Strong capital foundation with new RBC

By Habhajan Singh
The implementation of the Risk-Based Capital Framework for Insurers (RBC) on Jan 1, 2009, completed an "important component" of the overall objective towards ensuring a strong capital foundation for the financial sector, the central bank said.
In its annual report for 2008, Bank Negara Malaysia (BNM) noted that the RBC provides for capital assessments that are more aligned to the specific risk profiles of individual insurers and is reflective of market consistent valuations.
"After a parallel run of almost two years during which the framework underwent several refinements to enhance its integrity, legislative changes were approved to bring the framework into effect," it said in its recently-released Financial Stability and Payment Systems Report 2008. The framework replaces the previous margin of solvency regime.
"A key objective of RBC is to ensure that prudential buffers reflect the underlying risk profiles of individual insurers. To achieve this, the RBC requires more explicit quantification of the various risks inherent in the insurance business," it said.
Under the RBC, the central bank noted that capital adequacy requirements are more granular and risksensitive compared to the previous solvency regime, which did not differentiate between the nature and sources of risk. Providing an example, it said insurers whose asset portfolios are concentrated in high-risk assets or assets that are inadequately matched with the corresponding liabilities will be required to hold more capital under the RBC compared to the previous solvency regime.
Similarly, insurers who underwrite volatile lines of business or are highly concentrated in a single line of business will be required to hold more capital than insurers with diversified portfolios of relatively stable lines of business.
In an interview with The Malaysian Reserve last month, then-president of Life Insurance Association of Malaysia (LIAM) Ng Lian Lu said, there was never a doubt that the transition to the new RBC regime would be smooth as companies have conducted parallel runs for two years and all teething problems have been addressed prior to the implementation of the new framework.
The central bank also noted that since the implementation of the framework, further adjustments have been necessary to address the impact of market interest rates used in the valuation standards moving significantly out of line with historical norms. Neighbouring Singapore went into the RBC mode some years ago.
In a statement dated Aug 25, 2004, the Monetary Authority of Singapore (MAS) announced an RBC for insurers in Singapore. In conjunction with the new framework, its regulator said the RBC aims to put in place a more transparent and risk-focused capital and valuation basis that reflects all major financial risks of insurers. It was developed in close consultation with insurance practitioners, and the actuarial and accounting professions, it said.
MAS also issued two consultation papers to discuss how the RBC and regulations will be integrated into the Insurance Act. The shift from a one-size fits all approach will also encourage insurance companies in Singapore to manage their financial risks more actively and raise overall prudential standards, it added.
Meanwhile, in its report, BNM said that the insurance and takaful sectors — while recording a stronger solvency position of RM16.6 billion compared to RM11.7 billion the year before, and attaining a capital adequacy ratio of 187.6%, which is well above the minimum requirement of 100% (2007: 158.4%) — faced challenges in maintaining the growth in premiums and contributions from new businesses amidst strong competition in the industry.
It said total net premium and contribution income of this industry grew by 2.4%, attributed mainly to the expansion in the market share of takaful business. At the same time, the growth of 5.5% in the general insurance and takaful sectors was driven mainly by the expansion in the fire segment while the modest growth of 1% in the life and family takaful sectors were a result of the weaker demand in investment linked business.
Nevertheless, it noted that the operating profit of the general insurance and takaful business declined by 44.5% to RM0.7 billion, mainly due to unrealised losses and deterioration in the motor insurance portfolio, as reflected in the higher claims ratio of 84.2%. - The Malaysian Reserve, p32, Apr 1, 2009

(This story appeared in The Malaysian Reserve on Mar 30, 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.)

