2014-general-insurance-06.pdf

Session 6 General Insurance and Takaful industry market trend in Malaysia

NurulSyuhadaNurazmi,FCAS,FASM

8/25/2014

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General Insurance and Takaful Industry Market Trends in MalaysiaNurul Syuhada Nurazmi, FCAS, FASMPartner, Actuarial Partners Consulting

BUSINESS OVERVIEWGeneral Insurance and Takaful Industry Market Trends in Malaysia

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BUSINESS GROWTH

There has been persistent and significant growth in General Takafulbusiness in Malaysia. This growth has consistently outpaced thegrowth of the conventional General Insurance business.

2007 2008 2009 2010 2011 2012 2013GeneralTakaful(RM'000) 767,600 873,800 1,053,700 1,345,900 1,599,800 1,746,500 1,918,500ConventionalGeneralInsurance

(RM'000) 10,046,400 10,894,000 11,531,200 12,584,700 13,604,900 14,692,200 15,721,300

9% 10%

14% 21% 28%19%

8%7%

8%6%

9%8%

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

RM'000

GeneralTakaful(RM'000) ConventionalGeneralInsurance(RM'000)

Source:BankNegaraMalaysiaAnnualInsurance/TakafulStatistics,FinancialYears2007to2013

GENERAL INSURANCE BY LINE OF BUSINESS

Source:BankNegaraMalaysiaAnnualInsuranceStatistics,FinancialYear2013

Predominance of Motor, especially net of reinsurance. MAT, CAR & Eng and Liability are more heavily reinsured than PA &

Medical, Motor and WC & EL, with Fire and Others showing moderateretention.

Motor(Total),RM7,447,600,

47%Fire,

RM2,622,700,17%

MAT,RM1,451,800,

9%

CAR&Eng,RM601,700,

4%

PA&Medical,RM2,129,400,

14%

WC&EL,RM232,400,

1%

Liability,RM464,000,

3%

Others,RM771,700,

5%

GrossPremiums DirectBusiness(Jan Dec2013)(RM'000)

Motor(Total)Fire

MAT

CAR&EngPA&MedicalWC&ELLiability

Others


57%Fire,RM1,873,100,

14%

MAT,RM464,500,

4%

CAR&Eng,RM314,200,

2%

PA&Medical,RM1,927,600,

15%

WC&EL,RM227,500,

2%

Liability,RM253,600,

2% Others,RM555,600,

4%

NetPremiums Direct Business(Jan Dec2013)(RM'000)

Motor(Total)Fire

MAT


Others

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GENERAL TAKAFUL BY LINE OF BUSINESS

Source:BankNegaraMalaysiaAnnualTakafulStatistics,FinancialYear2013

Predominance of Motor in Takaful is even more distinct than inconventional insurance.

Heavy reliance on Motor, and Fire and PA & Medical to a lesser extent,with low penetration and retakaful retention for the other classes.


59%

Fire,RM386,600,

20%

MAT,RM44,700,2%

CAR&Eng,RM56,200,3%

PA&Medical,RM191,200,

10%

WC&EL,RM10,200,1% Liability,RM33,000,2%

Others,RM61,500,3%

GrossContributions DirectBusiness(Jan Dec2013)(RM'000)

Motor(Total)Fire

MAT


Others

Motor(Total),RM955,300,

68%

Fire,RM221,200,

16%

MAT,RM6,200,0%

CAR&Eng,RM11,100,

1%

PA&Medical,RM161,000,

11%

WC&EL,RM7,400,1%

Liability,RM9,000,1%

Others,RM29,500,

2%

GrossContributions DirectBusiness(Jan Dec2013)(RM'000)

Motor(Total)Fire

MAT


Others

OBSERVATIONS Mix of business between conventional General Insurance and

Takaful is similar, with Motor and Fire forming the bulk of thebusiness.

Conventional insurers tend to have higher exposure tocommercial risks such as MAT and CAR & Eng as compared toTakaful Operators (TOs). These risks require higher capacity andexpertise to write, hence the reason why the smaller andyounger TOs are providing less or no such cover.

