Published on March 3, 2014
Frost & Sullivan Overview of the General Insurance Industry Malaysia
The Financial System Structure in Malaysia Regulatory Bodies and Policy Makers - i.e. BNM, MOF and other Government agencies Financial Service Providers Financial Institutions Financial Market • Banking Institutions - BNM - Commercial banks Non-Banking - Money & Foreign exchange operators Financial Intermediaries - Private equities - Investment banks - Social securities (EPF, pension fund, etc.) - Public debt securities - Islamic banks - Insurance, Reinsurance and Takaful - Stock exchanges - Others (discount houses, representatives of foreign banks) - Savings institutions - Leasing companies - Development Finance Institutions - Others (unit trusts, venture capital companies, credit guarantee, etc.) • • - International offshore financial centres • The financial system in Malaysia is regulated by Bank Negara Malaysia and the Ministry of Finance (MOF). Other governing bodies of the financial system includes the Securities Commission and the General Insurance Associate of Malaysia. The financial institutions in Malaysia are categorized under Banking Institutions and Non-Banking Financial Intermediaries. In Malaysia, the Securities Commission Malaysia (SC) is entrusted with the responsibility of regulating and systematically developing the capital markets. It reports to the MOF. The SC’s ultimate responsibility is to protect the investors. Under the purview of the SC and the MOF, Bursa Malaysia operates a fully-integrated exchange, offering the complete range of exchange-related services including trading, clearing, settlement and depository services. Source : Bank Negara Malaysia , Frost and Sullivan Analysis 2
Overview of General Insurance Industry in Malaysia • The insurance industry in Malaysia is categorized into Life insurance, General insurance and Takaful insurance. • The major categories of general insurance are marine, aviation and transit insurance (MAT), fire insurance, medical and personal accident insurance (PA) and motor insurance. Other miscellaneous insurance schemes include, among others, bonds, liabilities, contractor’s all risk and engineering risk insurance, workmen’s compensation and employers’ liability insurance as well as other types of miscellaneous insurance not falling within any of the classification mentioned. Insurance General Life Marine, Aviation and Transit Fire Medical and Personal Accident Takaful Motor Others Breakdown of Insurance Segments in Malaysia, 2012 Takaful 4.2% General Insurance 35.5% Life Insurance 60.3% o Marine, Aviation and Transit (MAT) insurance schemes include insurance coverage for the marine hull, aviation, cargo and offshore oil and gas related o Fire insurance schemes cover losses or damages to properties caused by fire, lightning, or explosion of domestic boiler or domestic gas cylinder not forming part of any gas work. o Medical and health insurance schemes provide coverage on the cost of medical treatment at private clinics or hospitals. PA schemes provide personal compensation in the event of injuries, disabilities or death caused by accidental means. Additionally, PA schemes also include travel insurance which provides coverage against travel related accidents, losses or interruption. o Motor insurance provides financial protection against physical damage and/or bodily injury resulting from moving vehicle accidents and against liability that could result from it. o Other miscellaneous insurance schemes include, among others, bonds, liabilities, contractor’s all risk and engineering risk insurance, workmen’s compensation and employers’ liability insurance Source : Bank Negara Malaysia , Frost and Sullivan Analysis 3
