Revised solvency rules could spur new wave of Malaysian insurance M&As

Insurers must provide capital for increased risk from floods, among other charges.

Malaysia’s general insurers will be under pressure to consolidate and increase premiums to counter squeezed returns under stricter capital rules that will take effect in 2027.

“We've already seen significant consolidation over the past five to 10 years, but Risk-Based Capital (RBC) 2 may prompt another wave,” Justin Ward, managing director for the Asia-Pacific region at Guy Carpenter & Co. LLC, told Insurance Asia.

Insurers that fail to adapt or scale up could become acquisition targets, he said.

He expects Malaysia’s insurance market to continue growing, but players may need to raise personal premiums “to preserve shareholder value.”

The incoming solvency rules force insurers to provide capital for increased risk from floods that have become more frequent and more severe, among other charges.

The flood event in 2021-2022 caused about $700m in insured losses, the New York-based risk and reinsurance specialist said in a report.

Insurers may need to improve catastrophe modelling capabilities.

“Having access to a model is one thing, but having high-quality, granular data is just as critical, especially when we’re talking about flood risk,” Ward said via Zoom. 

Flood risk calibration under RBC 2 would heavily depend on how insurers integrate exposure data into pricing, reinsurance structuring, and capital projections, Philip Doyle, vice president for capital advisory strategy at Guy Carpenter Asia Pacific, said in the joint interview with Ward.

Building this expertise will not be cheap. 

The industry faces upfront and recurring costs—from licensing vendor models to hiring or training actuarial talent, Doyle said.

Human capital is a particular pressure point. 

“There is currently a gap in specialised knowledge within the market and amongst individual insurers,” Doyle said, citing the need for upskilling.

Insurers should also upgrade operations, including finding other ways to test scenarios, assumption reviews, and internal risk assessments—all of which will stretch budgets and timelines, according to the Guy Carpenter report.

On the other hand, stricter capital rules under RBC 2 could boost demand for reinsurance, with foreign players likely to benefit amidst strained domestic capacity, Ward said.