Malaysian property insurance companies may face another round of consolidation and premium hikes to comply with stricter capital rules that will come into effect in 2027. Experts point out that the new risk-based capital (RBC 2) regulations will force insurance companies to set aside more funds for risks such as floods, which may squeeze profits and drive industry mergers.
Justin Ward, the Asia-Pacific region managing director of Guy Carpenter, said that significant consolidation has occurred over the past decade, but RBC 2 may accelerate this trend. Smaller or less adaptable insurance companies may become acquisition targets. At the same time, in order to maintain shareholder value, insurance companies may need to increase individual premiums.
The new regulations require insurance companies to provide funds for the increasingly severe flood risks. The flood incidents in 2021-2022 resulted in approximately 700 million US dollars in insurance losses, highlighting this pressure. Ward emphasized that insurance companies need to enhance their catastrophe modeling capabilities, especially the data precision of flood risks, in order to more accurately assess risks.
Philip Doyle, Vice President of Capital Consulting for Guy Carpenter in the Asia-Pacific region, pointed out that implementing RBC 2 would entail significant costs, including model licensing, recruitment of personnel, and system upgrades. Currently, there is a shortage of expertise within the industry, and there is an urgent need to enhance training in actuarial and risk management skills.
Furthermore, insurance companies need to upgrade their operational systems, including processes such as scenario testing and risk assessment. This will further increase budget and time pressures. Doyle stated that these challenges may force some companies to seek external support or merge.
On the other hand, the new regulations may stimulate the demand for reinsurance. Ward believes that if the local reinsurance capacity is insufficient, international reinsurance companies may have the opportunity to enter the Malaysian market and provide additional support for the industry.
Related Topic:
