More Life Liberalization & Merger

Further consolidation may be in the cards for the Malaysian insurance industry in the years to come as measures to strengthen local insurers and make them more efficient as well as resilient are implemented.

Fitch Ratings said in a report that the country’s insurers had continued to develop positively especially within the context of Asean’s growing economic integration. “Despite the benign global economic outlook, the country’s low insurance penetration, stable domestic consumption and sustained government infrastructure spending will continue to support premium growth, particularly in commercial lines,” it said.

But the rating agency, which has a “neutral” view of the local insurance industry, pointed out that several initiatives will have a profound impact on the industry’s landscape. In particular, it said composite insurers, required to split their life and non-life operations by 2018, could face some challenges to maintain their capitalization.

It believes that these affected insurers may seek external capital or engage in mergers and acquisitions to meet regulatory requirements, especially if their operations lack scale. Fitch also said the second phase of the motor tariff deregulation that starts from July will likely spur further rationalization in the motor segment.

It added that further consumer-focused measures from the life insurance and family takaful framework such as the removal of commission limits, compulsory direct channel distribution, and improved product disclosure in sales documents, will increase the life insurance industry’s professionalism and transparency, while providing insurers with the flexibility to innovate and tailor their cost structures to their respective business and competitive strategies.“Insurers’ margins may compress in the short term as competition intensifies, although we expect the market to remain relatively stable, supported by the profitable fire class, and the pricing and governance requirements that Bank Negara has put in place as part of the transition to safeguard consumers,” it noted.

It said capitalisation remains a key strength of the industry as insurers have consolidated 

risk-based capital ratio of 248.5% last year, well above the regulatory minimum of 130%, supported by ongoing surplus growth, sound underwriting practices and robust regulatory frameworks.

Fitch sees Lloyd’s entry as a positive due to the company’s expertise in specialized risks benefiting ceding companies and other local reinsurers by reducing volatility in underwriting profits. “Local players may also explore collaborative efforts and engage in mutual knowledge sharing with market participants, thereby improving overall insurance penetration, and reduce existing protection gaps,” it said.