Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW
Frost & Sullivan Malaysia Sdn Bhd (522293Wj Suite E-08-15, Block E, Plaza Mont’ Kiara, 2 Jalan Kiara, Mont’ Kiara, 50480 Kuala Lum pur, Malaysia. Tel: +603.6204.5800 Fax: +603.6201.7402 www.frost.com 15 t’1ay 2013 The Board of Directors MPHB Capital Berhad 39th Floor, Menara Multi-Purpose, Capital Square, No.8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia
Dear Sirs, Executive Summary of the Independent Market Research Report on the General Insurance Industry and An Overview of the Property Investment Industry in Malaysia for MPHB Capital Berhad (“MPHB Capital” or the “Company”) We, Frost & Sullivan Malaysia Sdn Bhd (“Frost & Sullivan”), have prepared the Executive Summary of the Independent Market Research report on the General Insurance Industry and An Overview of the Property Investment Industry in Malaysia (“Report”) for inclusion in MPHB Capital’s Prospectus dated 29 May 2013 (“Prospectus”) in relation to the initial public offering and the listing of and quotation for the entire issued and paid-Up share capital of MPHB Capital on the Main Market of Bursa Malaysia Securities Berhad. We are aware that this Report will be included in the Prospectus and we further confirm that we are aware of our responsibilities under section 214 of the Capital Market and Services Act, 2007. This research is undertaken with the purpose of providing an Independent Market Research Report of the General Insurance Industry and An Overview of the Property Investment Industry in Malaysia. We acknowledge that if we are aware of any significant changes affecting the content of this Report between the date hereof and the issue date of the Prospectus, we have an on-going obligation to either cause this Report to be updated for the changes and, where applicable, cause MPHB Capital to issue a supplementary prospectus, or withdraw our consent to the inclusion of this Report in the Prospectus Frost & Sullivan has prepared this Report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the Report. We believe that this Report presents a true and fair view of the industry within the limitations of, among others, secondary statistics and primary research, and does not purport to be exhaustive. Our research has been conducted with an “overall industry” perspective and may not necessarily reflect the performance of individual companies in the industry. Frost & Sullivan shall not be held responsible for the decisions and/or actions of the readers of this Report. This Report should also not be considered as a recommendation to buy or not to buy the shares of any company or companies as mentioned in this Report or otherwise. For and on behalf of Frost & Sullivan Malaysia Sdn Bhd:
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8. INDUSTRY OVERVIEW (cont’d) © May 2013 Frost & Sullivan The market research process for this study has been undertaken through secondary or desktop research, as well as detailed primary research, which involves discussing the status of the industry with leading industry participants and industry experts. The research methodology used is the Expert Opinion Consensus Methodology. Quantitative market information could be sourced from interviews by way of primary research and therefore, the information is subject to fluctuations due to possible changes in the business and industry climate. This market research was completed in May 2013. This report is prepared for inclusion in the Prospectus of MPHB Capital Berhad in relation to an initial public offering in connection with its listing on the Main Market of Bursa Malaysia Securities Berhad. Save for the inclusion of this study in the prospectus issued by the company (reviewed by Frost & Sullivan) in relation to the listing, no part of this research service may be otherwise given, lent, resold, or disclosed to non-customers without our written permission, and no part of this report may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without our permission. Frost & Sullivan has prepared this report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the report. We believe that this report presents a true and fair view of the industry within the limitations of, among others, secondary statistics and primary research, and does not purport to be exhaustive. Our research has been conducted with an “overall industry” perspective and may not necessarily reflect the performance of individual companies in the industry. Frost & Sullivan shall not be held responsible for the decisions and/or actions of the readers of this report. This report should also not be considered as a recommendation to buy or not to buy the shares of any company or companies as mentioned in this report or otherwise. For further information, please contact: Frost & Sullivan Malaysia Sdn Bhd Suite E-08-15, Block E, Plaza Mont’ Kiara 2, Jalan Kiara, Mont’ Kiara 50480 Kuala Lumpur 8. INDUSTRY OVERVIEW (cont’d)

ABBREVIATIONS General Definitions ASEAN CAGR CAR ETP FSBP FSMP GNI IFRS M&A MAT NBFI NKEA PA RBC SPIKPA TRX Association of Southeast Asia Nations Compounded Annual Growth Rate Capital Adequacy Ratio Economic Transformation Programme Financial Sector Blueprint Financial Sector Masterplan Gross National Income International Financial Reporting Standards Mergers and Acquisitions Marine, Aviation and Transit Non-Banking Financial Intermediaries National Key Economic Area Personal Accident RiSK-Based Capital Hospitalisation and Surgical Scheme for Foreign Workers Tun Razak Exchange Companies, Authorities and Organisations BNM ,IPPH Mil MMIP MOF MPHB Capital PEMANDU PIAM PIDM Bank Negara Malaysia Valuation and Property Services Department Malaysian Insurance Institute Malaysian Motor Insurance Pool Ministry of Finance MPHB Capital Berhad Performance Management & Delivery Unit General Insurance Association of Malaysia Perbadanan Insurans Deposit Malaysia 8. INDUSTRY OVERVIEW (cont’d) TABLE OF CONTENTS