On the other hand, TOs are writing less Medical business ascompared to their conventional peers. This follows theconventional insurers trend 15 years ago, where Medical waspredominantly written by their Life counterparts. This haschanged with the introduction of Sihat Malaysia in 1998/1999.

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GeneralInsuranceandTakafulMarketByLineofBusinessGROWTH ON GROSS BASIS BY LINE OF BUSINESS

General Insurance and Takaful Industry Market Trends in Malaysia

MOTOR Motor Takaful exhibits strong growth, consistently outpacing the

growth in the conventional General Insurance market, althoughTakaful is still only 13% of the combined Motor market.

2007 2008 2009 2010 2011 2012 2013GeneralTakaful(RM'000) 374,800 436,300 557,600 715,600 878,300 1,036,100 1,135,200ConventionalGeneralInsurance

(RM'000) 4,447,700 4,893,900 5,254,200 5,922,200 6,317,100 6,845,600 7,447,600

18% 10%

16% 28%28% 23%

8%9%

10%7%

13%7%

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

RM'000


Source: Bank Negara Malaysia Annual Insurance/Takaful Statistics, Financial Years 2007 to 2013

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FIRE The growth in Fire Insurance is more stable than in Fire Takaful,

although at a lower average growth rate.


2007 2008 2009 2010 2011 2012 2013GeneralTakaful(RM'000) 211,800 191,900 218,900 299,200 280,800 329,900 386,600ConventionalGeneralInsurance(RM'000) 1,786,900 1,910,000 2,029,500 2,100,300 2,240,100 2,410,000 2,622,700

17% 17%

9% 14%37% 6%

8%

9%

7%6%

3%7%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

RM'000


MAT The growth of this business in both General Takaful and Insurance

markets has been more volatile than for Motor and Fire.


2007 2008 2009 2010 2011 2012 2013GeneralTakaful(RM'000) 36,400 47,200 48,600 81,400 104,200 80,400 44,700ConventionalGeneralInsurance

(RM'000) 1,186,200 1,179,500 1,168,600 1,283,600 1,412,500 1,478,500 1,451,800

23% 44%30% 3% 67% 28%

5% 2%

1% 1% 10%10%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

RM'000


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CAR & ENG The conventional market has been growing consistently except in

2010 as opposed to the Takaful market which has been morevolatile.


2007 2008 2009 2010 2011 2012 2013GeneralTakaful(RM'000) 43,700 55,600 34,400 44,000 98,600 49,500 56,200ConventionalGeneralInsurance(RM'000) 385,600 407,500 410,700 391,700 488,200 567,600 601,700

50% 14%27% 38% 28%124%

16%

6%

6% 1% 5%25%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

RM'000


PA & MEDICAL PA & Medical Takaful business has grown significantly since 2011;

its growth continues to outperform the conventional market, exceptin 2010.


2009 2010 2011 2012 2013GeneralTakaful(RM'000) 117,000 118,900 136,700 157,000 191,200ConventionalGeneralInsurance(RM'000) 1,523,200 1,699,300 1,930,100 2,030,100 2,129,400

15% 22%2% 15%

5% 5%

12%

14%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

RM'000


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WC & EL The WC & EL business in the conventional market has been

growing steadily, whilst the Takaful market has had mixed success,barely having grown from 2009 to 2013.


2009 2010 2011 2012 2013GeneralTakaful(RM'000) 9,100 7,400 8,300 7,700 10,200ConventionalGeneralInsurance

(RM'000) 146,200 158,500 170,500 204,700 232,400

7% 32%19% 12%

20%

14%

8%8%

0

50,000

100,000

150,000

200,000

250,000RM

'000


LIABILITY The growth in Liability Takaful business outpaced that of the

conventional market except in 2012.


2009 2010 2011 2012 2013GeneralTakaful(RM'000) 22,700 27,000 32,700 25,700 33,000ConventionalGeneralInsurance(RM'000) 374,900 381,000 414,100 465,000 464,000

21% 28%19% 21%

12%0%

2%9%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

RM'000


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OTHERS This consists of all other classes of business such as Bonds, All

Risks, Machinery & Equipment, Fidelity Guarantee and Burglary. Boththe conventional and Takaful markets are consistently growing overthe years except in 2011 for conventional and in 2012 for Takaful.


