(Repeat for additional subscribers)
Feb 14 (The following statement was released by the rating agency)
Malaysia's hike in the tariff rates on motor
insurance provides a small break to providers, but is not a game changer for
them, says Fitch Ratings. The tariff increase is yet another step toward full
deregulation by 2016, but it is too small by itself to provide a complete
turnaround in profitability for motor insurance.
Motor insurance profitability remains depressed in Malaysia. Increasing accident
rates, a higher amount of bodily injury claims, rising medical costs, and
fraudulent claims have consistently undermined the loss ratio of the third-party
bodily injury and death (TPBID) business in the last few years.
Tariff increases are helpful but have much ground to cover. The regulator has
undertaken efforts since 2012 to balance insurance buyers' affordability, with
profitable underwriting performance for the insurers. As a result, incremental
tariff increases should lower the loss ratio of TPBID activity to an estimated
230% over the near term, from nearly 300% in 2011. But they have much further to
go before lowering "combined ratios" (an aggregation of expense ratio and
incurred loss ratio) to around 100% - which is the approximate break-even point
for TPBID activity.
Improvements in the motor insurance business are likely to be much more
pronounced once the sector is fully deregulated in 2016. Until such time, the
sector should remain unprofitable for many Malaysian general insurers, and the
underwriting losses from the motor business are typically cross-subsidised from
other more profitable non-motor business lines.
Poor claim results from TPBID will continue to constrain insurers in improving
their overall motor portfolio margin, although TPBID insurance only represents
about 11% of total motor market premiums. The underwriting margin of
non-compulsory motor insurance remains generally healthy, due to a favourable
claim ratio and stable commission structure. The combined ratio for total motor
business was 105% in 1H13 and 103% in 2012.
The General Insurance Association of Malaysia has announced increases in motor
insurance premiums, which takes effect from 15 February. Under this third round
of rate adjustment of the New Motor Cover Framework, the third-party cover for
motorcycles of 110cc will register a rate increase of around RM1-3.50 per year
over the next four years; RM6-34 per year over the same period for private cars
of 1400cc, and around RM0.10 per passenger per trip for express buses. These
measures accompany the rationalisation of other subsidies from September last
year - including fuel and sugar prices, and electricity tariffs.