ECONOMIC OUTLOOK 5 2 BACKGROUND OF THE FINANCIAL SERVICES SECTOR IN MALAYSIA 8 2.1 INTRODUCTION 8 2.2 GOVERNMENT POLICIES AND MEASURES 9 2.3 PROSPECTS OF THE FINANCIAL SERVICES SECTOR 14 2.4 BRIEF OVERVIEW AND PROSPECTS OF THE CREDIT BUSINESS FOR THE NBFI SEGMENT 15 3 ANALYSIS OF THE GENERAl_INSURANCE INDUSTRY IN MALAYSIA 16 3.1 OVERVIEW OF THE GENERAL INSURANCE INDUSTRy 16 3.1.1 History and Development of the General Insurance Industry in Malaysia 17 3.1.2 Market Segmentation 20 3.1.3 Emerging Trends and Markets 22

3.2 HISTORICAL MARKET SIZE AND GROWTH TRENDS 23 3.3 SUPPLY CONDITIONS 25 3.3.1 Key supply materials and sources 25 3.3.2 Factors affecting supply 25

3.4 DEMAND CONDITIONS 26 3.4.1 Drivers 26 3.4.2 Restraints 28 3.5 RELEVANT LAws AND REGULATION 30

3.6 RELIANCE AND VULNERABILITY TO IMPORTS 31 3.7 SUBSTITUTION OF PRODUCTS OR SERVICES 31 3.8 INDUSTRY RISKS AND CHALLENGES 31 3.9 BARRIERS TO ENTRY 33 3.10 COMPETITIVE ANALySiS 33 3.10.1 Competitive Landscape 33 3.10.2 Industry Players 34
3.10.3 MPHB Capital’s Market Share and Ranking 37

3.11 INDUSTRY FORECAST AND OUTLOOK 38 4 OVERVIEW OF THE PROPERTY INVESTMENT INDUSTRY IN MALAYSIA 40 8. INDUSTRY OVERVIEW (cont’d) 4.1  OVERVIEW OF THE PROPERTY SECTOR  40  4.2  PROPERTY INVESTMENT PROSPECTS IN SELECTED AREA IN MALAySiA  41  5  PROSPECTS AND OUTLOOK FOR MPHB CAPITAL  44
THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 8. INDUSTRY OVERVIEW (cont’d) 1 ECONOMIC OUTLOOK (Extracted from ‘The Economic and Financial Developments in Malaysia in the Fourth Quarter of 2012, Bank Negara Malaysia (BNM)’J Despite the challenging global economic environment, the Malaysian economy recorded a higher growth of 6.4% (3Q 12: 5.3%), supported by the continued strength in domestic demand. Total investment remained robust and was the main driver of growth during the quarter. The growth of private consumption continued to remain strong although the pace of increase moderated. The growth during the quarter also benefited from a significantly lower negative contribution from net exports. On the supply side, most economic sectors recorded improvements in growth during the quarter. For the year as a whole, the Malaysian economy expanded by 5.6%. Domestic demand continued to expand at the pace of 7.5% (3Q 12: 11.4%) with gross fixed capital formation remaining strong, registering double-digit growth of 15% in the fourth quarter (3Q 12: 22.7%). Private sector investment advanced by 20.2% (3Q 12: 22.9%), supported by capital spending in the domestic-oriented manufacturing and consumer-related services sub­sectors, namely, telecommunications, real estate and aviation and the on-going implementation of projects in the oil and gas sector. Investment was also supported by capacity expansion in the primary-related manufacturing cluster and capital spending in new growth areas such as medical and communications equipment. Public investment expanded by 11.1 % (3Q 12: 22.4%), driven by capital spending by public enterprises in the transportation, utilities, oil and gas and communications sectors. Private consumption registered a growth of 6.1% in the fourth quarter (3Q 12: 8.5%), supported by stable labour market conditions and improved consumer sentiments. The stronger growth in the first half of the year reflected the effects of the various government transfers to households disbursed during the period. Public consumption grew by 1.1 % (3Q 12: 2.3%), attributable to continued spending on emoluments amidst lower spending on supplies and services. On the supply side, growth in most economic sectors improved in the fourth quarter. Growth was led by the manufacturing and services sectors, supported by domestic demand and a gradual improvement in the external environment. The agriculture sector expanded at a faster pace amidst higher crude palm oil output and production of poultry, while growth in the mining sector rebounded following a recovery in the production of natural gas. Meanwhile, growth in the construction sector continued to be robust, driven by the civil engineering and residential sub-sectors. 8. INDUSTRY OVERVIEW (cont’e/) The headline inflation rate, as measured by the annual change in the Consumer Price Index (CPI), continued to moderate to 1.3% in the fourth quarter (30 12: 1.4%), reflecting lower inflation in the food and non-alcoholic beverages category. In the external sector, the current account surplus increased in the fourth quarter to RM22.8 billion, equivalent to 6.6% of GNI, due to a larger goods surplus, a lower services deficit and net income payments. Meanwhile, the financial account sustained an outflow of RM9.0 billion, as net inflows of FDI and portfolio investments were offset by an increase in direct investment abroad. Consequently, the overall balance of payments turned around to record a surplus of R1V15.9 billion (30 12: -RIV17.5 billion). The international reserves of Bank Negara Malaysia amounted to RM427.1 billion (eqUivalent to USD139.7 billion) as at 31 December 2012. This reserve level has taken into account the quarterly adjustment for foreign exchange revaluation changes. As at 31 January 2013, the reserves position amounted to RM428.6 billion (equivalent to USD140.2 billion), sufficient to finance 9.5 months of retained imports and is 4.6 times the short-term external debt. Interest rates remained stable The Overnight Policy Rate (aPR) was maintained at 3.00% during the fourth quarter of 2012. At this level of the aPR, monetary conditions remain supportive of economic actiVity. Reflecting the unchanged aPR, the average interbank rate of all maturities was relatively stable. In terms of retail interest rates, the average quoted fixed deposit (FD) rates of commercial banks were relatively unchanged. The average base lending rate (BLR) of commercial banks remained unadjusted at 6.53%, while the weighted average lending rate (ALR) on loans outstanding moderated slightly to 5.52% as at end-December (end-September: 5.55%). Total gross financing raised by the private sector through the banking system and the capital market was sustained at RM262.5 billion (30 12: RM272.9 billion). On a net basis, banking system loans and PDS outstanding expanded at an annual growth rate of 12.4% as at end­December (end-September: 12.8%). Net funds raised in the capital market were higher at RM37.7 billion during the quarter (30 12: RM28.7 billion). The bulk of funds were raised by the private sector through new issuances of private debt securities. After adjusting for redemptions, net funds raised by the private sector amounted to RM20.1 billion (30 12: RM18.3 billion). Net funds raised by the public sector were RM17.6 billion in the fourth quarter (3012: RM10.4 billion). 