Higher Motor Insurance Premiums To Cushion Any Economic Slowdown

KUALA LUMPUR, Sept 9 (Bernama) -- The hike in motor insurance premiums starting next year and prudent management by local insurance players will lessen any potential negative effects from an economic slowdown.

This is the first revision of the motor framework since 1978 and the actual quantum of increase is still under review.

Although, during times of crisis, the demand for certain insurance products with return guarantees tends to increase and claims, too, are likely to spike due to a higher incidence of fraud and thefts, Malaysian insurers have been prudent in managing their risks and claims, said OSK Research.

It also said Malaysia insurance companies have limited exposure to investments in equities and their investment income has not been significantly affected by market turbulence.

"Investment income is expected to be stable as most of these are in the fixed income and bond markets," it added.

The industry has also sufficient capital buffer, thanks to the risk-based capital (RBC) framework implemented in 2009 which enhances insurers' underwriting procedures, technical expertise in valuation of assets and liabilities, stress testing, and risk assessment.

"As such, policyholders are provided with greater protection since only insurance companies with strong capitalisation are able to continue operating," OSK Research said in a research note today.

As of the first quarter of 2011, the industry's capital adequacy ratio (CAR) stood at 242 per cent versus last year's 224.6 per cent, well above the minimum requirement of 130 per cent set by the RBC framework.

This, said OSK Research, clearly indicates that the local insurance industry had been fairly resilient, although the economic outlook was challenging.

Besides, the net effect of the 2008 crisis was quite small and the industry as a whole has been quite untouched, it said.

OSK Research said most insurance companies under its coverage had recorded positive net profit growth during the 2008 crisis, which further supported its view that the industry is relatively resilient.

Hence, OSK Research is maintaining its "neutral" call on the industry with its favorite insurance pick being Allianz, given the company's solid financial performance and potential merger and acquisition (M&A) excitement.

Kurnia Insurance is also poised to benefit from an impending M&A.

-- BERNAMA

Source : http://finance.bernama.com/news.php?id=612490