Monday, May 10

Growing importance of life insurance



As one of the more resilient industries around, it comes as no surprise that Malaysia’s insurance entities  remain at the forefront of protective suites for the public.

Tables Source: LIAM

The life insurance industry in 2013  provided a higher insurance protection to the public in aggregate, with 3.7 per cent higher claims amount, 14.2 per cent higher payout in maturity and cash surrender values and 6.7 per cent higher insurance coverage.

According to statistics from the Life Insurance Association of Malaysia (LIAM), claims paid in 2013 amounted to RM6.9 billion in various types of claims including death, disability, medical and cash bonuses, 3.7 per cent higher than the corresponding amount of RM6.7 billion a year earlier.

In addition, RM8.6 billion was paid in maturity amount and cash surrender values in 2013, 14.2 per cent higher than the corresponding figure of RM7.5 billion in 2012. The increase was mainly due to fluctuation in maturity payment which was dependent on the term of the policies.

“The life insurance industry in Malaysia remained stable with a small negative growth of 0.2 per cent in 2013, as measured by new business total premium (single premium plus annualised premium).

“The new business total premium in 2013 was RM8.19 billion, as compared to RM8.20 billion in 2012,” LIAM’s Vincent Kwo highlighted.

“Proactive measures should be taken by the insurers and the policy makers to increase insurance awareness and to encourage insurance purchase among the Malaysian population to reduce protection gap.

‘The result of our study are expected to spur the insurance industry to move forward in achieving the targeted penetration rate of 75 per cent by 2020 under the Economic Transformation Plan.”

As the government looks to enhance products by introducing regulatory measures such as the Financial Services Act 2013 and the Islamic Financial Services Act 2013 – both of which come into force this year – the times are definitely interesting for insurers.

The General Insurance Association of Malaysia (PIAM) believes market conditions will evolve to reflect broader-based competition and a principle-based regulatory regime which modernises the laws that govern the conduct and supervision of financial institutions.

“With the development of a comprehensive regulatory and supervisory framework for the insurance industry and a more competitive insurance market, another important structural adjustment that the regulator is looking at is the review of the existing costs controls that are applied to life and general insurers,” noted PIAM.

Its chairman Chua Seck Guan said: “It is important for insurers to challenge their mind set, consider the outlook for the global economy and make a commitment to develop further as the industry plays a robust role in Malaysia’s financial system, offering a wide spectrum of general and life insurance products to cater to a more knowledgeable and financially aware society.”

The industry is directing its efforts to ensuring a firm foundation for orderly transition into this new and challenging environment.

Towards this end, Malaysian laws will place insurance companies on a platform readied by Bank Negara Malaysia for advancing forward as sound, responsible and responsive insurance companies.


Plenty of room for growth

Ernst & Young Malaysia partner (assurance) Brandon Bruce Sta Maria noted that life insurance had room for continued growth as the penetration rates for life insurance was lower compared to more matured markets such as Singapore and South Korea.

He expected the industry to maintain at least an equal growth rate compared to last year.

For the general insurance industry, Sta Maria expected premiums to continue to exceed prior year’s expectations due primarily to increased economic activity and growth.

This, he said, would be further enhanced by the expected increase in new motor premiums and the effects of the gradual increase in motor tariff premiums.

The priorities are for the industry to be more competitive, explained PIAM, make significant changes to raise performance standards in tandem with global advances and keep pace with the established international best practices on underwriting performance, improving

claims costs ratios, enhancing productivity and reducing distribution costs.

“With liberalisation coming in the next few years, operating beyond the limits of what is currently practiced with a diversified delivery/distribution channel and strong market conduct practices is paramount,” PIAM enthused.

The industry will also have to deliver a more positive customer experience and should not compromise on the level of customer standards.

Further, with the global challenges stepping in, the requirement of a more skilled professional workforce to support the demand for complex products and sophisticated customer demands will be important.

The insurance industry will have to change its approach on attracting talent as only by attracting the right talent will the industry be able to prosper.