Overview of General Insurance Industry in Malaysia Gross Direct Premium (RM million) General Insurance Market Size and Growth Rate in Malaysia, 2009-2018F 25,000 Other 9.6% 20,000 MAT 10.5% 15,000 5,000 2009 2010 MAT • • Motor 48.4% Medical and PA 14.2% 10,000 0 • Breakdown of the General Insurance Segments in Malaysia, 2012 2011 Fire 2012 2013E 2014F 2015F 2016F 2017F 2018F Medical and PA Motor Misc Fire 17.1% Total Gross Direct Premium 2012 : RM 14.1 billion(show 2011 figures) The general insurance market in Malaysia has sustained a robust growth trend, recording a CAGR of 7.0% for the period 2009 to 2012. In 2012, the size of the general insurance market in Malaysia as measured by gross direct premium was approximately RM14.1 billion, having grown by 3.8% from the previous year. The industry is expected to grow with a CAGR of 8.8% for the period of 2013E to 2018F. In 2012, the motor insurance market segment accounted for RM6.8 billion or 48.4% towards the total general insurance market size (based on total gross direct premium). This was followed by the fire insurance segment of RM2.24billion (17.1%), medical and PA insurance segment of RM2.0 billion (14.2%), and MAT insurance segment of RM1.5 billion (10.5%). Other miscellaneous segment contributed RM1.3 billion, or 9.6% towards the total gross direct premiums. The motor insurance segment continues to be a key segment for the general insurance industry in Malaysia due to the growing number of vehicles in the country and the mandatory regulatory requirement for all vehicles to have insurance coverage. The large market share is mainly due to the regulation, where the Road Transport Act 1987 requires that all vehicle owners to have at least a minimum third party liability coverage. This policy provides liability coverage against the injury or death of other people caused by an accident. Source : Bank Negara Malaysia , Frost and Sullivan Analysis 4
Malaysia’s Economy Inflation Rate, Real Gross Domestic Product and Real Interest Rate (1981-2012) 12 10 8 % Change 6 4 2 0 -2 -4 -6 Year Commodity Crisis Asian Financial Crisis Dot-com Bubble, 9/11 -8 US/Europe recession -7.4% Global Financial Crisis US sub-prime mortgage crisis Thai Flood, Japan Earthquake Inflation Rate (%) Real GDP Growth (%) Real Interest Rate (%) Key Takeaways • The financial liberation measure started since the 1970’s but was temporarily rescinded during the global economic crisis of 1985-86 (Commodity Crisis). Having learned the lesson from the series of events that led to the Commodity Crisis, Malaysia since embarked on adopting prudent fiscal and monetary measures that helped the country to pull through during the adverse economic conditions of 1997-98 (Asian Financial Crisis), 2001-03 (Dot-com Bubble and Post-9/11) and 2008-09 (Global Financial Crisis) with shorter recovery periods. Source : Bank Negara Malaysia , Frost and Sullivan Analysis 5
General Insurance Segment in Malaysia, 2009 – 2018F Gross Direct Premium (RM million) Key Takeaways 16,000 8.0% 9.1% 5.9% 14,000 3.8% 12,000 10,000 8,000 6,000 4,000 2,000 0 2009 MAT Fire 2010 Medical and PA 2011 Motor 2012 Misc Annual Growth Rate Gross Direct Premium (RM million) 9.3% 25,000 9.3% 9.3% 8.6% 8.3% 20,000 8.4% 23,330 21,327 20,554 18,812 17.361 16,029 15,000 • This industry is forecast to grow at a CAGR of 8.8% between 2013E and 2018F to reach RM23.3 billion. Growth is expected to be highest in the medical and PA insurance segment (CAGR 2013E-2018F: 11.7%). • Prospect in the motor segment is expected to improve further with the expected lifting of the motor insurance tariff by 2016. This segment is forecast to grow at a CAGR of 8.4% from 2013E to 2018F. 10,000 5,000 0 MAT • Between 2009 and 2012, the medical and PA insurance segment experienced the highest growth, with a CAGR of 10.0%. The strong growth is largely driven by a number of factors such as rising middle class population, rising medical costs, rapid urbanisation and GDP growth. This was followed by the insurance segments for motor, fire and MAT with CAGR of 9.2%, 5.9% and 8.2% respectively during the same period. Meanwhile, other miscellaneous segments recorded a CAGR of -4.4%. 2013E Fire 2014F 2015F Medical and PA 2016F Motor 2017F Misc 2018F Annual Growth Rate • The fire and MAT insurance segments are forecast to grow at a CAGR of 7.4% and 6.2% respectively for the period 2013E-2018F. Source : Bank Negara Malaysia , Frost and Sullivan Analysis 6
Overview of General Insurance Segment in Malaysia, Market Size and Growth Rate, 2009 - 2012 Motor Gross Direct Premium 2012 MAT CAGR 2009 - 2012 9.2% RM6.8 Billion Gross Direct Premium 2012 RM2.0 Billion CAGR 2009 - 2012 10.0% 8.2% RM1.5 Billion Fire Medical and PA Gross Direct Premium 2012 CAGR 2009 - 2012 Gross Direct Premium 2012 RM2.4 Billion CAGR 2009 - 2012 5.9% •Medical and PA segment has the highest double digit growth with 10.0% CAGR from 2009 until 2012, followed by Motor segment with 9.2% CAGR. •Motor segment has more Gross Direct Premium in 2012 with all MAT, Medical and PA and Fire combined, this explains the volume of motor segment in Malaysia and the high growth factor. •MAT, Medical & PA and Fire has almost similar amount of Gross Direct Premium in 2012, but growing at different rate mainly due to the difference in market demand. Source : Bank Negara Malaysia , Frost and Sullivan 7 Analysis
