KUALA LUMPUR (Oct 3): The growth of new participating life insurance business in Malaysia is expected to remain low in the foreseeable future, according to a Bank Negara Malaysia (BNM) survey on Thursday.
The longer-term decline in the volume of new participating life insurance policies has led to a persistent trend of underwriting losses, BNM said in its Financial Stability Review First Half 2024 report.
The persistent decline in participating life insurance funds could lead to unsustainable economies of scale for some insurers, and expense pooling to an unsustainable level, BNM warned.
A participating life insurance policy is a type of insurance product that allows policyholders to have a share of profits of the insurance fund in addition to receiving guaranteed benefits upon claims for insured events such as death or total and permanent disability.
The policy also typically includes a savings element, where policyholders expect to receive maturity payouts upon termination or at the end of the policy term.
The share of participating policies has declined to 19% of the industry’s total net premiums over 2016-2023 from 39% in 2005-2015, according to BNM’s data.
The trend mirrors some markets in Asia and Europe, where prolonged low interest rates pressured on investment returns amid stricter regulatory requirements, including changes to risk-based capital frameworks and the availability of more attractive alternative policy offerings.
Despite the losses, the financial impact on the insurance sector remains limited as the sector continues to record positive net underwriting performance driven by other life insurance policies.
Total new business premiums, including savings-based policies, have continued to grow supported by the sustained growth in alternative policies amid a shift from participating policies to investment-linked and non-participating policies, the central bank said.
Still, BNM insisted that insurers observe specific requirements for managing the small and shrinking participating life insurance funds to preserve the funds and safeguard policyholders’ interests.
“These include requirements for insurers to take appropriate remedial or mitigation actions to address risks emanating from the decline of participating life insurance funds,” the central bank added.