Malaysia has recovered from its struggles with the COVID-19 pandemic and is in recovery – both economically and with regards to vaccination rates. This has had a positive impact on the insurance industry as well, combined with a more positive sentiment towards it, as more Malaysians become concerned with health and protection. We spoke to Malaysian Re’s Mr Zainudin Ishak about how these factors have contributed to the growth of the reinsurance market, both locally and abroad.
At the time of writing, Malaysia had reached the 50% threshold for fully-vaccinated adults, which places the country slightly ahead of its target of the 80% herd immunity vaccination by the end of October. This has Malaysian Re in an optimistic state for the domestic economy to rebound in the latter half of the year, in line with Bank Negara Malaysia’s (BNM) GDP target growth forecast of 3-4%.
“This will augur well with our domestic (re)insurance business prospect as increased domestic consumption will drive up insurance premium and the rebound in the equity market will translate into stronger earning for our investment income,” said Malaysian Re CEO Zainudin Ishak.
The business recovery witnessed in Europe, China and the GCC were also encouraging for the reinsurer, as these are the three biggest markets for its international segment. It plans to take advantage of reopened business in these markets – following positive progress in containing the pandemic – and will be keeping an eye out for opportunities to expand within them.
“Nonetheless, we are also cognizant of the risk from Delta and emerging Lambda variants which may potentially hinder the growth recovery globally. Domestically, there is also the political uncertainty, while regionally, inequitable access to vaccination has caused regional imbalance of pandemic recovery and this obviously has impacts on economic and trade activities within ASEAN, which is also a major market for Malaysian Re,” he said.
For the first half of 2021, Malaysian Re concluded its financial year ended 31 March 2021 (FYE 2021) with the highest premium in the company’s history, posting MYR 1.4bn ($331m )in revenue. This is a positive outcome resulting from its business transformation programme which started in 2017, following a period where Malaysian Re had just delivered its worst result in almost 20 years.
“We took some unpopular decisions including ceasing close to MYR300m of businesses as we built back the company and re-laid the foundation. For FYE 2021, we posted the company’s best net profit in five years with MYR133m, which is 38% higher than previous year’s profit of MYR96m. We are grateful for the positive support which we have received from our clients and partners for the milestone,” he said.
For the new financial year, FYE 2022, with its first quarter having ended 30 June 2021, Malaysian Re continued its strong growth trajectory by writing MYR418m, which is also the highest premium ever written in its first financial year quarter.
“However, our net profit dropped slightly to MYR24m as compared to MYR35m the year prior as our bottom line was affected by the lower returns from the equity market as well as the UPR increase arising from the premium growth and higher commission ratio. I am optimistic we will maximise our efforts over the next three quarters to record another positive year.”
Domestically, its treaties experience for January renewal was mixed; there was an increase to motor lines in tandem with the increase in overall market loss experience. On the other hand, commission rates for proportional treaties were generally flat although there were marginal increases for loss-affected treaties. The reinsurer does not expect the domestic reinsurance market to see major surprises in terms of pricing for the next renewal.
Reacting to the pandemic
This once-in-a-century pandemic event caught Malaysian Re off-guard.
“The scale of the pandemic was initially not really understood as it was considered localised within Wuhan. The speed of the transmission, which was expedited by the inter-connected global travels and trades, was not fully appreciated until it hit home,” he said.
Malaysian Re transitioned into a remote-office environment while still maintaining full underwriting operations and claims payment, with Mr Zainudin emphasizing that employees’ wellbeing and motivation remained attended to.
There also practical lessons learned from the pandemic. “It has been a profound reminder on the need to strengthen fundamentals. During normal times when business was thriving, (re)insurers may find it easier to mask inefficiency by chasing top line growth and relying on investment incomes to cover underwriting deficit. However, during a pandemic, (re)insurers have had to revert to fundamentals on pricing discipline, prudent risk selection and cost-containment,” he said.
Nonetheless, fundamentals can only carry one so far. Being innovative and bold during a crisis also pays off as long as one does the necessary homework. He added that there are always pockets of opportunities up for grabs and these were the lessons that Malaysian Re adopted to drive its positive FYE 2021 results.
A factor into the stability and growth of the domestic insurance market amidst the pandemic was through the actions of Malaysia’s regulator, said Mr Zainudin.
BNM relaxed a number of regulatory requirements during the early stage of the pandemic which allowed (re)insurers in the domestic market to divert their resources strategically from stringent regulatory requirements, to shift their operations which includes underwriting, marketing and customer service to online.
“Also, the decision to defer the next phase of detariffication to December 2021 really helped to stabilise the market amidst the uncertainty that the pandemic has brought,” he said.
One upcoming regulation that the market will be watching closely is the proposed enhancements to the design of the risk-based capital adequacy framework for licensed (re)insurers and licensed (re)takaful operators. The reinsurer is optimistic that the enhanced RBC will enable it to strategically grow its international and specialty business.
Malaysian Re is the largest national reinsurer by asset within the Southeast Asian region, which leads to a significant amount of influence within these markets. Some of this influence is expressed through regular thought leadership, including its annual ASEAN Pulse publication.
“We commenced surveys with the industry’s top executives for the fourth edition of ASEAN Insurance Pulse, which was released in December 2020. The respondents generally pointed out that the markets would generally stay flat except in some manufacturing driven ASEAN markets such as Thailand where rates are hardening for trade credit and marine cargo which have been affected by disruption of supply chains,” he said.
“Our own experience in the regional markets indicates pockets of modest price increase in the retrocession business during January renewal although it was primarily driven by strengthening of terms instead of COVID-19.” A