Solvency Analysis by Business Classifications of General Insurance Industry in Malaysia

  • Saiful Hafizah Jaaman Centre for Modelling and Data Science, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia
  • Ong Cae Xinn Actuarial Science Programme, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia
Keywords: capital adequacy ratio, expected policy deficit, risk based capital, solvency

Abstract

A healthy and well developed insurance industry will improve the stability of an economy by transferring risks to various parties through insurance and reinsurance activities. Insurance companies’ performances have direct impact on the public welfare, to the regulatory authorities and to potential investors. Insolvency within the insurance industry has become a major concern and identification of potentially troubled firms has become a major regulatory research objective. The regulatory authority of the insurance industry in Malaysia has made compulsory the employment of risk-based capital (RBC) on the insurance industry with the objective to measure the minimum amount of capital required by an insurance company to ensure the continuous solvency and smooth running of the insurer's business operations. The measurement of RBC known as the capital adequacy ratio (CAR) must be adopted by each insurance company. However, different methods are practiced by other countries in allocating RBC. The objective of this study is to evaluate the performance of different insurance policies offered by the general insurance companies using the RBC system enforced by BNM and the RBC based on Butsic method. Study uses annual financial reports data of nineteen general insurance companies in Malaysia from 2009 to 2015. Results of the capital adequacy ratio (CAR) and expected policy deficit (EPD) found that the personal accident policy to be the most profitable and ensure solvency for the general insurance companies.

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Published
2019-11-01
Section
Articles