Hopes raised that Malaysia will ease cap on foreign insurers

There is an increasing number of reports that the Government of Malaysia is preparing to relax rules on the involvement of international insurers and reinsurers in its market, and thus make life easier for risk and insurance managers with multinationals active in this large and growing Asian market. Local newspapers and Reuters report that the government is preparing to review its foreign ownership rules for insurers that the regulator – Bank Negara Malaysia (BNM) – and previous administration originally sought to tighten to restrict foreign involvement. Under the current rules, foreign insurers are required to reduce ownership of their local units by nearly a third and thus allow local insurers to take on the business. Last year, the BNM ordered foreign insurers to reduce their stakes in locally incorporated insurance firms to comply with its 2009 rule. This rule places a 70% cap on foreign ownership of local insurance businesses. Global insurers such as Japan’s Tokio Marine Holdings, Hong Kong-based AIA Group, Great Eastern Holdings, Prudential, Zurich Insurance, Chubb and eight other foreign companies were theoretically being forced to divest 30% of their Malaysian business to local investors or seek a listing. If this was enforced, it was feared that it would lead to a mass exodus from the market by international insurers and investors and leave a gap that the local market was not strong enough to fill. The Financial Times, however, recently cited a number of sources who said the BNM is now open to negotiation. It is also thought that the bank could allow foreign insurers to retain full ownership. “My sense is that Bank Negara is going back to its previous position of not forcing companies to sell down,” one source was quoted as stating. Reuters reported in the summer that the change in mood came with the arrival of Mahathir Mohamad as Malaysia’s Prime Minister in May. A month later, the Malaysian cabinet announced that it had accepted BNM governor Muhammad bin Ibrahim’s offer to step down. In mid-June, the Ministry of Finance announced that royal consent had been given to the appointment of Datuk Nor Shamsiah Mohd Yunus as the new governor of Bank Negara Malaysia, effective as of 1 July. Ms Datuk Nor Shamsiah was the deputy governor of Bank Negara Malaysia from 2010 until 2016. She recently served as assistant director of the monetary and capital markets division of the International Monetary Fund. The new governor’s first speech to the insurance industry took place on 28 September at a conference on innovation in the sector, organised by the Malaysia Insurance Institute. Frustratingly, the governor did not mention the foreign ownership matter. But she did outline a number of key strategic goals for BNM that suggested a more progressive and international outlook in general. First, the governor said the insurance penetration rate in Malaysia is simply not good enough. “It is sobering to note that for Malaysia, insurance merely accounts for 1.7% of GDP and only 5.8% of financial assets. Clearly, there is significant, untapped potential for the industry to increase its broader economic impact, and feature much more prominently in Malaysia’s growth story. However, this cannot happen unless the industry steps up its game and takes a more strategic view of its role in the economy – working much more proactively across the industry and with relevant bodies and agencies,” she said. To help make this happen, consolidation in the sector is needed, added the governor. This would presumably need the support of foreign capital, given the relative inability of the domestic sector to respond adequately to date. “It is therefore timely, if not more urgent, for institutions to consider synergistic partnerships to achieve the scale and competitive edge to lift performance and break into new markets. Our economy is in need of transformational change in the insurance sector – not incremental ones. To achieve this, we believe there is room for further consolidation in the industry,” said the governor. The third big theme was the continued process of liberalisation of motor and fire tariffs – a fundamental building block of a dynamic insurance sector. “The other key reform has been the phased liberalisation of motor and fire tariffs, which started in 2016. The bank is currently assessing the outcomes of the second phase as we prepare to launch into the next phase of liberalisation. We are encouraged to see the positive response from the industry and the positive impact on the diversity of products available to consumers. “Over the coming months, we will be able to form a clearer view on the market impact of premium rate adjustments. This will allow us to consider further flexibilities in the pricing bands. We hope that this in turn will drive further product innovations in addition to expanding capacity going forward,” she said. Malaysia will also actively embrace the latest global insurance regulatory measures, said the governor. The recently stalled process of field testing will be restarted shortly, she added. “Internationally, developments in global regulatory and accounting standards will also see corresponding changes in the domestic regulatory environment. A key development has been the ongoing work by the IAIS to establish a risk-based, global Insurance Capital Standard. It is the bank’s intention to align domestic regulations with international standards to promote the resilience of the industry. However, we will always do so with a careful consideration of domestic specificities,” she told the country’s insurance sector. “The bank trusts that the industry will continue to ramp up its preparation towards full implementation of the IFRS 17 in 2021. In the next two years, the bank will be reviewing the valuation and capital standards for solvency reporting. This will take into account the potential areas of alignment with international solvency and accounting standards. The results from the quantitative tests and feedback from industry engagement will be valuable inputs for these upcoming reviews,” said the governor.

Hopes raised that Malaysia will ease cap on foreign insurers

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