environment with poor investment sentiments, Malaysian Re's net income for its financial year ended March 31, 2009, is estimated by the company to reach about RM40 million, compared to RM85.1 million for FY08," Fitch said. — by Alfean Hardy

(This story appeared in The Malaysian Reserve on June 10, 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)

TM Asia Life targets RM40m premiums in 3 wks

TM ASIA Life Malaysia Bhd is confident of locking in RM40 million in premiums within three weeks of the launch of its short-term single premium capital protected investment-linked product, Asia Jade.
Asia Jade is strategically designed and offers a 3.75-year capital protection investment plan with 20% Head Start Coupon and potential Maturity Bonus of 10%, issued by HSBC Bank Malaysia Bhd. The product is available from June 8-30, 2009.
TM Asia Life deputy CEO Jun Tokura said that Asia Jade is a close-ended fund that offers life protection insurance and the opportunity to invest into three promising stocks in China.
"We are very optimistic about this fund as it is specially selected to capitalise on the strength of China's economy and the stimulus package offered by the China government targeting on infrastructure development. "With this, we have carefully chosen three promising stocks, which are China Mobile Ltd, China Railway Group Ltd and China National Offshore Oil Corp Ltd," he said.
Following the successful launch of Asia TriMax in October last year and due to popular demand from our customers, Tokura said TM Asia Life has chosen to tie up with HSBC Bank Malaysia again to introduce Asia Jade, its second investment plan. The company is confident that the new product will appeal to many investors as it offers life protection and potentially high capital growth within a short time frame.
"Based on the back testing results of China Mobile and China National Offshore Oil Corp from July 1, 2002 to April 7, 2009, investors can expect average returns of 29.33% at maturity", he added.
Asia Jade fund requires a minimum investment of RM10,000. Investors will be assured of 100% capital protected returns upon maturity, which will be in 2013.
The life insurance will offer financial protection of up to 125% of basic premium against death and TPD (Total and Permanent Disability). Potential investors as young as 19 years of age are eligible to invest in Asia Jade, while life assured can be as young as one month to 75 years old.
TM Asia Life also offers education, endowment, whole life, term, medical, investment linked and group insurance solutions, covering a range of over 20 products.
It is the first Japanese owned life insurance company in Malaysia following the acquisition of Asia General Holdings by Tokio Marine & Nichido Fire Insurance Co Ltd, a unit of Japan's largest insurer, Tokio Marine Holdings, Inc.

(This story appeared in The Malaysian Reserve on June 9, 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)

Another local party keen on PacificMas’ insurance biz: FD

PacificMas Bhd has found another interested party to acquire its insurance business and an application has been made to Bank Negara Malaysia (BNM) to enter into negotiations, PacificMas non-independent director George Lee said.
“It’s pending approval,” he told reporters after the company’s AGM in Kuala Lumpur on June 10, 2009, reports The Edge Financial Daily.
He did not name the interested party, the report added.
THE REPORT GOES ON:
Lee expressed confidence that the impending round of negotiations would work out, as the interested party is believed to be prepared to pay PacificMas’ asking price — a price tag which is pegged at a premium of the insurance business’ net book value of RM123 million as at March 31, 2009.
“It’s a local party and they are prepared to pay. After having failed on two previous occasions (due to pricing), we would not want to go into discussions with this party if we don’t have a fairly good indication that they are at least prepared to pay the price that the board feels is a fair price,” Lee said.
Lee is also the executive vice-president and head of group investment banking of Oversea-Chinese Banking Corporation Ltd (OCBC).
“We have a certain price in mind as we think it’s a profitable business. Therefore, it should be sold at a certain premium to book value and we are looking at a certain valuation,” he added.
The previous interested parties included EON Capital Bhd, OSK Holdings Bhd and even T Ananda Krishnan’s company — Usaha Tegas Sdn Bhd.
On PacificMas’ plans for the cash from the sale, Lee said the board may look at alternative investments, principally in finance services. “Also, we will definitely look at growing our fund management and leasing businesses,” he said.
“After careful evaluation and if the conclusion is that we can’t find a viable alternative and the money is put in fixed deposit, then it’s better we return the money to the shareholders than to put money in the bank,” Lee added.
For the year ended Dec 31, 2008, its insurance business contributed 29% to the group’s profits while its leasing and fund management businesses contributed 34% and less than 1% respectively. In 2007, the fund management business contributed 15% to group profits.
“Immediately after we sell the insurance (business), group profitability will shrink. What we are looking at over time is for the fund management and leasing businesses to contribute incremental profit on an absolute basis,” Lee said.
He added there was potential for the businesses to develop as currently the group’s fund management segment managed RM1.7 billion while the biggest fund in the country managed close to RM30 billion. The leasing business has a 1.5% market share of the RM50 billion market.
Industry observers believe PacificMas’ plan to grow these businesses has potential given that the group would also be able to leverage on OCBC.
On speculation of OCBC injecting Great Eastern Life Malaysia (GELM) into PacificMas post-disposal, Lee said the exercise was proposed twice but had failed.
“Nothing came out of the discussions and there must be very valid reasons why such mergers could not be consummated and I believe after two unsuccessful attempts… but I can’t speculate,” he said.
As OCBC has a 63.5% stake in PacificMas following its takeover exercise early last year, BNM imposed a condition on OCBC that it could not own two insurance companies in Malaysia. PacificMas has until October this year to sell its insurance business.
Meanwhile, on the company’s performance this year, PacificMas chief executive officer Ng Hon Soon said: “We expect better profitability.”
He added the second quarter was expected to see the same performance as its first quarter ended March. For its 1QFY09, PacificMas registered a net profit increase of 200% year-on-year to RM8.4 million.

