General Insurance Industry
Higher local retention underwriting capacity
The underwriting capacity of Malaysian (re)insurers has improved over time, with the retention ratio in Malaysia steadily improving to 92.1% in 2008 from 87.6% in 2004. The result is in line with Bank Negara Malaysia’s (BNM)
(re)insurers, including the introduction of guidelines restricting outward foreign reinsurance premium deduction in the computation of unearned premium reserves (UPR) (which results in higher UPR and lower profits), compulsory cession of risk to Malaysian Reinsurance Berhad, and lower credit risk charge for amounts due from qualifying reinsurers under the Risk Based Capital (RBC) framework.
That said, the retention ratio for direct insurers alone remained in the range of 71% - 73% for the past five years, reflecting their prudent underwriting policies despite having stronger balance sheets. The motor, medical and personal accident insurance segments have high retention ratios, driven by their voluminous nature (>80%), while sums assured for other classes, especially those with large individual risks, were partially ceded to other (re)insurers.
Tariff-regulated motor insurance business remains a drag
While most classes have shown improvement in their claim experience, the long-tail motor insurance segment remains a key concern for industry players, with the combined ratio exceeding 100% for six out of the previous seven years as a result of an increase in motor theft cases and road accidents, as well as escalating court awards for motor accident fatalities and injuries.
In fact, the current tariff-rated system for the motor segment has been unchanged since 1978. Although a revision has been discussed among insurers, General Insurance Association of Malaysia (PIAM) and BNM, it has been put on hold, partly due to the surge in oil prices during the first half of 2008, followed by the economic downturn since the second half of 2008. MARC expects BNM and the industry to pursue a revision of motor premiums going forward as it remains critical for strengthening the general insurance industry and improving its competitiveness.
Currently, BNM is in the midst of consulting various parties to ensure that its proposed plan is fair and does not burden any specific group or individual. Among the suggested proposals under discussion at this stage is the setting up of a new company to underwrite third party bodily injury insurance and capping the existing unlimited third party bodily injury liability under the Road Transport Act to a specified sum. However, as it has been in the past, the political sensitivities of such a move remain an important obstacle that needs to be overcome.