KUALA LUMPUR: Insurance companies may face new business strain with Bank Negara Malaysia's implementation of the minimum allocation rate (MAR) in Jan 2019, if commission rates paid to agents remain unchanged.
"BNM’s Minimum Allocation Rate (MAR) will take effect from Jan 2019 and the implications for the life insurance industry is that a higher proportion of new business premiums may have to be allocated to customers’ funds
in the earlier years of a new policy than under current practices.
"Unless commission rates decline correspondingly, an insurance company could face a higher new business strain in the first few years of a new policy," it said.
Maybank Investment Bank Research said it has factored this into its earnings for Allianz and maintained its forecast. It maintained buy with an unchanged target price of RM16.05.
The research house believes it would be unlikely for agents' commission rates to be reduced given competition in the industry.
It said profitability of life insurance companies could be affected for the first two years by the business strain n new IL policies. Embedded values would not be affected as the framework does not apply retrospectively although new business value growth could be marginally slower.
"Our earnings forecasts for Allianz already factor in a 4% YoY decline in FY19 net profit for the life division, in response to the implementation of the MAR.
"At the Allianz group level, we expect a modest FY19 group net profit growth of 5% YoY, led by the general insurance business."
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