Buletin Takaful

Source: The Edge Daily, 25th May 2009

Bank Negara Malaysia (BNM) expects Malaysian insurance and takaful sector to be affected by potential lower demand for protection and related products in a highly competitive industry.

The expected decline in vehicle sales would impact the motor insurance and takaful business which accounted for 45% of gross insurance premiums last year, it said in its Financial Stability and Payment Systems Report 2008.

“Premiums are also likely to be affected to an increase in surrender rates and lower sums insured,” it said, adding policyholders would want to reduce costs.

It cautioned claims were expected to intensify due to higher incidences of theft and fraud and less regular maintenance.

In its comments on the risk assessment for the financial system, it said Malaysian financial institutions would face significant challenges in sustaining their revenue base.

It attributed this to weakening credit outlook weakens and waning demand for financing, financial products and insurance protection.

The central banks said banking institutions would need to balance judiciously the requirement to safeguard prudent standards to minimise future losses due to adverse scenarios while supporting customers facing temporary cashflow pressure.

“Counter-cyclical practices will only exacerbate the economic conditions which will ultimately impact the banks’ balance sheets,” it said.

Domestic financial groups with significant regional operations (accounting for less than 18% of total group profit before tax (PBT), would not only face lower profit contribution from overseas operations but there could be new channels of risk transmission.

However, revenue contribution from overseas operations for the banking system, as a whole, remained small and less than 10% of PBT while partnerships with foreign financial groups had seen increased sophistication in risk management.

On development in the financial sector, it expected 2009 to be more challenging due to uncertainties in the global financial environment.

However, it said Malaysia’s financial sector was on a much stronger footing than before. Reforms and capacity building measures would continue to be instituted so that financial institutions could withstand shocks.

BNM said the financial sector had stronger capital levels and profitability positions.

“Ongoing efforts to explore new markets and businesses for expansion, an income diversification amidst a more challenging global financial outlook would position Malaysia’s financial sector strategically over the long run,” it said.

BNM said over the coming months, it would ensure adequate financing to support viable economic activities. Steps would be taken to make the financial system more resilient to withstand the shocks and episodes of financial turmoil.

It also said it was in the process of reviewing the all key legislation governing financial institutions and intermediaries under the oversight of the bank and it expected to finalise the review by end-2009.