Bank Negara Malaysia (BNM) has issued an exposure draft setting out a proposed approval process and other requirements for the offering of trade credit insurance and trade credit takaful.
The exposure draft also proposes the recognition of trade credit insurance and trade credit takaful as credit risk mitigation under the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets).
Collectively, these proposed requirements seek to position insurance and takaful products to better meet the protection needs of businesses, says BNM in a statement.
The requirements stipulate that to offer trade credit insurance or trade credit takaful, as the case may be, a licensed insurer or takaful operator must have adequate technical capability to underwrite credit risk. This capability will be assessed by the Bank before the licensed insurer or takaful operator is allowed to carry on such business.
Collaboration with foreign institution
Where a licensed insurer or takaful operator enters into a collaboration with a foreign institution to offer trade credit insurance or trade credit takaful, as the case may be, the licensed insurer or takaful operator must ensure that there is a clear and structured plan to develop its own underwriting expertise.
Unless otherwise specified by the Bank, the annual gross premiums or contributions of trade credit insurance or trade credit takaful business must not exceed 10% of a licensed insurer or takaful operator’s total gross premiums or contributions of the preceding calendar year.
BNM says it will review its trade credit insurance rules within five years from the date of their issuance or the Bank’s last review thereof.