2009 2010 2011 2012 2013GeneralTakaful(RM'000) 45,300 52,400 60,200 60,200 61,500ConventionalGeneralInsurance(RM'000) 623,900 648,100 632,200 690,800 771,700

0% 2%16% 15%

9%12%

4%2%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

RM'000


DISTRIBUTION CHANNELGeneral Insurance and Takaful Industry Market Trends in Malaysia

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DISTRIBUTION CHANNEL

Depends on each companys business profile.Companies that focus on writing Motor business

would depend heavily on their agency force.Companies that focus on commercial risk would rely

on their brokers.Banca tied-up companies would depend on their

banca partner to distribute their products e.g. viaDMTM.

NUMBER OF AGENTS

Source: Actuarial Partners analysis of Takaful and Insurance Statistics by Bank Negara Malaysia

CAGRfrom2007to2013

-1%

ConventionalGeneralInsurance

GeneralTakaful

10%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2007 2008 2009 2010 2011 2012 2013GeneralTakaful 10,856 15,975 32,997 31,391 33,970 37,543 18,820ConventionalGeneralInsurance 39,165 38,766 35,930 35,236 35,609 35,354 36,374

78% 71% 52% 53% 51% 52% 66%

22% 29%48% 47% 49% 48%

34%

Num

bero

fAgents

NumberofGeneralInsuranceandTakafulAgentsinMalaysia

ConventionalGeneralInsurance GeneralTakaful

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REGULATIONS AND GUIDELINES


1st August2003GuidelinesonMedicalandHealthInsuranceBusiness&MinimumStandardonProductDisclosureandTransparencyintheSaleofMedicalandHealthInsurancePolicies

31st Jan2004MinimumStandardonProductDisclosureandTransparencyinMarketingofMedicalandHealthTakafulPlans

GENERAL INSURANCE / TAKAFUL

31st Dec1993GuidelinesonMathematicalEstimationofIBNRClaimsProvision

Dec1993

August2003

Jan2004

Jan1992

1st Jan1992GuidelinesonAccountingforInsuranceBusiness

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1st January2006GuidelinesonMedicalandHealthInsuranceBusiness(Revised)&Hospitalisation&SurgicalInsurance(HSI)UnderwritingGuide

2nd January2008GuidelinesonMedicalandHealthTakafulBusiness


15th Dec2004ConceptPaperoftheRiskBasedCapitalFrameworkforInsurers

Dec2004

Jan2006

Jan2008

Dec2004

9th Dec2004TestExerciseonDraftGuidelinesonReservingforGeneralInsuranceBusiness

1st January2009RiskBasedCapital(RBC)FrameworkforInsurerswithparallelcalculationinApril2007

1st January2010GuidelinesonProductTransparencyandDisclosure


1st Dec2008GuidelinesonStressTestingforInsurers&GuidelinesonStressTestingforTakafulOperators

Dec2008

Jan2009

Jan2010

Sept2010

September2010GuidelinesonIntroductionofNewProductsforInsuranceCompaniesandTakafulOperators

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May2011

1st July2011GuidelinesonValuationBasisforLiabilitiesofGeneralTakafulBusiness&GuidelinesonFinancialReportingforTakafulOperators

1st January2012GuidelinesonTakafulOperationalFramework&GuidelinesonFinancialReportingforInsurers


1st May2011TemporaryMeasureontheCapitalRequirementsfortheMalaysianMotorInsurancePool(MMIP)LiabilitiesundertheRiskBasedCapitalFrameworkforInsurers

July2011

Jan2012

1st Sept2012GuidelinesonInternalCapitalAdequacyAssessmentProcess(ICAAP)forInsurers

Sept2012

June2013

30th June2013FinancialServicesAct2013(exceptsection129andSchedule9)&IslamicFinancialServicesAct2013(exceptparagraphs1to10ofSchedule9andparagraphs13to19ofSchedule9)