8. INDUSTRY OVERVIEW (cont’d) Financial stability continued to be preserved Financial stability was sustained throughout the quarter amidst continued challenges in the global environment. Stable financial conditions were underpinned by sound and well-capitalised financial institutions, orderly financial market conditions and sustained confidence in the financial system, which provided continued support for effective financial intermediation. With strong level of capitalisation as core capital ratio and risk-weighted capital ratio improved to 13.4% (30 12: 13.2%) and 15.2% (30 12: 14.9%) respectively, the banking sector is well poised to withstand economic and financial shocks. The insurance sector also maintained a sound capital adequacy ratio of 222.3% (30 12: 218.6%) with excess capital buffer of RM22.5 billion. Domestic economy to register growth, supported by firm domestic demand amidst gradual improvement in external environment Going forward, there are emerging signs of improvements in the global economy. Latest economic indicators also suggest further stabilisation in the growth performance in Asia. Notwithstanding these improvements, considerable structural challenges remain in the advanced economies, which would constrain the prospect for a stronger economic recovery. In particular, several advanced economies will continue to address the issues relating to fiscal sustainability and persistently weak labour market conditions. In the emerging markets, the highly accommodative monetary policy sustained in the major advanced economies requires close surveillance given the potential impact of excessive global liquidity on asset price inflation. For the Malaysian economy, the sustained expansion in domestic activity is expected to continue to drive growth, supported by the sustained private sector expansion. The stabilisation of external conditions is also expected to lend support to our economic growth prospects. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
8. INDUSTRY OVERVIEW (cont’d) 2 BACKGROUND OF THE FINANCIAL SERVICES SECTOR IN MALAYSIA 2.1 Introduction The financial sector in Malaysia is a highly regulated sector. Under the Central Bank of Malaysia Act 1958 (revised in 2009), the financial sector is under the direct supervision of the central bank, BNM. The primary functions of BNM are as follows: a)  to formulate and conduct monetary policy in Malaysia;  b)  to issue currency in Malaysia;  c)  to regulate and supetvise financial institutions which are subject to the laws enforced  byBNM;  d)  to provide oversight over money and foreign exchange markets;  e)  to exercise oversight over payment systems;  f)  to promote a sound, progressive and inclusive financial system;  g)  to hold and manage the foreign resetves of Malaysia;  h)  to promote an exchange rate regime consistent with the fundamentals of the economy;  and  i)  to act as financial adviser, banker and financial agent of the Government of Malaysia  (Government)
Source: Extracted from the IMR Report prepared by Frost & Sullivan The key policymakers for the financial sector are the Ministry of Finance (MOF), BNM, other key statutory regulatory bodies or agencies such as Securities Commission Malaysia and General Insurance Association of Malaysia (PIAM). Financial service providers in Malaysia comprise banking institutions, non-banking financial intermediaries (NBFI) (i.e. social securities, insurance/reinsurance and takaful operators, savings institutions, leasing companies, etc.) and operators in the financial market (i.e. money exchange market, equity, etc). 8. INDUSTRY OVERVIEW (cont’d) The Financial System Structure in Malaysia Regulatory Bodies and Policy Makers -i.e. BNM, MOF and other Government agencies ~ Financial Service Providers I I … Financial Institutions I ~ Banking Institutions -BNM -Commercial banks -Finance companies -MerchanUlnvestment banks -Islamic banks -Others (discount houses, representatives of foreign banks) I I ~ Non-Banking Financial Intermediaries -Social securities (EPF, pension fund, etc.) -Insurance, Reinsurance and Takaful -Savings institutions -Leasing companies -Development Finance Institutions -Others (unit trusts, venture capital companies, credit guarantee, etc.) I
… Financial Market 1
-Money & Foreign exchange operators -Private equities -Public debt securities -Stock exchanges -International offshore financial centres Source: Extracted from the IMR Reporl prepared by Frost & Sullivan 2.2 Government Policies and Measures Malaysia has reached the state of financial sophistication, on par with many developed countries in the world today. The Government is known for its cautious approach on fiscal and monetary policies, to ensure healthy and sustainable growth of the economy as well as resilience to market shocks. In 2009, the Government announced its financial sector liberalization measure as a catalyst to propel the economy further during the transition from developing into the developed economy status. The financial liberation measure started since the 1970’s but was temporarily rescinded during the global economic crisis of 1985-86 (Commodity Crisis). Having learned the lesson from the series of events that led to the Commodity Crisis, Malaysia since embarked on adopting prudent fiscal and monetary measures that helped the country to pull through during the adverse economic conditions of 1997-98 (Asian Financial Crisis), 2001-03 (Dot-com Bubble and Post-9/11) and 2008-09 (Global Financial Crisis) with shorter recovery periods. 8. INDUSTRY OVERVIEW (cont’d) Malaysia: Inflation Rate, Real Gross Domestic Product (GOP) and Real Interest Rate (1981-2012)
