EVOLUTION OF REINSURANCE & RETAKAFUL INDUSTRY

18th April 2011

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BIRTH OF THE FIRST LOCAL REINSURER

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BIRTH OF THE FIRST LOCAL REINSURER

• First reinsurer in Malaysia was established. Malaysian National Reinsurance Berhad was established in 1971.

• Government concern over the increasing premium paid to overseas reinsurance companies (1965).

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• Feasibility study conducted in 1971 for the formation of National Reinsurer.

• Malaysian Re commenced operation on July 1, 1973.

BIRTH OF THE FIRST LOCAL REINSURER

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• Reduce overseas drain of reinsurance premium

• Strengthen local Malaysian companies –shareholding in Malaysian Re, retrocessionsreceived

• Increase local retention capacity

OBJECTIVE OF MALAYSIAN RE

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• Participate in international reinsurance business

• Provide employment and training opportunities in reinsurance, particularly for Bumiputras.

OBJECTIVE OF MALAYSIAN RE

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• Initially, Malaysian Re received compulsory businessin the form of quota share reinsurance frominsurance companies.

• Company expanded to underwrite all classes ofgeneral insurance and other forms of reinsurancefrom domestic and international markets.

MALAYSIAN RE – NEXT PHASE

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• Auto Facultative Cessions

• Local Facultative business

• Overseas Facultative business

• Local Treaty business

• Overseas Treaty business

MALAYSIAN RE – NEXT PHASE

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CENTRAL ADMINISTRATION BUREAU (“CAB”)A bureau (managed by Malaysian Re) that centrally administers and settles facultative reinsurance transactions among the insurers and reinsurers operating in Malaysia.

MissionTo eliminate administrative and reconciliation problems and ensure efficientsettlement of balances and claims recovery.

• Central to its operations is a computerized system linking members viainternet.

• The cost of development and operations of the system is fundedjointly by its members.

• The bureau commenced online operation on 1 July, 1998.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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INSPECTION

Malaysian Re was given the mandate by General InsuranceAssociation of Malaysia (PIAM) to form an Inspection TaskForce to conduct inspections or carry out investigations on theconduct and activities of its members in accordance with theterms and provisions of the various Inter-Company Agreements.

With effect from 1 April 1992, the various Inter-CompanyAgreements had now been amalgamated into a singleagreement called "Inter-Company Agreement On GeneralInsurance Business" (ICAGIB).

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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MALAYSIAN MOTOR INSURANCE POOL (MMIP)

Established in July 1992

Provide motor insurance to vehicle owners who cannot findinsurance protection for their vehicles

All insurance companies are pool members each having equalshare.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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MALAYSIAN ENERGY RISKS CONSORTIUM(MERIC)• Established in 1995• Objectives

- Optimize national retention - Promote wider interests in the underwriting of specialized classes of

business, thereby developing underwriting skills• Comprises 12 local insurers and 3 reinsurers • Malaysian Re – secretariat• Capacity – Upstream risks RM50m• Risks underwritten by a committee• Primary portfolio – Malaysian risks & Malaysian interests abroad• Others – risks within Asia, Pacific region and Middle East countries.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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MALAYSIAN AVIATION POOL

• Established in 1986• In 1996, Malaysian Re assumed the Secretariat role• Objectives are similar to MERIC• Comprises 9 insurers & 3 reinsurers• Capacity – RM393M for general aviation risks and RM6.7M

for other risks• Underwritten by a committee• Primarily Malaysian risks & Malaysian interests abroad

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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MARKET TRAINING

Over the years, Malaysian Re has and will always continue toconduct various courses/seminars on insurance and reinsurancesubjects for staff of insurance companies to instill a higherdegree of professionalism in the industry.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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SCHEME FOR INSURANCE OF LARGE &SPECIALISED RISKS

The main objective of the Scheme, which was implemented on 1January 1994, is to develop technical expertise to enable insurersto become active underwriters of large and specialized risks.

In turn, it will enable insurance companies to have a betterunderstanding of such risks and optimize national retentioncapacity, thus reducing the unnecessary outflow of premiumsabroad.

Malaysian Re was appointed by BNM to manage the Scheme.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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SIHAT MALAYSIASihat Malaysia Scheme, which was officially launched on 18 February2000, was developed by the National Insurance Association of Malaysia(NIAM).

Members of NIAM subscribing to this Scheme provide a uniform healthinsurance program covering health care including cashless admission tohospitals, medical treatments, surgery as well as emergency assistance topolicy holders.

