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  

General Insurance Industry

July 2010

Macro interest rates to continue to impact investment income

Breakdown

Dec-09

Dec-08

Dec-07

Dec-06

Investment in corporate

30

30

32

32

securities

Investment in government

19

18

18

17

securities

Cash and deposits

31

35

31

32

Other assets

20

17

19

19

Total

100

100

100

100

Meanwhile, investment income, which is another important source of income for insurers, was also affected by the economic slowdown and the resulting decline in financial asset prices. Although historically the exposure of Malaysian insurers to equities and foreign assets has been low, the downward revision of BNM’s policy rate to 2.0% in January 2009 did have an adverse impact on their investment income given their large holdings of liquid and short-term deposits to meet their short-duration liabilities. Although the overnight policy rate has increased to 2.75% in July 2010, MARC expects investment income to remain constrained.

Introduction of risk-based capital requirements will strengthen the industry over the long term, but will pose short-term challenges

DEVELOPMENTS IN THE GENERAL INSURANCE SECTOR

Exhibit 3: Asset Composition of General Insurance Funds (%)

Source: BNM

Dec-05

35

15

31 19 100

In terms of regulatory development, the most significant change was the implementation of the RBC framework in 2009 in line with evolving global best practices in insurance regulation. The implementation of the RBC framework is expected to strengthen the standards of prudential regulation in the insurance industry and to align individual insurers’ solvency and capital position according to their respective individual risk profiles. This will also enable the deployment of more transparent risk-adjusted capital and valuation requirements within the industry and through it promote the rationalisation of underwriting businesses as well as augment risk management standards.

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