Source: Extracted from the IMR Report prepared by Frost & Sullivan During the oil price peaks in the late 1970’s early 1980’s, Malaysia had enjoyed vibrant economic growth and a booming property sector, fuelled by the availability of bank credit at a time when the country’s regulatory controls in the financial sector were still developing. Since the 1970’s the Government had been reliant on external borrowing to finance pUblic expenditure on infrastructure development. Being a major exporter of commodities such as crude oil, natural gas, tin, palm oil, rubber and cocoa, Malaysia was highly sensitive to changes in global commodities prices. This dependency followed by the deterioration of commodities prices starting early 1980’s had a drastic effect in Malaysia’s terms of trade, propelling Malaysia into a deficit in balance of payment. By the mid-1980’s global commodity prices experienced a sharp decline and Malaysia descended into severe financial crisis, as reduced total export on top of weak domestic demand resulted in huge losses of total income. This had also left many cash-strapped companies unable to service their loans. During this severe debt crisis, the Government embarked on a structural adjustment programme in order to control Malaysia’s balance of payment deficits, by cutting back public expenses and establishing strict monetary and fiscal policies. At the same time, BNM provided cash injections to ailing cooperatives and rolled out rescue packages to keep financial institutions from slipping into bankruptcy. Stricter regulatory measures were applied for better supervision of the financial institutions and to curb problems of fraud and excessive risk-taking in the financial sector. The recently gazetted Financial Services Act 2013 (FSA) which is expected to come into effect by mid-2013 will replace the Banking and Financial Institution Act 1989 (BAFIA), the Insurance Act 1996 and the Payment Systems Act 2003. The Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  10  133
8. INDUSTRY OVERVIEW (cont’d) FSA aims to provide a more uniformed framework in regulating the conventional banking sector (including NBFI) , insurance and payment systems, resulting in an effective and transparent regulatory and supervisory framework which is expected to contribute to an efficient financial system that is resilient to future stresses. Prior to this, the BAFIA had replaced the Banking Act 1973 and Financial Companies Acts 1969. Under BAFIA, only individual banking entities such as commercial and investment banks are regulated by BNM. However, with the implementation of FSA, BNM will have greater oversight over holding companies of banks and insurance companies and NSFI to ensure that the activities of financial groups do not pose undue risks to the safety and soundness of financial institutions. The new framework would impose prudential standards on such holding companies requiring them to retain more capital, similar to the regulatory requirements as the banks under them. Financial Sector Masterplan (FSMP) 2001-2010 The Asian Financial Crisis which hit the region circa 1998-99 had severely impacted the financial sector and caused extreme volatility to the Malaysian financial markets. During the peak of the crisis, the stock market value fell by almost 70% whilst the Ringgit currency devalued by approximately 40%. In 1998, the GDP growth for Malaysia contracted by approximately 7.4%. The Government took extreme fiscal and monetary measures which helped Malaysia to sustain its economy despite the recession. In preparation for future shocks, the FSMP was launched in March 2001, which tabled the broad strategies for the financial sector reformation to be executed over a ten-year period from 2001 to 2010. The main objectives were to propagate domestic financial institutions to be more effective and competitive in the open market, through the removal of outsourcing barriers, strengthening the regulatory and supervisory framework, promoting a safe and efficient payments system as well as developing the framework on consumer education and protection 1. For the insurance industry, consolidation of industry players, in particular the fragmented general insurance segment remained as priority. This is one of the main strategies deployed to increase competitiveness of insurance companies through better economies of scale. Following the increase in minimum paid-up capital from RM50 million to RM100 million in 2001, the general insurance segment saw approximately 15 mergers and acquisitions (M&A) involving a total of 28 general insurers between 1999 and 20032. The increased capacity as a result of the M&A enabled insurance companies to support the development of the private bond 1 BNM, Chapter 4:The Financial Sector, Economic Annual Report 2001 2 BNM, Annual Insurance Report 2003 Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  11  134
8. INDUSTRY OVERVIEW (cont’d) market. In the life insurance segment, which has the highest potential for growth due to its lower penetration rate, the emphasis given was on market scaling through the development of new growth areas, Bancassurance3 as well as non-credit related products. Furthermore, in response to the global financial crisis 2008-09, the risk-based capital framework was introduced in 2009. (Refer to Section 3.1.1 for explanation on the risk-based capital framework) Financial Sector Blueprint (FSBP) 2011-2020 The FSBP was revealed in June 2012 and charts the future direction of the financial sector over a ten-year period of implementation. As Malaysia transitions towards the high value-added and high-income economy, the role of the financial sector becomes more predominant, as the key driver of economic growth. The main aim of the FSBP is to prepare the financial sector to be “… more competitive, dynamic, inclusive, diversified and integrated, with the ability to offer world class financial services, in terms of breadth, depth and quality to serve the needs of Malaysia” 4. The FSBP has nine focus areas as follows:
Effective intermediation for a high value-added and high-income economy • Mobilisation of diverse savings to productive investments
• Development of a risk-capital ecosystem to support innovation­driven economic activities and start-up
• Enhancement of large and long-term project financing for infrastructure development
• Enhancing the provision of financial services for wealth management, retirement and long-term healthcare.
