Malaysian life insurers’ finances could be dealt a blow if commission rates remain unchanged despite the central bank’s implementation of the minimum allocation rate (MAR).
Bank Negara Malaysia’s MAR will come into effect in January, 2019, and will require that insurers allocate a larger proportion of new business premiums to the customer’s funds in the earlier years of a policy, according to a report by The Star, citing Maybank Investment Bank Research (MIBR).
“Unless commission rates decline correspondingly, an insurance company could face a higher new business strain in the first few years of a new policy,” MIBR said in its analysis. However, it does not expect agents’ commission rates to go down, given tough competition in the industry.
Profitability of life insurance companies for the first two years of a new policy could be affected by the business strain, MIBR said. Embedded values will be spared as the framework does not apply retrospectively, although growth of new business value could slow down marginally.
MIBR predicted that Allianz Malaysia’s profits for its life business could go down by 4% year-on-year for FY19, due to the effect of MAR. At group level, Allianz Malaysia’s profit may grow modestly at around 5%, buoyed by the good performance of its general insurance business.