Kurnia on the lookout for 1,000 new agents

By Lee Cherng Wee
Kurnia Insurans (Malaysia) Bhd aims to hire 1,000 insurance agents as it embarks on new initiatives and diversification. Kurnia's general manager for agency distribution channel Pang Yoke Nam said Kurnia currently has 6,500 agents and is aiming to hire another 1,000 agents starting the next financial year in July.
"It is very critical to add new blood. We have 30 branches nationwide that conduct business opportunity seminars monthly to recruit new agents.
"This line offers a good career, requires low capital and you will not be out of job," he said in an interview with The Malaysian Reserve recently.
With four million policyholders nationwide, Kurnia is the largest general insurer for five consecutive years, controlling a market share of 14.6% based on net written premium. Pang said Kurnia is looking to build long-term relationships and create win-win partnerships with its agents. "We want to make sure that the agents are growing and see how to help them grow their business.
"We conduct seminars to upgrade their technical knowledge and help them to be more professional," he said.
In recognition of its agents' contributions, Kurnia, like most local insurers, holds an annual convention to honour its top selling agents. Pang noted that Kurnia has 150 agents with annual sales above RM1 million.
"The convention is also a platform to communicate with agents on the company's direction and messages from the CEO. We invite renowned motivators to speak during the convention," he added. Moving forward, Kurnia will be its launching new product, Compensation for Assessed Repair Time (CART), on April 15. CART is an extension of the comprehensive motor policy, which provides compensation to policyholder for the number of days the car is being repaired at the workshop according to the loss adjustor's assessment. "We will subsidise customer's travelling expenses when their car is under repair," he said.
Apart from CART, Kurnia has introduced several value added services to improve customer service such as Kurnia Auto Assist and Kurnia Express Service. Under Kurnia Auto Assist, the insurance company has eight personnel riding on motorcycles around the Klang Valley to assist customers whose cars break down.
Meanwhile, under Kurnia Express Service, customers can drive their damaged cars to Kurnia's branch office for small claims of less than RM3,000. Pang said claims are assessed and processed within one hour.
Meanwhile, in anticipation of slower car sales, Kurnia is growing its non-motor insurance business to reduce reliance on its motor insurance segment.
"We still want to maintain our share in the motor segment. But the growth from motor may not be that impressive. "Growth will come from the nonmotor side. We want to grow our non-motor business in an aggressive mode," said Pang.
Currently, motor insurance contributes 84% of Kurnia's income while its non-motor business accounts for 15%. The market leader in motor insurance aims to place greater focus on non-motor insurance products such as fire, property, freight and cargo. The Kurnia management team is headed by Captain K H Chia as its managing director. - The Malaysian Reserve, p32, Apr 1, 2009

Policy brief on MENA insurance sector

DUBAI: The Hawkamah Institute for Corporate Governance (Hawkamah) and the Arab Forum of Insurance Regulatory Commissions (AFIRC) announced on Mar 22 the release of the policy brief on corporate governance for the insurance industry in the Middle East and North Africa (MENA) region.
It hopes the recommendations contained in the policy brief will form the basis for creating a minimum standard for the MENA insurance sector as agreed upon by the region's insurance industry regulators.
The policy brief concluded that insurance companies operating in the MENA region have varied strengths and currently face significant challenges in view of the ongoing global financial crisis, the two organisations said in a press release.
"The strengths include recognition of the importance of the role of the financial services sector, of maintaining a strong reputation and financials, and of making a contribution to the community. Many institutions have demonstrated their commitment to accountability, transparency, and fulfilling obligations to their stakeholders and policyholders," it said.
Concurrently, it noted that many companies face challenges in achieving proper corporate governance as defined by leading international professional and regulatory agencies.
"Such challenges also exist in most other regulated markets and are often based on accepted practices within those markets," it said.
The actionable items outlined by the brief include committing to good corporate governance; good board practices; adopting and maintaining minimum levels of transparency and disclosure; ensuring an effective control environment; and protection of policyholders and shareholders rights.
Dr Nasser Saidi, board member of Hawkamah, said the lack of good corporate governance contributed to the current global financial crisis, which has affected the insurance industry.
"The need for the global insurance industry to implement sound corporate governance practices is all the more pressing in view of the crisis. This is particularly so in the MENA region, where the insurance industry, both conventional and Islamic, has been underdeveloped, but is now growing fast.
"Within the MENA region, the rapid rise of Shariah-compliant insurance and re-insurance provides an additional incentive for strong standards to be quickly developed," he said.
Dr Bassel Hindawi, director general of the Insurance Commission of Jordan and chairman of AFIRC said commitment to corporate governance standards will reflect positively on the management of the insurance companies, by efficient use of its resources, improve market competitiveness, and strengthening the stability of financial markets." - The Malaysian Reserve, p32, Apr 1, 2009

CAPTION: Shaping policy for MENA press conference was attended by (from right to left) Dr Saidi, Dr Hindawi and Mark Dempsey who is the country director for Jordan and Middle East pepresentative.