1st January2014RiskBasedCapital(RBC)FrameworkforTakafulOperators


7th June2013AppointedActuary:AppointmentandDutiesConceptPaper

June2013

Jan2014

28th April2014AppointedActuary:AppointmentandDutiesGuidelines

April2014

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FINANCIAL SERVICES ACT / ISLAMIC FINANCIAL SERVICES

ACT 2013 (FSA / IFSA 2013)


FSA/IFSA 2013SCOPE OF APPLICABILITY

AppliestoallBanksand

Insurers/TakafulOperatorsinMalaysia

Includesreinsurers/

retakafulplayersIncludesthoseinLabuan,Malaysia

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FSA/IFSA 2013IMPLICATIONS

1.RequirementtosplittheLife/FamilyandGeneralInsurance/Takafulbusinesses Likely to see a number of M&A activities in the next fewyears.

Currently RM100 million paidup capital is required foreach company, even for composite company that writesboth General and Life / Family businesses.

From July 2018 onwards, splitting would mean aseparate capital requirement for each entity, where acomposite company would need RM200 million capitalto support its General and Life / Family businesses.

FSA/IFSA 2013IMPLICATIONS

2.Requirementtosetupaholdingcompany Enable insurer / TO access to money from holdingcompany.

Capital requirements of insurance subsidiaries outsideMalaysia potentially at least as large/strong as Malaysia.

Potentially challenging to be competitive in other marketswith weaker capital requirements compared to other localplayers.

Impact on group capital requirements, corporategovernance, risk management standards etc.

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FSA/IFSAIMPLICATIONS

3.IncreasedonusonBoardofDirectors Criminal offence punishments; i.e. imprisonment up to8 years or fine up to RM25 million.

Policyholders interest is prioritized when in conflictwith shareholders interest.

APPOINTED ACTUARY: APPOINTMENT AND DUTIES


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BACKGROUND The current statutory role of an Actuary in the General Insurance

/ Takaful industry is limited to reserving / valuation work withminimal pricing work on Medical products only.

General / Casualty / Non-Life Actuary is given the title SigningActuary (SA) as compared to Life / Family Actuarys AppointedActuary (AA).

The current practice is that most companies would engageexternal consultants as their SA, due to the limited number ofGeneral Actuaries in the market (i.e. around 15 qualified GeneralActuaries in Malaysia).

AA: APPOINTMENT AND DUTIES The Concept Paper was issued on 7th June 2013 for comments

from the industry, and was finalized on 28th April 2014.

This new guideline aims to create a level playing field forActuaries in both the General and Family industry where theGeneral Actuaries would be required to perform the same rolesas the Family Actuaries, which encompass valuation,preparation of the companys Financial Condition Report(FCR) and providing recommendations on surplusdistribution.

The AA will also need to provide an opinion on pricing matters(e.g. appropriateness of assumptions and adequacy of buffers inpremiums). However, the AA will not assume accountability forproduct pricing. Hence, this implies the need for a separatePricing Actuary role. This is to reduce conflicts of interest andenhance the objectivity and independence of the role of an AA.As a result, one company would need to hire 2 Actuaries.

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AA: APPOINTMENT AND DUTIES In addition, the AA role will be restricted to in-house only (instead

of using external consultant). However, in the short-term, BNMmay grant an exemption under exceptional circumstances.

At the moment, there are around 15 qualified General Actuariesin Malaysia to support 23 General insurers and 8 GeneralTakaful Operators.

Given the current limited number of qualified General Actuariesin Malaysia, the General Insurance and Takaful companieswould need to start setting up and enhance their own in-houseactuarial teams, and groom them up for the AA and PricingActuary roles in the future.

APPOINTMENT AND DUTIES The following time frame has been set by BNM for General insurers

and Takaful Operators to fully comply to the following requirementsof the guidelines:

By 1 January 2015The AA must prepare the FCR and be responsible for engagingthe Board and senior management in communicating the keyanalyses of the FCR.

