Lloyd’s entry seen as positive for Malaysian insurance industry
PETALING JAYA: The entry of Lloyd’s of London to Malaysia’s reinsurance market will be a net positive development to the local insurance/takaful industry, according to MIDF Research.
“Hence, we maintain our positive stance on the sector,” it said in a research note yesterday.
It was reported that Lloyd’s of London, a specialist insurance and reinsurance player, is eyeing an onshore Tier-1 reinsurance licence in Malaysia. It is hopeful that Bank Negara Malaysia will approve the application within two months, with operations likely to begin in the first quarter of 2017.
Lloyd’s currently serves as a Tier-2 reinsurer through its nine Labuan Service Companies and as a cross-border reinsurer from London and Singapore.
MIDF Research noted that the entry of Lloyd’s may in fact help to generate healthy competitive boost to the local reinsurance sector.
An onshore Tier-1 reinsurance licence will enable it to contribute with greater capacity and offer specialist underwriting expertise in emerging and complex risks to serve the growing demands of the domestic insurance sector.
Lloyd’s will build on its marine, energy, construction, engineering and liability offering in Malaysia, working in partnership with local brokers to deliver solutions for many new infrastructure projects driven by the government’s Economic Transformation Programme initiatives.
MIDF Research opined that this will play an important role in the insurance industry as a whole, offering financial strength to the ceding companies by reducing volatility of underwriting profit and sophisticated risk management.
In addition, Lloyd’s is rated ‘A’ (excellent) by A.M. Best, ‘AA-’ (very strong) by Fitch and ‘A+’ (strong) by Standard & Poor’s, reflecting its robust financial position.
“As Lloyd’s is keen on reinsuring the abovementioned insurance classes, this may benefit related insurers to spread their risks against large deviations from expected losses (claims),” MIDF Research said.
It said for the overall general insurance and takaful sector, insurers are retaining the premiums rather than transfer the risks to reinsurers. This is evident from the increased retention ratio for general insurance and takaful from 91.8% and 92.1% respectively in first-half 2009 to 93% and 99.0% respectively in first-half 2016. It was largely contributed by medical expenses and personal accident, motor as well as workmen’s compensation and employers’ liability.
“Zooming into insurance classes, reinsurers have been instrumental in supporting insurers in controlling the risks in marine, contractor’s all risk and engineering and liability classes. The retention levels have been volatile over the last few years as they had different scale of risks,” MIDF Research said.
MIDF Research is maintaining “buy” calls on all insurance/takaful companies under its coverage – Syarikat Takaful Malaysia, LPI Capital and Tune Protect Group.