(The following was released by the rating agency)
Link to Fitch Ratings' Report: 2013 Outlook: Malaysia
HONG KONG/SEOUL/SINGAPORE, December 13 (Fitch) Fitch Ratings
says Malaysia's insurance and takaful sector may see its
earnings stability challenged by regulatory initiatives and
on-going capital market volatility. Otherwise, the sector will
continue to be underpinned by steady market growth and sound
capital management, as underlined in its Stable Outlook.
In a special report published today, Fitch says the
regulator's intention to eliminate both life insurers' cap on
acquisition costs and the fire tariff pricing structure could
undermine the stability of insurers' operating margin. The
impending implementation of Personal Data Protection Act could
also modify insurers' business practice, potentially leading to
higher compliance costs.
"Generally, insurers have been able to maintain satisfactory
operating margin due to favorable claim experience from
non-motor lines, sound investment return and steady surrender
rates, as well as a stable expense ratio," says Terrence Wong,
Director in Fitch's Insurance team.
Equity market volatility is unlikely to hold back new
premium growth of life insurance products, based on the solid
demand for investment-linked insurance policies witnessed in
H112. Low market penetration and wider distribution coverage
with the entry of more takaful players could accelerate the
growth of the general and family takaful market.
Fitch takes a positive view of Bank Negara Malaysia's
introduction of a risk-based capital framework for the takaful
sector, which would align the capital requirement of takaful
operators with that of conventional insurers. This also means
capitalisation would be more reflective of takaful operators'
risk exposure. Capitalisation of conventional insurers remains
healthy as the industry-wide consolidated capital ratio in Q312
was still well above the 130% regulatory minimum.
Negative rating trigger for the life and non-life insurance
sectors includes extreme equity market volatility. Widening of
deficits from third-party bodily injury and death motor
insurance could also affect the Outlook on the non-life sector.
Conversely, the Outlook on the non-life sector could be revised
to Positive if insurers are able to consistently improve their
overall underwriting margin after the liberalization of
compulsory motor pricing. The report, '2013 Outlook: Malaysia
Insurance Sector', is available on www.fitchratings.com or by
clicking on the link above.