• Development of a private pension industry

Developing deep and dynamic financial markets • Enabling more effective intermediation, transfer of risks and management of liquidity through the improvement of the liquidity, depth and participation in the money, foreign exchange and Government securities markets in Malaysia
• Progressive liberalisation of the foreign exchange administration rules to raise efficiency in the financial market transactions

3 Bancassurance is the selling of insurance through a bank’s established distribution channel, usually to complement the banking products such as the Payment Protection Insurance (PPI), Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (ML TA). 4 BNM Press Release, June 2012. Executive Summary of/he IMR Report  Page  © Frost & Sullivan 2013  12  135
8. INDUSTRY OVERVIEW (cont’d) 8. INDUSTRY OVERVIEW (cont’e!)
•  Development of the domestic foreign exchange and money markets to ensure sound risk management and compliance to corporate governance practices by financial market players.  Financial inclusion for greater shared prosperity  • • •  Enabling all members of society, including the underserved, to have access to and usage of quality, affordable and essential financial services Development of innovative delivery channels to enhance the outreach of financial services in a cost-efficient manner Expansion of products and services to cater to distinct financial needs of all segments of society  Strengthening regional and international financial integration  • • •  Strengthening international financial linkages through establishing prudential investment policies that is at the best interest of Malaysia Catalysing new high value-added activities that can impact on financial stability and increase Malaysia’s competitiveness. Ensuring the continued presence of strong and well-managed domestic banking groups that continue to mobilise a significant share of resident deposits  Internationalisation of Islamic finance  • •  Enhancement of the Islamic financial ecosystem that is conducive for the mobilisation of higher volumes of international Islamic financial flows Strengthening of the legal and Shariah frameworks through establishing a single legislated authority on Shariah matters in Islamic finance  Regulatory and supervisory regime to safeguard the stability of the financial system  • • • •  Establishment of a comprehensive legislative framework for effective regulation and supervision Enhancement of the capital and liquidity standards of financial institutions to be in line with international standards Raising governance and risk management standards of financial institutions Increasing cross-border collaboration with other supervisory authorities  Electronic payments for greater economic efficiency  •  Encouraging the migration to electronic payments (e-payments) through facilitating a wider outreach of e-payments infrastructure, such as point-of-sale terminals and mobile phone banking.  Empowering consumers  •  Collaboration with various stakeholders to promote consumer protection education and financial literacy
Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  13  136

Talent development to support a more dynamic financial sector • Development of a consumer protection support infrastructure through establishing single consumer credit legislation, integrated dispute resolution system and an enhanced credit information framework
• Establishment of a Financial Services Talent Council to drive, oversee and coordinate talent development efforts in the financial sector

Source: Extracted from the IMR Report prepared by Frost & Sullivan 2.3 Prospects of the Financial Services Sector In 2012, Malaysia’s financial sector was jointly assessed by the International Monetary Fund and the World Bank under the Financial Sector Assessment Program. The outcome of this assessment affirmed the strength and resilience of the Malaysian financial sector, the high level of compliance of the domestic regulatory and supervisory framework in the banking, insurance and securities sectors, as well as the deposit insurance system, with international standards and robustness of the financial market infrastructure. The financial services sector is one of the fastest growing sectors in Malaysia, registering an average growth of 7.1 % between 2006 and 2009. The financial sector’s contribution to the GOP is expected to grow from 8.6% in 2011 to 12.0% by 20205. Since 2012, Malaysia’s financial sector has fully complied with the International Financial Reporting Standards (IFRS)6 which require higher disclosure and degree of transparency in financial reporting. Through the harmonizing of financial reporting standards, led by a strong support structure that comprise legal, regUlatory and supervisory systems, as well as strong institutional backing, the financial sector is expected to continue to gain market confidence and be in better position to withstand any uncertainties that may arise due to the prevailing global financial and economic conditions. The implementation of recommendations under the FSBP is also expected to contribute positively to the financial stability in Malaysia. Furthermore, with the implementation of the FSA in mid-2013, the financial services sector is expected to grow further especially since foreign banks is anticipated to be allowed to expand their branches more freely, similar to the domestic banks. Currently, foreign-owned banks 5 BNM Press Release, June 2012. http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=2373 6 The IFRS is a globally accepted financial reporting standard developed by the IFRS Foundation, a not-for-profit private sector organization working in the pUblic interest, and its standard setting body, the Intemational Accounting Standards Board (lASB). Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  14  137
