General Insurance Industry
Under the RBC framework, all insurers and reinsurers are required to maintain a capital adequacy ratio (CAR) above the pre-determined internal CAR. The internal CAR is decided by both the regulated insurance company and the BNM, and must not be less than the regulatory CAR of 130%, which is the absolute minimum imposed by the regulator. The implementation of the RBC framework is likely to increase insurers’ capital requirements, thus to an extent exerting pressure on their return on equity. From a credit standpoint, the introduction of the RBC framework gives creditors a greater equity buffer and provides them with the added comfort of a more responsive regulatory framework. As for insurer financial strength ratings, MARC would consider the insurer’s compliance with minimum and internal CAR ratios as an important rating consideration.
Liberalisation of the sector to increase competitive pressure
In April 2009, the government announced a liberalisation plan for Malaysia’s insurance sector, including the increase of the foreign equity participation threshold in insurance companies to 70% and allowing foreign incorporated insurance companies and takaful operators to establish branches nationwide without restrictions. Currently, including composite insurers, there are 32 licensed general insurers, eight takaful operators and six general reinsurers in Malaysia. The liberalisation of the sector is expected to intensify competition in an already fragmented industry, where the top seven general insurers accounted for 48% of conventional direct premiums collected during 2009. In this context, MARC views that further consolidation in the insurance industry is unavoidable, given the visible benefits of economies of scale in underwriting, capital management, investment portfolio diversification and operations. As such, MARC expects the smaller and less profitable players to be acquisition targets, especially for interested foreign insurers given the relaxation of foreign equity participation.
In fact, the industry saw few consolidations in recent years, including the
acquisitions of PanGlobal Insurance Berhad by Tokio Marine Berhad in 2009 and the acquisition of Malaysian Assurance general insurance business by AMG Insurance Berhad in recent one is the strategic merger between the general
Insurans Malaysia Alliance Berhad’s 2010. The most insurance arm of
Hong Leong Assurance Berhad with MSIG Insurance (Malaysia) which was announced in June 2010. After this merger, MSIG become the second largest general insurer in Malaysia.
Berhad (MSIG) is expected to