Managed Care Organization has been appointed under the Scheme toprovide specialized services to both the policy holders and NIAM members.

Malaysian Re was appointed as Account Manager of the Scheme.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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SPECIAL RATINGMalaysian Re was appointed by PIAM to form a Rating Committeespecifically for the purpose of determining special rates for Fire and IndustrialAll Risks (IAR) Insurances, for risks which qualify for special rating under theFire Tariff.

This Committee comprises not less than 6 qualified or experienced fireinsurance underwriters or risk surveyors from among PIAM members ofwhom not more than 3 shall be from Malaysian Re.

The Chairman of the Rating Committee shall be a representative fromMalaysian Re. By virtue of this appointment, Malaysian Re also acts as theSecretariat to this Committee as well as handles the day-to-day operations ofall matters pertaining to special rating applications.

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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Fire Risk Inspection -• Special Rating• Risks assessments• PML estimation• Risk Management services

SURVEYING & ADVISORY SERVICE ON RISK MANAGEMENT

MALAYSIAN RE’S CONTRIBUTION TO THE INDUSTRY

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Reinsurance

XYZ Sdn. Bhd.

Policy Holders(Insured)

ABC Sdn. Bhd.Insurer or Co-Insurer(Cedant)

Smile Reinsurance

Happy ReinsuranceReinsurers Glad

Reinsurance

Primary Risk Sharing

Secondary Risk SharingReinsurance Intermediary

Direct Intermediary

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Reinsurance Chain

PREMIUMS

Insured

Direct Insurer

Reinsurer

Retrocessionaire

LOSSES

Liability

Liability

Liability

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• Increase underwriting capacity

Reinsurers/ Retakaful Operators contributedtowards the increase in underwriting capacity ofinsurance companies over the last few decades.

ROLES OF REINSURANCE / RETAKAFUL

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• Stabilization of Profits• Reduction in Unearned Premium Reserve• Protection against catastrophe loss• Technical Assistance from the Reinsurer• Surplus relief• Reduce net outflow of premium

Retention ratio : 77.2% (1990)92.1% (2009)

ROLES OF REINSURANCE / RETAKAFUL

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Two main types of Reinsurance/ Retakaful in Malaysia:

• Facultative

• Treaty

TYPES OF REINSURANCE / RETAKAFUL

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Facultative

• simplest and oldest method• similar to co-insurance• optional – free choice to decide• single risk method• full disclosure of all facts• follows all original policy conditions

TYPES OF REINSURANCE / RETAKAFUL

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Treaty

Two forms of treaty arrangements:

• Proportional• Non proportional

TYPES OF REINSURANCE / RETAKAFUL

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1. Malaysian Reinsurance Berhad

2. Asia Capital Reinsurance Malaysia Sdn Bhd.

3. Hannover Rueckversicherung AG

4. Munich Reinsurance Company Malaysia Branch

5. Swiss Reinsurance Company

6.7.

Toa Reinsurance Company Limited Kuala Lumpur BranchMalaysian Life Reinsurance Group Berhad

REINSURANCE COMPANIES REGISTERED UNDER INSURANCE ACT 1996Reinsurance Companies registered under the Insurance Act 1996:

Reinsurance Companies licensed under the Offshore Insurance Act 1990:• More than 25 and growing rapidly.

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KEY INDICATORS OF INDUSTRY- CONVENTIONAL INSURANCE

Direct Insurers 2007 2008 2009

Life 8 9 9

General 25 26 23

Life & General 8 7 7

41 42 39

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Premium Income 2007 2008 2009

Life RM 18.8 B RM 18.7 B RM 19.8 B

General RM 10.0 B RM 10.3 B RM 11.5 B

TOTAL RM 28.8 B RM 29.0 B RM 31.3 B

KEY INDICATORS OF INDUSTRY- CONVENTIONAL INSURANCE

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Retention ratio – measures amount of premium retained within Malaysia.