Under-insured still an issue

On the notion of Malaysians being under insured, Kwo of LIAM highlighted that it is crucial to note the degree of under-insurance as the sudden loss of a main wage earner

could potentially have a damaging ‘domino effect’ with dire financial consequences.

“lt may result in the inability to pay off the mortgage, debts or children,s education,” he said, adding that the size of the protection gap is often a true reflection of the potential demand for life insurance coverage.

The findings also showed that families whose primary wage earner was not covered by either life insurance or medical insurance have the largest protection gap, hence buying life insurance would solve the problem.

Kwo said proactive measures should be taken by the insurers and the policymakers to increase insurance awareness and to encourage insurance purchase among the Malaysian population to reduce protection gap.

Traditional policies continued to be slightly more preferred by consumers than investment-linked business.

The question now remains if the insurance players themselves share similar sentiments with the associations.

BizHive Weekly takes a look at a few key insurance players and their outlook for this coming year as well as their thoughts on the relevance of insurance, specifically life insurance, in today’s day and age.


Prudential Assurance Malaysia Bhd (Prudential) is one of Malaysia’s top insurance players, examplified by its strong performance in 2013.

“We have met all six of the 2013 ‘Growth and Cash’ Objectives we set in 2010 including, Asia IFRS operating profit of 1,075 million pounds, up 16 per cent, more than double that of 2009; Asia EEV new business profit of 1,460 million pounds, up 15 per cent, more than double that of 2009; Asia net full year cash remittance of 400 million pounds, up 17 per cent, above 2013 objective of £300 million

“We’ve also got Jackson full year cash remittance of 294 million pounds, above 2013 objective of 260 million pounds;UK full year cash remittance of 355 million pounds, above 2013 objective of 350 million pounds , Cumulative net remittances to Group of 4.6 billion pounds, above 2013 objective of 3.8 billion pounds,” noted Philip Seah, chief executive officer of Prudential.

He elaborated that Asia was again the jewel of the crown, accounting for close to half of the total APE of the Group.

Seah explained that 2013 also saw Prudential surpassing RM1 billion in new business for the forth year in a row. Prudential’s business in Malaysia also reigned as the top four leading contributing markets in Asia delivering outstanding results despite challenging circumstances in the industry.

Looking ahead, Seah believed that the global economic outlook is improving adding that at the Group level, Asia remains at the heart of the group’s future prospects.

“We are pursuing the increasing demand for protection products from the rapidly growing middle class in our chosen markets across the region.

“We have rigorously allocated capital towards providing regular-premium policies with health and protection riders – a popular product with our customers, which allows them both to save for the future of their families and to protect them.

“Our leadership positions in six out of 13 Asian markets combined with our multi-product, multi-channel platform, position us well to capitalise on this opportunity and deliver long-term profitable growth.

“As for our business in Malaysia which reigns as Prudential’s oldest operation in Asia, 2014 brings with it a great significance as we celebrate 90 years of being a part of Malaysia’s growth,” he enthused.

“In the next five years, Prudential will be investing RM50 million to facilitate the long term development of our corporate social responsibility (CSR) initiatives aimed at building a financially literate and financially resilient Malaysian society.”

Lonpac Insurance

Lonpac Insurance Bhd (Lonpac Insurance) managed to overcome challenges in the insurance industry and reported a pre-tax profit of RM46.9 million for the first quarter of 2014, a 33.5 per cent jump from RM35.1 million registered in the previous corresponding period.

Founder and chairman of the group Tan Sri Dr Teh Hong Piow observed that revenue increased 7.5 per cent to RM277.8 million from RM258.5 million achieved in the corresponding period last year while Lonpac Insurance registered a 12.4 per cent increase in gross premium income from RM315.5 million to RM354.6 million for the quarter under review.

“Despite facing stiff competition amidst the on-going consolidation in the insurance industry and the rush to build market share in anticipation of the liberalisation of the industry, we will implement our business plan prudently while establishing ourselves as the premier insurance company in the regiom,” he said.

“We will continue to strengthen our agency force and increase our distribution network in order to have a stronger foothold nationwide.”

Teh further said the group reported a net profit attributable to shareholders of RM50.6 million, a 20.2 per cent improvement from RM42.1 million reported in the corresponding period of 2013.

“The increase in net profit was contributed by the outstanding underwriting performance of Lonpac Insurance. The underwriting profit of Lonpac Insurance for the quarter under review registered an impressive improvement of 29 per cent from RM25.5 million recorded in the first quarter of 2013 to RM32.9 million.

“The claims incurred ratio reduced to 50.8 per cent from 53.6 per cent reported in the previous corresponding quarter while the combined ratio registered an impressive improvement to 75.8 per cent from 81.1 per cent previously.

“We will continue to practise prudency in risk selection and claims management in order to further enhance our underwriting performance.”

The group says it will continue to monitor the potential volatilities arising from the global and domestic economies.

Am General Insurance

AmGeneral Insurance Bhd (AmGeneral) expects its gross written premiums to grow between seven to 10 per cent over the next four years.

Together,AmGeneral – which is trading under the dual brands of AmAssurance and Kurnia – insure one in every five cars in Malaysia (about 18.4 per cent of market share in motor) and bags 10.7 per cent market share in overall general insurance by gross written premium. “Our intention is to bring our key sales team together to be connected, communicate our strategy and vision, motivate and inspire, and ensure we step into the new financial year in the strongest way possible,” said AmGeneral Insurance chief executive officer Travis Atkinson. “With two renowned brands in the market, this year’s theme is of great significance for us to continue to approach every challenge positively to develop ourselves, and strive to seek new and relevant ways of growing our businesses, anticipating our agents’ and customers’ needs and providing valuable support to them at all times.”

Zurich Insurance

Zurich Asia Holdings Ltd  (Zurich), a wholly-owned subsidiary of Zurich Insurance Group Ltd, has entered into an unconditional agreement to sell its entire stake of 40,113,628 ordinary shares in the Malaysian insurer MCIS Zurich Insurance Bhd (MCISZ) to Koperasi MCIS Bhd.

The stake represents 40 per cent of the total issued and paid-up share capital of MCISZ, said Zurich Insurance Group in a statement released in Hong Kong.

Upon completion of the sale which is expected to take place on May 5, 2014, the gross sale proceeds to be realised by Zurich will be RM304 million or about  US$93 million, it said.

“The disposal of our stake in MCISZ will satisfy the commitment made to Bank Negara Malaysia to rationalise our holding in two licences, following our acquisition of Malaysia Assurance Alliance Bhd (MAA),” said Geoff Riddell, Zurich’s chairman for Asia Pacific, Middle East and Africa.

In addition, it allows the company to focus exclusively on the development of its wholly-owned subsidiary Zurich Insurance Malaysia, and resolves any customer confusion arising from the fact that the Zurich brand has been carried, since the middle of 2012, by two separate companies.

In 2011, Zurich acquired 100 per cent of the total issued and paid-up share capital of the life and general insurer MAA and subsequently renamed it Zurich Insurance Malaysia Bhd in 2012.

The acquisition combined MAA’s strong local heritage and market position with Zurich’s global insurance expertise.

“Through Zurich Insurance Malaysia, we are well placed to capture growth in both the life and general insurance segments of the market and this move will further strengthen the growth prospects of these businesses over the long term,” he said.

Folllowing the successful completion of the transaction, MCISZ will no longer be a member of, or associated with, Zurich Insurance Group.


AIA Group Ltd (AIA) announced a record first quarter value of new business (VONB) for the quarter. Mark Tucker, AIA’s group chief executive and president, added,“We are pleased to report that AIA has made a very positive start to 2014 with VONB up 22 per cent.

“The execution of growth strategy has again delivered a strong operating performance to achieve our highest-ever first quarter VONB figure.”