Piam welcomes proposal to limit liability claims

by Habhajan Singh
Persatuan Insurans Am Malaysia (Piam), the association for general insurers operating in Malaysia, welcomed a proposal to limit the liability shouldered by insurance companies for motor insurance claims.
It is timely that the proposal to limit liabilities on third party motor insurance covers be considered seriously in order to ensure the viability and availability of third party insurance protection for vehicle owners, Piam said in a statement released yesterday [May 4, 2009], affirming a position long held by the grouping.
This was in response to a statement by Minister in the Prime Minister's Department Datuk Seri Mohamed Nazri Abdul Aziz on Wednesday.
One newspaper quoted the minister as saying the ministry would look at amending the laws covering motor insurance to resolve the matter. The report said public transport operators have been crying foul as insurance companies no longer want to insure taxis and buses.
Nazri said this was because the insurance companies claimed that they were losing money by insuring commercial vehicles. Nazri, the report added, said that at present operators could sue the insurance company for millions. The amendment would limit the liability shouldered by the insurance companies.
"This way, the vehicle would be insured, the operator would be able to claim during any accident and the insurance company would also be protected," one newspaper quoted the minister.
On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, and are instead sending their customers to a high-risk insurance pool run collectively by the industry under orders from the regulators.
The report also noted that a recent decision by two local insurers to completely stop providing third party cover to commercial vehicles is set to see a higher volume of premium going towards the high-risk insurance pool called the Malaysian Motor Insurance Pool (MMIP), which had already seen a big jump last year.
On June 1, The Malaysian Reserve reported that Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, was set to pull out completely from the third party motor insurance segment, following the trend of other insurance providers in Malaysia who have stayed clear of this sector due to the high claims ratio.
The general insurer, a subsidiary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.
In its response, Piam said for most countries in Europe, US and even Asean (except for Singapore, Brunei and Malaysia), the law provides for limited liability for third party risks arising out of the use of motor vehicles.
"In Malaysia, provisions for limiting liability will involve amendments to the Road Transport Act, 1987 and consultations with the Insurance Regulator on suitable amendments to the motor insurance policies to cater for the changes in limits of liability under the policy contract," it said.
Earlier, Piam had announced combined loss ratios of 114% and 115% for motor insurance business in 2007 and 2008 respectively. It said insurers have also expressed their concerns over the rapidly increasing claims pay-outs especially for third party bodily injury claims. Claims ratios for third party bodily injury claims skyrocketed to 262% in 2007 and 288% in 2008, said Piam.

