Insurance regulation in MalaysiaTen things to know

In conjunction with Zaid Ibrahim & Co

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1 The regulator

Bank negara Malaysia (BnM) regulates entities which carry on insurance business, insurance broking, adjusting and financial advisory. insurers are licensed by the Minister of finance on the recommendation of the BnM. Brokers, adjusters and financial advisers are licensed directly by BnM.

2 Subsidiary/branch

Branches are not permitted. insurers must be public companies; reinsurers, brokers, adjusters and financial advisors must be incorporated.

there is currently a freeze on the issue of new insurance licences by BnM, although BnM may be open to consider applications on a case by case basis. prior consultation with BnM is encouraged.

BnM approval is required for a licensed insurer to own an interest in another licensed insurer or for a person to own interests in two or more licensed insurers of different classes (if that person is not a licensee).

3 FDI restrictions

70 per cent limit on foreign equity ownership.

> 70 per cent considered on a case by case basis for players who can facilitate consolidation and rationalisation of the industry.

4 Control approvals

≥ 5 per cent shareholding requires prior written approval of the Minister of finance (for a licensed insurer) or BnM (for a licensed insurance broker, adjuster or financial adviser). such owner is not permitted to enter into a subsequent agreement to acquire or dispose of any interest in shares of the licensee without prior written approval of the Minister of finance or BnM as the case may be.

5 Minimum capital

Minimum paid-up share capital:insurer: rM100 millionlocal reinsurer (life): RM 50 millionlocal reinsurer (non-life): rM100 million

Minimum surplus assets over liabilitieslicensed foreign reinsurer rM20 million

rM3.12 = usd1.00 at 28 august 2012

6 Risk based capital

yes, the risk-Based capital framework applies to all insurers, including reinsurers, licensed under the insurance act 1996, for business generated within and (subject to limited exceptions) outside Malaysia. the framework was implemented with effect from 1 January 2009.

car = x 100 per cent

total capital available (tca) is the aggregate of tier 1 capital (such as issued and paid-up ordinary shares) and tier 2 capital (such as cumulative irredeemable preference shares) less deductions from capital (such as goodwill, deferred tax assets and investment in subsidiaries). the total amount of tier 2 capital must not exceed the amount of tier 1 capital.

total capital required (tcr) is the aggregate of capital charges for each insurance fund and assets in the shareholders fund / working fund. capital charges are fixed for credit risk, market risk, insurance liability risk and operational risk or surrender value capital charges.

BnM has set a supervisory target capital level of 130 per cent.

each insurer must set its own individual target capital level to reflect its own risk profile. the individual target capital level must be higher than the supervisory target capital level.

7 Group supervision

no

8 Policyholder protection

the Malaysia deposit insurance corporation (Midc) administers the takaful and insurance Benefits protection system (tips) which protects specific benefits under life and general insurance, subject to specific limits for different classes of coverage.

9 Portfolio transfers

yes, by scheme approved by the BnM and confirmed by the court. court approval has the effect of vesting all of transferor’s right and title in the assets transferred by the scheme on the transferee and making the transferee fully responsible for the liabilities transferred by the scheme without further actions or consents required.

Norton Rose Group insurance regulation in Malaysia – ten things to know

Insurance regulation in Malaysia*

total capital available

total capital required

Norton Rose Group insurance regulation in Malaysia – ten things to know

Contacts

Norton Rose Group

Anna Tippingpartnernorton rose (asia) llpTel +65 6309 5417 anna.tipping@nortonrose.com

Idahani Ismas IsmailpartnerZaid ibrahim & co (a member of Zicolaw)Tel +603 2087 9852idahani.ismas@zicolaw.com

AmsterdamAthensBrusselsFrankfurtHamburgLondonMilan

MoscowMunichParisPiraeusPragueRomeWarsaw

Europe

BangkokBeijingHo Chi Minh City*Hong KongJakarta*ShanghaiSingaporeTokyo

Asia

CalgaryMontréalOttawa

QuébecToronto

Canada

Cape TownCasablancaDurbanJohannesburg

AfricaBrisbaneCanberraMelbournePerthSydney

AustraliaAbu DhabiBahrainDubai

Middle East

Almaty

BogotáCaracas

Latin America

*associate office

Kazakhstan

10 Outsourcing

“core activities” consist of activities constituting insurance business (ie, receiving proposals for insurance, negotiating on proposals for insurance on behalf of an insurer, issuing of policies, collection or receipt of premiums or settlement or recovery of claims on policies), board and senior management oversight, investment management, internal audit and compliance functions, risk management, strategic planning and decision making and financial analysis.

certain types of core activities are permitted to be outsourced except to the extent permitted and subject to the requirements set out in the relevant BnM guidelines. the prior approval of BnM is required for the outsourcing of some of these core activities (eg, premium collection, administration of claims, investment management to fund managers and internal audit to group internal audit.

an insurer is required to notify BnM of any material outsourcing arrangement.

* as at 28 august 2012

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the purpose of this publication is to provide information as to developments in the law. it does not contain a full analysis of the law nor does it constitute an opinion of norton rose (asia) llp on the points of law discussed.

no individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of norton rose group (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this publication. any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of, as the case may be, norton rose llp or norton rose australia or norton rose canada llp or norton rose south africa (incorporated as deneys Reitz Inc) or of one of their respective affiliates.

© norton rose (asia) llp nr13730 08/12extracts may be copied provided their source is acknowledged.

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