Tucker noted that,“AIA’s geographically diversified portfolio of growth businesses is exceptionally well-placed to benefit from the structural demographic growth drivers in Asia.

“Large-scale population expansion and significant increases in household wealth combined with low levels of social welfare and existing private provision create a substantial and growing need for long-term savings and protection cover. This makes Asia one of the most attractive and resilient regions for life insurance in the world.

VONB grew by 22 per cent on actual exchange rates compared with the first quarter of 2013 to US$354 million. Underlying VONB growth was 28 per cent on constant exchange rates.

Highlights for the quarter include excellent growth and consistent execution in Hong Kong and Singapore; a solid performance in Thailand; and continued growth momentum in Malaysia. Each of these markets delivered double-digit VONB growth on actual exchange rates.

“China was our strongest performing business over the quarter. We continued to benefit from our differentiated protection focus to deliver outstanding VONB growth, with ongoing margin improvements and increased activity and productivity levels from our Premier Agency strategy.

“As previously highlighted in our 2013 full year results presentation, our business in Korea was temporarily affected by the regulatory, industry-wide suspension of outbound telesales. Other Markets experienced a slower start to the year from unfavourable exchange rate movements and liquidity tightening in the first quarter,” Tucker enthused.

VONB margin increased by 5.4 percentage points (ppts) to 43.8 per cent compared with the first quarter of 2013. Margin expansion was mainly driven by product mix improvements of 3.5 ppts, an overall positive shift in geographical and channel mix which contributed 1.2 ppts and economic assumption changes and other items which represented 0.7 ppts.

Economic assumptions are unchanged for the first quarter from those shown at the 2013 annual results. ANP increased by 13 per cent to US$799 million on constant exchange rates.

TWPI increased by 12 per cent on constant exchange rates compared with the first quarter of 2013 with particularly strong growth in our higher margin markets.

Asian economies have proven resilient and strong through recent economic cycles and are well-positioned as global interest rates begin to normalise in 2014.

Asian policymakers have demonstrated the ability and capacity to respond effectively to contain short-term economic challenges and stronger demand from the US and Japan will continue to supplement the domestic drivers of growth across Asia.

In particular, China’s deliberate policy of moving towards more stable, higher qualitative growth will be positive for the region in the long term.

The profitable growth AIA has delivered in the first quarter of 2014 once again demonstrates the quality and diversity of AIA’s franchise, our focus on the effective execution of our clear strategy, our cash flow and financial strength and our disciplined focus on profitability.

It is this distinct and powerful combination of strengths and capabilities that differentiates AIA and is the reason that we remain confident of our considerable future growth opportunities in the region.

Manulife  Insurance

Manulife Insurance Bhd aims to garner 3,000 policyholders within the first year for its new “Elite Global Select Plan” (EGSP), an investment-linked plan.

Chief executive officer George Chew said the plan, jointly launched with Alliance Bank, allows Malaysian investors to access multiple asset classes across Asia, Europe and the United States.

“The plan will be distributed exclusively through Alliance Bank and the funds invested in the plan will be managed by Manulife Asset Management Services Bhd,” he said.

The EGSP aims to deliver a regular income stream with the potential for capital growth through the Manulife Global Select Fund.

The fund draws a dynamic tactical asset allocation strategy, an active fund management technique designed to take advantage of changing market conditions across geographies and asset classes to drive potentially higher risk-adjusted returns while also mitigating downside risk, he said.

The EGSP seeks to offer a payout of 5.5 sen per unit per annum for the first five years and a variable return for the next five years of its 10-year tenure.

This 10-year close-ended single premium investment-linked plan also offers life protection, covering death and total and permanent disability.

Chew said the size of the EGSP fund has reached RM1.2 million with four policy holders.

“Through the EGSP, we offer the benefits of a diversified global, multi-asset portfolio and active fund management where the asset mix is adjusted to take advantage of opportunities as soon as they arise.