(This story appeared in The Malaysian Reserve on June 5, 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)

Firm eyes Johor to boost takaful business: Star

By ZAZALI MUSA
JOHOR BARU: Prudential BSN Takaful Bhd (PruBSN) sees Johor as its next big market for the takaful business outside the Klang Valley.
Its chief executive officer Mohammad Salihuddin Ahmad said, in view of the good prospect, the company had decided to open its Southern Region Business Centre in Taman Austin Perdana near here.
PruBSN provides a wide range of services and acts as a one-stop centre where customers can make enquiries and seek advice from regional agents at the centre.
The Johor Baru centre is the company’s second after its Shah Alam branch was opened recently to serve customers in the central region.
“Johor, with a 3.17 million population of which 66% is of working age, is a large market that the company cannot ignore,’’ he said at the centre’s opening recently.
Salihuddin said that development activities at Iskandar Malaysia also provided good business opportunities for the company.
He said, apart from targeting Johoreans, the company would look at Singaporeans, especially those living in Johor Baru, as customers.
He said the company would open five new branches this year at state capitals in the northern region, east coast states, Sabah and Sarawak.
“We want to strengthen our position in the takaful industry,’’ he said.
Salihuddin said there was enormous potential for the industry to grow as its market penetration was only 7.7% compared to 40% for conventional insurance products.
He said the company wanted to create awareness that the takaful system was for everyone and it had nothing to do with one’s faith
PruBSN was founded in 2006 and has 216,308 policyholders of whom 35% are non-Muslims, and 10,000 agents of whom 50% are non-Muslims.

(THE STAR, Thursday June 4, 2009)

Rethink motor insurance rebates, Govt urged

BATU PAHAT: The Government should intervene and defer the implementation of direct rebates for motor insurance as this will increase unemployment in the country. State Unity, Human Resources, Science, Technology and Innovation Committee chairman M. Asojan said the direct rebates would affect the livelihood of thousands of insurance agents nationwide, reports The Star (June 3, 2009).
He was quoted as saying: "The Government is working hard to ensure that people have jobs during the economic crisis and the last thing we need is a mass lay-off in the insurance sector."
Asojan, a former insurance agent, said he understood the plight of the thousands of agents nationwide. He said the agents provided an array of services including helping with claim forms, advising clients on what to do in road accidents, providing contacts on the nearest workshops and checking on the status of claims.
"Are insurance companies ready with more counters to handle the influx of motorist from July 1?" he aked, pointing out that it was the insurance companies’ responsibility to assist the Government in ensuring people had jobs, especially when the Government was trying to kick-start the economy with the two stimulus plans.
"Was there a study done before the General Insurance Association of Malaysia and Bank Negara decided to implement the move? What about the consequences of this move on the thousands of agents who have helped the industry?" he said, adding that it should be implemented after taking into account the views of all the parties.
Meanwhile, the same report said Human Resources Minister Datuk Dr S. Subramaniam suggested that the insurance agents group together and give their views to the Government as soon as possible.
"I can understand the implications of such a move. It is up to the Ministry of Finance to look into the matter," he said, adding that he was unsure about the rationale behind the move.
Since the news about the rebate broke, there has been a huge outcry, with some quarters starting a signature campaign and a boycott. Come July 1, car owners who buy motor insurance directly from insurance companies without an agent will qualify for mandatory rebates of 5% to 10%.