Singapore insurance policy bonus set to fall

In view of the global financial crisis and economic recession, policyholders of participating life insurance policies (popularly known as par policies) can expect non-guaranteed benefits, in the form of bonuses, to be revised downwards for 2008 and into the future, said Singapore's Life Insurance Association (LIA).
These bonus changes are needed due to the poor investment climate in 2008, it added in a recent statement. It said par policies offer both protection and savings through a combination of guaranteed benefits and non-guaranteed benefits in the form of bonuses. Bonuses are determined based on the performance of the par funds.
Like many other financial products and investments, par funds have not been spared from the brunt of the recent financial market meltdown.
The bonuses for par policies in 2008 are therefore expected to be lower than those declared in preceding years.
LIA president Darren Thomson said despite an extremely turbulent past year, all life insurers have been able to maintain the solvency of their par funds. "We remain able to continue to allocate bonuses to par policyholders, albeit at a lower level." - The Malaysian Reserve, p32, Apr 1, 2009

ING Insurance lowers new premiums

By T Vignesh
ING Insurance Bhd, has lowered its new premiums target to RM830 million in 2009 compared to RM870 million recorded last year.
CEO and president of ING Insurance Bhd Datuk Dr Nirmala Menon said the company has lowered the target due to the tight economic outlook.
"Due to the recession, the amount of money put into a policy may decrease, but the number of policies being sold may increase," she told reporters after the launch of ING's new product — INGeasi for family in Kuala Lumpur on Mar 31.
On the new product, she said it combined varying protection, health, education and investment needs of every member of the family. ING expects to sell between RM50 million and RM60 million of the new product.
Chief financial officer and chief risk officer Anusha Thavarajah who was also present said that INGeasi for family is timely with the current financial climate where it is imperative for families especially to have some form of financial protection at these uncertain times.
She said INGeasi for family is designed to take care of the family income needs with a maintenance fund payment given to the family in the event the breadwinner is no longer able to provide due to unforeseen circumstances.
"With this, the family can have the peace of mind knowing well that they will be financial protected and their lifestyles continue to be safeguarded," she added. For the breadwinner of the house, the plan comprehensively provides protection and health coverage besides education and investment options for their immediate family.
Anusha said in the event that the breadwinner is no longer able to provide, the plan offers them special income protection, which provides monthly income replacement for up to five years. She said for spouses, INGeasi for family offers personalised life protection and this includes critical illnesses and accidental coverage.
In the event of death, total permanent disability or critical illness, a monthly income replacement for up to five years is again provided to the family. Anusha said for children, the plan makes it simpler by providing for education savings to help parents to fulfill their children's educational potential.
In addition, all future premiums for the plan will be waived if the payor is diagnosed with critical illness. "On top of protection and savings, INGeasi for family provides the flexibility to choose from eight different combinations of local and global unit-linked investment funds to suit families changing needs at different stages of their lives and risk levels," she added. - The Malaysian Reserve, p9, Apr 1, 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.)

MCIS Zurich CEO appointed LIAM president

MCIS Zurich Insurance Bhd chief executive officer Md Adnan Md Zain has been elected at the president of Life Insurance Association of Malaysia (LIAM) at its 35th annual general meeting (AGM) on March 25, taking over the helm of the industry body from Am-Life Insurance Bhd CEO Ng Lian Lu.
Ooi Say Teng (picture, left), their counterpart at Uni.Asia Life Assurance Bhd, was elected as the vice president.
The two top positions at LIAM are elected at every AGM with the maximum term in office of the president being three consecutive years.
Adnan, who began his career in the banking industry with Standard Chartered Bank (SCB) in 1981, headed the bank's key regional corporate banking project based in Hong Kong from 1990 until 1992.
He was the head of global electronic banking, reporting directly to the group head office in London, prior to leaving SCB in 1995. He subsequently held various key management positions within the banking industry, including being the acting CEO of Alliance Merchant Bank in 2003, before going to MCIS Zurich in April 2005 as its deputy CEO and subsequently being appointed as CEO in February 2006.
Md Adnan sits on the boards of the Malaysian Insurance Institute and Malaysian Life Reinsurance Group Bhd.
Ooi, who graduated with a Bachelor of Science (Honours) degree in Actuarial Science from the City University, London, in 1993, has about 26 years of experience in the insurance industry, LIAM said in a statement.
Prior to joining Uni.Asia Life as its CEO in January 2003, he was the assistant general manager of Mayban Life Assurance Bhd from January 2000 to December 2002, and deputy general manager of MBA Life (now known as Allianz Life Insurance Bhd) from 1996 to 1999. Ooi started his career with MCIS Insurance (now known as MCIS Zurich) in 1983 as an actuarial officer. He is a director at Malaysian Life Reinsurance Group Bhd. -- The Malaysian Reserve (Mar 31, 2009)