General Insurance Segment in Malaysia, 2009 – 2018F Market Size and Forecast Growth Rate Gross Direct Premium (RM million) Motor 12,000 10,000 8,000 6,000 4,000 2,000 0 Gross Direct Premium (RM million) 2009 2010 2011 2012 2013E 2014F 2015F 2016F 2017F 2018F Medical and PA 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2009 2010 2011 2012 2013E 2014F 2015F 2016F 2017F 2018F • The motor insurance is expected to grow with a CAGR of 8.2% from 2013E to 2018F, mainly due to the increase in the sales of vehicles along the years in Malaysia. In 1980, the annual sale of vehicles was recorded at 97,262 units and this has since increased to 627,753 units in 2012, registering a CAGR of 6.0% for the said period. • The Government intends to liberalise the motor insurance industry by 2016, by allowing general insurance companies to vary the premium based on the risk profile of individual vehicle owners. The revision in motor tariff premium rates was part of the New Motor Cover Framework that is aimed at addressing the structural issues within the motor insurance sector to ensure continuous and sustainable motor protection to users. The New Motor Cover Framework will pave the way towards the Government’s policy of de-tariffing the motor insurance premium by 2016. Moving forward, this will allow general insurance company to vary the premium rates based on the risk profile of individual vehicles owners. • The Medical and PA insurance is expected to grow with a CAGR of 13.6% from 2013E to 2018F. The double digit growth is largely influenced by the increase in outbound travellers in Malaysia as well as the requirement under the Hospitalisation and Surgical Scheme for Foreign Workers (SPIKPA). Under SPIKPA, all foreign workers are required to have medical insurance coverage effective from 1st January 2011 • In 2012, there were 33.4 million passengers departing from Malaysia’s airport, an increase of 5.4% from 2011. The strengthening of the Malaysian currency, the introduction of tourism initiatives such as the Malaysian Association of Tour and Travel Agents (MATTA) Fair, availability of affordable / budget airlines and the ease of purchasing flight and travel packages via the Internet are among key contributors towards this trend of increasing outbound travel activities. Source : Bank Negara Malaysia , Frost and Sullivan Analysis 8
General Insurance Segment in Malaysia, 2009 – 2018F Gross Direct Premium (RM million) Market Size and Forecast Growth Rate MAT • The MAT segment of the general insurance is expected to grow with CAGR of 6.7% from 2013E to 2018F. 2,500 • Under the ETP, the Performance Management & Delivery Unit (PEMANDU) has identified eight strategic reform initiatives that are expected to boost the local economic growth which in turn may spur trading activities and improve business sentiments in the country. Increasing business activities may also provide insurance opportunity for general insurance companies especially in the MAT insurance segment. 2,000 1,500 1,000 500 0 Gross Direct Premium (RM million) 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F Fire 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 • The growth of fire insurance is expected to also grow with a CAGR of 7.6% from 2013E to 2018F, due to the strengthening of Malaysian property market from 430,403 transactions worth RM137.8 billion in 2011 to 427,520 transactions worth RM142.8 billion in 2012. • The increasing number of property units in Malaysia provides an opportunity for general insurance companies to provide fire insurance coverage for these property owners. • The incoming supply of residential units increased by 11.9% from 553,884 units in 2011 to 619,950 units in 2012. Regulatory requirement such as the Strata Titles (Amendment) Act 2013 requires the management corporation to provide sufficient insurance coverage against fire for buildings under their care is a key driver for the uptake of fire insurance. 0 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F Source : Bank Negara Malaysia , Frost and Sullivan Analysis 9