8. INDUSTRY OVERVIEW (cant’e/) which accounts for approximately 27.0% of the market share in 2012 in the banking sector may only expand their network through expansion of electronic channels, agent banking, and increasing the establishment of physical branches. 2.4 Brief Overview and Prospects of the Credit Business for the NBFI Segment In general, the credit business in Malaysia includes financial services such as loan, trade financing, hire purchase, factoring, leasing facility or similar facility. Credit facilities such as letter of credits are generally used by small and medium enterprises (SME) to finance trade transactions. Other credit facilities include term loan, overdraft facility and revolving credit facility. Banks are the main institutions that provide a majority of the core financial services. Banks generally provide loans to sectors such as industrial, trade and commerce which are targets for large scale financing opportunities. Banks’ relatively higher administrative costs may make it unproductive for them to provide small scale financing services. NBFI credit service providers such as IVIPHB Capital, complement the banking institution in the provision of these financial services by targeting specific market segments that are underserved by the banks. Previously, under BAFIA, NBFI credit service provides were not governed by BNM’s stricter credit tightening guidelines. However, with the expected implementation of the FSA in mid-2013, BNM will have greater oversight over NBFI to ensure that the safety and soundness of financial institutions. Industry Prospects Since 2010, BNM has been increasing the overnight policy rate to tighten credit facilities to consumers in order to reduce household debt in Malaysia by targeting credit cards, housing loans as well as car loans. This has resulted in the decline of loan growth for the banking industry in these segments during 2011 and 2012. SIVIE are finding it difficult to access credit facilities from banks. NBFI credit service providers benefited from this market conditions by providing credit services with less stringent terms to these consumers and SIVIEs where the demand for credit services remain robust. For example, in 2012, overall credit on all facilities extended by the three largest NBFI have grown at a faster rate of 23.1 % (2011: 17.1 %) Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  15  138
8. INDUSTRY OVERVIEW (cont’d) 3 ANALYSIS OF THE GENERAL INSURANCE INDUSTRY IN MALAYSIA 3.1 Overview of the General Insurance Industry General insurance is a contractual agreement between the underwriter (also known as the insurer) and the individual or an entity that purchase the insurance policy (known as the insured or policyholder). The underwriter agrees to assume the risks of an insured loss event from the insured in exchange for an agreed amount of monetary payment (known as premium). In turn, the insured receives an insurance policy; a binding contract which details the scope of coverage, terms and conditions of the insurance policy. The equitable transfer of the risk of a loss from one entity to another allows insurance to be used as a form of risk management to hedge against uncertainty and loss. Since insurance provides the necessary protections against financial losses that might arise from unforeseen events, companies and individuals who are risk-averse may generally purchase some form of insurance policies to protect themselves from the risk of unforeseen losses. Insurance companies that sell insurance policies may sometimes find themselves assuming too much risk, especially in the ever changing environment. As such, they may in-turn purchase reinsurance7 policies from another insurance company as a means of risk management. Risk Transfer Flow for General Insurance Industry in Malaysia
Source: Extracted from the IMR Report prepared by Frost & Sullivan Reinsurance The purpose of reinsurance is to spread risk amongst a number of insurers or reinsurers. The insurer may pay reinsurance premium to the reinsurer to protect against the insurer’s losses. 7 Reinsurance is an insurance policy purchased by an insurance company from another insurance company or reinsurer to reduce their risk exposure. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  16  139
8. INDUSTRY OVERVIEW (cont’d) There are two types of reinsurance arrangements, namely facultative reinsurance and treaty reinsurance. Under the facultative reinsurance arrangement, the reinsurers will consider each risk offered by the insured separately, and is free to accept or reject each offer. This arrangement allows the reinsurers to assess and decide whether or not to accept the risk based on the price and terms offered by the insurer in respect of the risk. However, the process of placing facultative reinsurance for each risk is time consuming and costly. Under the treaty reinsurance arrangement, the insured and reinsurer will enter into a reinsurance contract agreement, usually at the beginning of the insured company’s financial year, whereby the reinsurers agree to cover all the insurance policies issued by the insured within the scope of the contract. In addition, the reinsurers also agree to cover any of the risks accepted by the insurer as long as they are within the scope of the contract. Generally, the insurance companies in Malaysia may reinsure their risk among each other or to professional