MAA may conclude unit sale to AMG by fourth quarter

KUALA LUMPUR: MAA Holdings Bhd expects to conclude the sale of its general insurance business and 4.9% stake in MAA Takaful Bhd to AMG Insurance Bhd by the fourth quarter, said chief executive officer Muhamad Umar Swift.
The general insurance business was priced at RM274.8mil and the MAA Takaful stake at RM16.2mil, Bernama quoted him as saying.
Both parties had agreed to the terms and the next step was to secure the approval of Bank Negara and shareholders, he said after the group AGM yesterday.
MAA Holdings chairman Tunku Datuk Ya’acob Tunku Abdullah said the group was also looking to raise its capital to further grow business and would opt for a rights issue or issuing new notes.
“MAA has not raised capital in the last 20 years. In the past, we funded via medium-term notes, for which we will start repayment next year for five years.
“We are still deliberating on the ideal structure to raise capital,” he said, adding that it was also looking at disposing its non-core businesses.
Muhamad Umar said once the transaction with AMG Insurance was completed, the group would have a clearer picture on the best course of action to raise fund. “We are trying to move away from debt and towards equity funding,” he said.
On the group’s plan to expand its overseas operations, Muhamad Umar said it was business as usual and MAA Holdings was open to any beneficial tie-ups.
“We have invested a lot in these operations and are looking for strategic partners that can take us to the next capital level to expand,” he said.
Meanwhile, MAA Holdings has posted a net profit of RM24mil, or 7.88 sen per share, in the first quarter ended March 31, mainly on higher operating income recorded by the group’s shareholders ’ fund.
“The profit in shareholders’ fund was due to mainly reversal of fair value loss of RM25.3mil arising from an interest rate swap transaction resulted from improvement in the market condition of the US municipal bond,’’ it said.
Revenue during the period under review was RM485mil versus RM519mil a year ago.

(THE STAR, Saturday May 30, 2009)

MAA mulling options to improve capital structure

by Alfean Hardy
MAA Holdings Bhd, which is in the midst of hiving off its general insurance business, is mulling over various options up to and including a rights issue as it seeks to raise funds to improve its capital structure, its chief executive officer/group managing director, Muhamad Umar Swift said.
As of its fiscal year ended Dec 31, 2008, the insurance firm's cash and cash equivalents fell 7.79% to RM51.35 million. The company expects to complete a RM254.8 million sale of its general insurance to AMG Insurance Bhd by year-end.
The exercise also includes an additional RM16.2 million deal to sell a 4.9% stake in MAA Takaful Bhd to AMG. Speaking to reporters after MAA's AGM in Kuala Lumpur last Friday [May 29, 2009], Muhamad Umar said one of the options being looked at aside from the disposal of MAA's general insurance business was a rights issue.
"The sale recapitalises our business and the rights issue (can) allow us to address the cash flow needs of the group," he said. "While that process is ongoing, we will also be disposing of our non-core businesses and activities and freeing up that cash as well.
These are activities like Wira Guards and our stake in Mithril Bhd (it holds a 33% stake as of end FY08).
These are non-core activities. Our focus is protection," he added. Muhamad Umar said it was MAA's long term vision to be an un-geared holding company. "There might be overdraft lines but the main will be equity-funded with investmentable business, life insurance business, and our funds management and mutual funds business," he added.
MAA has subsidiaries and associate firms overseas.
Asked what the company was going to do with those companies, Muhamad Umar said at the end of the day, MAA was a Malaysia-centric business.
"We're a Malaysian brand serving Malaysians," he said. "We expect our Philippines operations to be profitable this year and we're seeing a lot of consolidation in that market.
And, while we like our assets in the Philippines, should someone like it more we'd be more than willing to sell it.
While there's been some discussions, with the current recession, this is probably not the best time to market this asset," he added.
Muhamad Umar said Indonesia was another matter. "It's a more interesting issue for us with 250 million people, a large market force and we've invested time and effort there. It's wait-and-see. It's a profitable asset for us now but, again, how much capital do we need to take it to the next level. We're looking for a strategic partner to help us take it to the next level," he said.
"For (Australian associate) Columbus Capital Australia, the asset was profitable this year and it has an interesting business model but is it a core asset for us? No, so we're looking to dispose of that asset as well," he added.
MAA executive chairman Tunku Datuk Ya'acob Tunku Abdullah said, while it was nice to play overseas, changing central bank capital requirements meant that the firm required money for its Malaysian businesses.
"If there's an offer, we will sell. I don't think there's any offer (at this moment).
For now the businesses run as is," he said. "We're not expanding those overseas operations. We're reserving all our money for our Malaysian operations. If there's a need to increase capital requirements (set by governments there), we will then look for strategic partners to put in the difference," he added.
Asked about the rights issue, Tunku Ya'acob said, for now, it was only an option for MAA as it seeks to raise capital. "We're still deliberating what would be the ideal structure to finance MAA's financial requirements. Other options include to issue new notes and discontinue rolling our RM200 million medium-term notes facility," he added.

(This story appeared in The Malaysian Reserve on June 1, 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)