General Insurance: Claims ratio, Expense ratio & Underwriting Margin 120% 100% 80% 60% 40% 20% 0% 2008 Claims Ratio 2009 2010 2011 Expense Ratio 2012 Combined Ratio • The general insurance industry shows a slightly declining combined ratio, where both claims ratio and expense ratio is moving downwards year on year. This shows that the general insurance companies are having to pay lesser amount of claims despite charging the same amount of premiums yearly. • However, there is a wider opportunity for general insurance companies, as the level of insurance penetration in Malaysia is still well below 50% according to PIAM. • The general insurance segment is very fragmented, therefore BNM has urged for consolidation among general insurance players. This step is to strengthen the industry as a whole in years to come. • Underwriting margin of these industry is growing with a CAGR of 92.7% from 2008 until 2012, this is a huge growth and states that general insurance companies are growing healthily. 2008 2009 2010 2011 2012 Underwriting Margin (RM Million) 101.4 791.5 767.1 1078.9 1399.0 Claims Ratio 65.9% 60.7% 62.6% 60.2% 56.9% Expense Ratio 26.0% 24.7% 23.4% 22.8% 23.7% Combined Ratio 91.9% 85.4% 86.0% 83.0% 80.6% Source : Bank Negara Malaysia , Frost and Sullivan Analysis 10
Demand Dynamics MAT Fire Medical and PA Motor Increased number of outbound travelers New Motor Cover Framework Regulatory Requirement Increased sales of vehicles Rising Income Per Capita Drivers Increasing Awareness Restraints Implementation of ETP Growing Property Market Competition from Takaful Products Global Economic Slowdown Resulted in Decline of Import and Export Activities - Heavily Subsidised Public Healthcare System - Key Takeaways • BNM liberalised the domestic insurance sector in 2009 by increasing foreign equity participation threshold in insurance companies from 49% to 70% as well as allowing locally-incorporated foreign insurance companies to establish branches nationwide without restrictions. • The implementation of the RBC framework and the liberalisation plan by BNM has made domestic insurance companies become more attractive as M&A targets. As a result, the general insurance industry in Malaysia has become less fragmented. Source : Frost and Sullivan Analysis 11
M&A in General Insurance Industry in Malaysia, 2010 - 2013 Year Description 2010 2011 2012 2013 AXA Affin General Insurance Berhad acquired BH Insurance (M) Berhad for RM363 million. Overseas Assurance Corporation (Malaysia) Berhad acquired Tahan Insurance Malaysia Berhad’s general insurance business for RM15.0 million The general insurance arm of Hong Leong Assurance Berhad was acquired by MSIG Insurance (Malaysia) Berhad for RM33.64 million Canada’s Fairfax Financial Holdings acquired The Pacific Insurance Berhad for USD64 million ACE Group merged two of its units, Ace Synergy Insurance Berhad and Ace Jerneh Insurance Berhad into one – Ace Jerneh Insurance Berhad. Japan’s Sompo acquired 40% stake in Berjaya Sompo Insurance Berhad for RM496 million. Zurich Insurance Group acquired Malaysian Assurance Alliance Berhad and renamed it to Zurich Insurance Malaysia Berhad for USD287 million. AmG Insurance Berhad, the local affiliate of Insurance Australia Group (IAG) acquired Kurnia Insurans Malaysia Berhad for RM1.63 billion. AMMB Holdings Bhd has completed the acquisition of Kurnia Insurance Bhd and the latter is now a unit of AMMB’s 51% subsidiary AmG Insurance Bhd. Canada-based Sun Life Financial Inc/Khazanah Nasional’s acquisition of 98% stake in CIMB Aviva Assurance and CIMB Aviva Takaful (from Aviva International Holdings Ltd and CIMB Group Holdings Bhd) for RM1.8 billion. Tune Ins Holdings bought a 77.92% controlling stake at Oriental Capital Assurance Bhd (OCA) from Maika Holdings Bhd and G Team Resources & Holding for RM153.13mil cash. AIA Group’s purchase of ING’s Malaysian insurance and takaful business.. For USD1.7 billion Zurich Group’s acquisition of MAA Assurance completed. Sanlam Ltd completed their acquisition of Pacific & Orient Insurance Co. Berhad in 2013 for RM270million. AMMB Holdings Bhd who is in search of a suitable partner to hive off its 51%. Source: Frost & Sullivan analysis. Source : Frost and Sullivan Analysis 12
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