reinsurers8 to manage their risk portfolio. Currently, professional reinsurers who are licensed are Asia Capital Reinsurance Malaysia Sdn. Bhd, Malaysian Reinsurance Berhad, Munchener Ruckversicherungs-Gesellschaft, Swiss Reinsurance Company, The Toa Reinsurance Company Ltd. and Hannover Rueckversicherung AG. 3.1.1 History and Development of the General Insurance Industry in Malaysia The insurance industry was first introduced to the then Malaya by British trading companies and agencies. In the 1950s, the market was primarily controlled by British and American firms with very few locally incorporated insurance companies. After the country gained its independence in 1957, the Government of Malaya implemented several policies to encourage domestic insurance companies to grow their market share. In 1963 (the year of the formation of the New Federation of Malaysia), the Government introduced the Insurance Act 1963 to set out the rules and regulations governing the life and general insurance businesses in Malaysia. In 1988, BNM was given the mandate to supervise the insurance industry in Malaysia. Under the supervision of BNM, the insurance industry made significant inroads and has been 8 Professional reinsurer is a term used to designate a company whose business is confined solely to reinsurance. This is in contrast to insurers, which exchange reinsurance or operate reinsurance departments as adjuncts to their business of general insurance, Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  17  140
8. INDUSTRY OVERVIEW (cant’e/) substantially strengthened by a series of measures that were implemented by BNM over the years to protect public interest, promote fairness and equity, and foster a viable and competitive industry. In 1996, BNM introduced the Insurance Act 1996, which superseded the Insurance Act 1963, to provide for the licensing and regulation of insurance business, insurance broking business, adjusting business, financial advisory business and for other related purposes. In mid-2013, the FSA is expected to replace the Insurance Act 1996. The new legislation is expected to enhance the regulatory regime governing the operations of the insurance industry by raising the accountability of insurers as custodians of pUblic funds and strengthening their respective financial positions, which in turn provide better protection to policyholders by ensuring that the insurance operations are conducted professionally and in accordance with sound insurance principles. Risk-Based Capital (RBC) Framework In 2009, the MOF imposed the RBC framework to align individual insurer’s solvency and capital position according to their respective individual risk profiles. In line with the evolving global best practices in insurance regulation, the framework was expected to strengthen the standards of regulation in the insurance industry. This may also enable the deployment of more transparent risk-adjusted capital. and valuation requirements within the industry and promote the rationalisation of underwriting businesses as well as augment risk management standards. Under the RBC framework, the insurers are required to maintain a Capital Adequacy Ratio9 (CAR) above the pre-determined internal CAR. The internal CAR is decided by both the regulated insurance company and BNM, and must not be less than the minimum regulatory CAR of 130%. The implementation of the RBC framework is expected to increase the insurers’ capital requirements which will place the insurers in a better financial position to absorb any future shocks. This in turn is expected to instil confidence in the industry. Liberalisation of the Insurance Industry in Malaysia Despite significant improvements in the last decade, the insurance industry in Malaysia remains relatively small by international standards. In response, BNM liberalised the domestic insurance sector in 2009 by increasing foreign equity participation threshold in insurance companies from 49% to 70% as well as allowing locally-incorporated foreign insurance companies to establish branches nationwide without restrictions. 9 CAR measures the adequacy of the capital available in the insurance and shareholders’ funds of the insurer to support the total capital required. CAR is computed as a percentage of total capital available over total capital required. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  18  141
8. INDUSTRY OVERVIEW (cont’d) The implementation of the RBC framework and the liberalisation plan by BNM has made domestic insurance companies become more attractive as M&A targets. As a result, the general insurance industry in Malaysia has become less fragmented. Since the liberalisation, there have been numerous M&A as set out below. M&A in General Insurance Industry in Malaysia, 2010-2012
2010 • AXA Affin General Insurance Berhad acquired BH Insurance (M) Berhad • Overseas Assurance Corporation (Malaysia) Berhad acquired Tahan Insurance Malaysia Berhad’s general insurance business
• The general insurance arm of Hong Leong Assurance Berhad was acquired by MSIG Insurance (Malaysia) Berhad.
• Canada’s Fairfax Financial Holdings acquired The Pacific Insurance Berhad.

f——-=~–c—-­2011 • ACE Group merged two of its units, Ace Synergy Insurance Berhad and Ace Jerneh Insurance Berhad into one -Ace Jerneh Insurance Berhad. • Japan’s Sompo acquired 40% stake in Berjaya Sompo Insurance Berhad for RM496 million.
• Zurich Insurance Group acquired Malaysian Assurance Alliance Berhad and renamed it to Zurich Insurance Malaysia Berhad.
• AmG Insurance Berhad, the local affiliate of Insurance Australia Group (lAG) acquired Kurnia Insurans Malaysia Berhad.