2007 2008 2009

General Premium RM 10.0 B RM 10.3 B RM 11.5 B

Net Premium RM 8.2 B RM 8.5 B RM 9.3 B

Retention ratio 90.3% 92.3% 92.1 %

KEY INDICATORS OF INDUSTRY- CONVENTIONAL INSURANCE

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Professional Reinsurers 2007 2008 2009

Life 1 1 1

General 5 5 5

Life & General 1 1 1

7 7 7

KEY INDICATORS OF INDUSTRY- CONVENTIONAL INSURANCE

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General Reinsurance Premium & Market Share

2005 2006 2007 2008 2009

REINSURANCE PREMIUM (RM) 999.6M 994.2 M 969.7 M 1,056.5M 1,149.1M

MARKET SHARE % % % % %

MALAYSIAN RE 58.6 57.3 61.9 60.1 61.2

ACR - - - 3.2 6.0

EMPLOYERS RE 5.8 5.5 - - -

HANNOVER RE 7.0 6.3 7.3 6.6 5.9

MUNICH RE 11.2 11.2 12.7 12.1 13.4

SWISS RE 14.6 16.2 14.2 14.2 9.6

TOA RE 2.8 3.5 3.9 3.8 3.8

KEY INDICATORS OF INDUSTRY- CONVENTIONAL INSURANCE

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• Retention ratio – 77.2% in 1990, increased to

92.1% in 2009.

• Reinsurance & Retakaful companies have

contributed towards higher retention ratio.

KEY INDICATORS OF INDUSTRY- CONVENTIONAL INSURANCE

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EVOLUTION OF TAKAFUL INDUSTRY

• Religious Product

• Fashion

• Product Differentiation

• Alternative

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PROMOTERS OF MALAYSIAN TAKAFUL OPERATORS

STAGE 1• Islamic Bank Sykt Takaful Malaysia 1985

STAGE 2• Indigenous Organizations Sykt Takaful Nasional 1993

Maybank Takaful 2001Takaful Ikhlas 2003

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PROMOTERS OF MALAYSIAN TAKAFUL OPERATORS

STAGE 3• Financial Conglomerates CIMB Aviva Takaful 2006

Prudential BSN 2007HSBC Amanah 2007MAA Takaful 2007

STAGE 4• International Life Cos Great Eastern Takaful 2011

AIG Takaful 2011Am Takaful 2011ING Takaful 2011

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Takaful (Family and General)

2006 2007 2008 2009

NO. OF TAKAFUL OPERATORS 8 9 8 8

INCOME CONTRIBUTION RM 1.72 B RM 2.56 B RM 3.03 B RM 3.75 B

MARKET SHARE 6.7% 9.0% 10.4% 11.0%

TAKAFUL DIRECT PREMIUM CONTRIBUTION

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RETAKAFUL OPERATORS IN MALAYSIA

• MNRB Retakaful - 2007

• Munich Retakaful - 2007

• ACR Retakaful - 2008

• Swiss Retakaful - 2008

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OTHER RETAKAFUL OPERATORS

• Best Retakaful - 1985 - Tunisia (Labuan since 2010)

• ASEAN Retakaful - 1997 - Labuan

• Takaful Re - 2005 - Dubai

• Hannover Re - 2006 - Bahrain

• Retakaful Division of - VariousConventional Reinsurers

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RECENT EXAMPLES OF CATASTROPHE LOSSES – QUEENSLAND FLOOD

Queensland Flood - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – QUEENSLAND FLOOD

Queensland Flood - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – QUEENSLAND FLOOD

Queensland Flood - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – QUEENSLAND FLOOD

Queensland Flood - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – QUEENSLAND FLOOD

Queensland Flood - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Panorama of Christchurch taken shortly after the earthquake

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Panorama of Christchurch taken shortly after the earthquake

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Christchurch Cathedral, an Iconic building in NZ after Earthquake

Christchurch Cathedral, before and after Earthquake

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Christchurch Earthquake - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Christchurch Earthquake - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Christchurch Earthquake - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Christchurch Earthquake - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – CHRISTCHURCH EARTHQUAKE

Christchurch Earthquake - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Japan AFTER the Earthquake - Space PhotoJapan BEFORE the Earthquake - Space Photo

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Japan Tohoku Earthquake - Aftermath

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Tsunami triggered by of the Tohoku Earthquake

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Tsunami wave washing inland

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Japan after the Tsunami

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Japan after the Tsunami

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Japan after the Tsunami

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Explosion at Fukushima Daiichi Plant

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Damaged Reactor at Fukushima Daiichi Plant

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Satellite Photo - Damage at Fukushima Daiichi Plant

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RECENT EXAMPLES OF CATASTROPHE LOSSES – JAPAN TOHOKU EARTHQUAKE

Satellite Photo - Damage at Fukushima Daiichi Plant