By 1 January 2017The AA must be an in-house Actuary. Also, he/she must readilyinvestigate and provide an opinion on matters related toproduct pricing.

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CHALLENGES AND OPPORTUNITIES


CHALLENGES AND OPPORTUNITIESMOTOR

Compulsorycover

Providesvolumetocover

overheads

Problemariseswhenrateis

Tariff(underpriced)

MalaysiaTakafulexperience to

refrain

RecentproposalistoincludeallGeneralTOsintoMMIPtogether

withtheconventionalinsurers

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CHALLENGES AND OPPORTUNITIESDE-TARIFFING MOTOR

In 2011, BNM issued a New Motor Cover Framework which pavedthe way for de-tariffing of the Motor business. Under thisFramework, the Act component of the Tariff rate is revised upwardsevery year from 2012 onwards leading up to the de-tariffing in 2016.

2014 marks the third year of the premium revision with an averagepremium increase of around 10% to 15% p.a.

However, it is still not clear how the Motor pricing structure wouldlook like once de-tariffing comes into effect in 2016:

Will the revised Act rates still serve as the minimum / floorrates?

Would NCD still be applied to the total Act and Non-Actpremiums? Still maintain the current structure of maximum55%? Will we even have / need an Act and Non-Act split?

How about the loadings structure? Would it be made thesame for Comprehensive and Third Party covers? What limitswould be imposed on loadings or discounts?

CHALLENGES AND OPPORTUNITIESDE-TARIFFING FIRE

Fire class is also expected to be de-tariffed in 2016. De-tariffing would have an impact on the Fire rates, especially in

the case of the Houseowner and Householders policies which arestrictly based on tariff rate.

Given the current low loss ratio of the Fire business, theexpectation is that the loss ratio for Fire class will deteriorate uponde-tariffing due to competition.

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CHALLENGES AND OPPORTUNITIESDE-TARIFFING: FIRE AND MOTOR

Upon de-tariffing of the Fire and Motor businesses in 2016, thepremium rates are expected to: Go down for Fire business due to steep competition which would

result in an increase / deterioration in the Fire loss ratio. Go up for Motor business which would result in an improvement to

the Motor loss ratio from the current loss making or breakevenposition. Nonetheless, as the market gets more competitive, thereis a possibility of rate undercutting which would push the loss ratioup before it stabilizes as the market becomes more disciplined.

Hence, we expect that the de-tariffing would result in an increase tothe Houseowner Takaful loss ratio while Motor loss ratio wouldimprove over time.

CHALLENGES AND OPPORTUNITIESSHARIAH-COMPLIANT MMIP ISSUES AND CHALLENGES

HowtomakeitShariahcompliant?

ThefutureofMMIPwhendetariffingcomesintoeffectin2016?

Cantseemtoagreeonthebasisofsharing?

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CHALLENGES AND OPPORTUNITIESMOTOR REINSURANCE/RETAKAFUL

Reinsurance / Retakaful arrangement for Motor is mainly on anExcess-of-Loss (XOL) cover.

With RBC / RBCT implementation and current rate still under Tariff,more and more insurers / TOs are taking up Quota-Share (QS)arrangement for capital relief.

As a matter of fact, the reinsurers / retakaful operators who areoffering such QS cover are multinationals and foreign companies.This implies that there are underlying profits in the Motor business.

Furthermore, this would change the net-to-gross or retention ratioof Motor business in the future.

CHALLENGES AND OPPORTUNITIESDE-TARIFFING PRICING IS AN ITERATIVE PROCESS

Insurance / Takaful companies that have already begun thepricing exercise will be able to identify and target the moreprofitable sectors.

But technical pricing based on a certain set of assumptions pre-de-tariffing may not hold once the landscape changes.

Market leaders need to be able to react to changes in the market,be it to prevent anti-selection or to gain market share.

Followers may end up with undesirable risks.

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Q&A

[email protected]

Cover PageNurul Syuhada Nurazmi

2014-general-insurance-06.pdf

Documents

inconventional insurance

takaful industry market

general takafulbusiness

medical business

finan predominance of

financi predominance

conventional insurers

pa medical