2012 • Tune Group acquired 80% stake in Oriental Capital Assurance Berhad and renamed it as Tune Insurance • Sanlam Ltd. concluded agreement to acquire 49% of Pacific Orient Insurance Co. Berhad. Source: Extracted from the IMR Report prepared by Frost &Sullivan Malaysian Motor Insurance Pool (MMIP) MMI P was established in 1992 as a special-purpose entity that offers insurance coverage to vehicles which fail to obtain motor insurance cover from the normal commercial insurance market. In 2009, there were 2.7 million passenger vehicles that were 10 years or older on the road. Due to the unprofitability of this segment as the premium for motor insurance in Malaysia is regulated by a tariff system, which has remained unchanged since 1978 by imposing a limit on the premium chargeable for motor insurance in Malaysia, many insurers were unwilling to provide motor insurance coverage to these vehicles which are considered as “high risk”. To address the above issues, all insurers licensed by BNM are required by law to issue MMIP policies with effect from May 2011 10. In addition, with effect from 16 January 2012 the tariff is to be revised upward on a gradual basis over the next four years. The revision in motor tariff premium rates was part of the New Motor Cover Framework that is aimed at addressing the structural issues within the motor insurance sector to ensure continuous and sustainable motor 10 http://www.piam.org.my/annual/2011/002.htm Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  19  142
8. INDUSTRY OVERVIEW (cont’e/) protection to users. The New Motor Cover Framework will pave the way towards the Government’s policy of de-tariffing the motor insurance premium by 2016. Moving forward, this will allow general insurance company to vary the premium rates based on the risk profile of individual vehicles owners. 3.1.2 Market Segmentation The insurance industry in Malaysia is categorised into two main categories: Life insurance and General insurance. Life insurance is interpreted to mean a contract by which payment of policy moneys is insured on death or survival, including extensions of cover for personal accident, disease or sickness and includes an annuity. General insurance means all insurance business other than life insurance. The major categories are marine, aviation and transit insurance (MAT), fire insurance, medical and personal accident insurance (PA) and motor insurance. Other miscellaneous insurance schemes include, among others, bonds11 , liabilities12 , contractor’s all risk and engineering risk insurance 13, workmen’s compensation and employers’ liability insurance 14 as well as other types ofmiscellaneous insurance not falling within any of the classification mentioned. 11 Bonds refers to all types of bonds which insurers are permitted to underwrite, including contract bonds, advance payment guarantees, immigration bonds, customs bonds, administration bonds and other types of bonds. 12 Liabilities refers to all insurances of liabilities such as Public Liability or General Third Party Liability, Products Liability, Professional Indemnity, Errors and Omissions Cover, Directors’ and Officers’ Liability and other forms of liability insurance.
13 Contractor’s All Risks and Engineering refers to all business underwritten in the Engineering Insurance Department including Contractors All Risks, Erection All Risks, Advance Loss of Profits, Machinery Breakdown, Boiler Explosion, Related Loss of Profits, Computer All Risks and Storage Vessels but excluding contract bonds.
14 Workmen’s Compensation and Employers’ Liability refers to all insurances indemnifying employers in respect of their liabilities to workmen either under Workmen’s Compensation Act or under common law.
Executive Summary of the IMR Reporl  Page  © Frost & Sullivan 2013  20  143
8. INDUSTRY OVERVIEW (cont’d) MAT MAT insurance schemes include insurance coverage for the marine hU1l 15 , aviation 16, cargoand offshore oil and gas related18 . Fire Fire insurance schemes cover losses or damages to properties caused by fire, lightning, or explosion of domestic boiler or domestic gas cylinder not forming part of any gas work. It may also be extended to protect against damages resulting from riot, strike, malicious damage/vandalism, subsidence 19, landslide, flood, earthquake, volcanic eruption, aircraft damage, impact damage, and leakage of sprinkler system. Medical and PA Medical and health insurance schemes provide coverage on the cost of medical treatment at private clinics or hospitals, especially for hospitalisation and surgical procedures. PA schemes provide personal compensation in the event of injuries, disabilities or death caused by accidental means. Additionally, PA schemes also include travel insurance which provides coverage against travel related accidents, losses or interruption. Motor Motor insurance provides financial protection against physical damage and/or bodily injury resulting from moving vehicle accidents and against liability that could result from it. In Malaysia, the Road Transport Act 1987 requires that all vehicle owners to have at least a minimum third 15 Marine Hull refers to all business underwritten in the Marine Hull Department including Marine Hull Loss of Profits, Loss of Hire and Builder’s risk. 16 Aviation refers to all insurances underwritten in the Aviation Department including Aviation Hull and Liabilities, Satellites, Airport Operator’s Liabilities, Aircraft Refuelling Liabilities, and Pilot’s Loss of Licence insurance.
17 Cargo refers to all business underwritten in the Cargo Insurance Department including Marine Cargo, Air Cargo, Land Transit, Marine Cargo Loss of Profits, Cargo Throughput Policies, Port Operator’s Liability, Freight Forwarder’s Liability and etc. Freight insurance shall be included under this item. 18 Offshore Oil and Gas related refers to insurances of oil and gas exploration, development (including construction) and production risks, offshore or onshore, for account of owners or operators of such risks, or offshore oil and gas contractors. 19 Subsidence is defined as the downward movement of the soil on which a building rests. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  21  144
8. INDUSTRY OVERVIEW (cont’d) party liability coverage. This policy provides liability coverage against the injury or death of other people caused by an accident. Segmentation of Insurance Industry in Malaysia, 2013 I Insurance I I W \It GeneralLife II •…………….•.•………………••……….
…………….•…………………..•……
…….
·· · ~~ \’ ~~ · ·
Medical and ·
Fire MotorMAT Others ·· .··PA ~ ………………………………………………………..•••…•…•…………………..••~
……· . rvIPHB Capital Berhad (MPHB Capital) Business Activities·, .
…… Source: Extracted from the IMR Report prepared by Frost & Sullivan 3.1.3 Emerging Trends and Markets In line with the commitment under the Association of Southeast Asia Nations (ASEAN) Framework Agreement on Services (AFAS), the Government has undertaken steps to Iiberalise the insurance industry in Malaysia to enhance the efficiency of the insurance industry. For example, Malaysia has committed to allow insurance companies regulated in ASEAN countries to provide cross-border service for insurance broking of international MAT risks. Under the framework, insurance companies originating from ASEAN without any presence in Malaysia are allowed to provide cross-border insurance broking services to Malaysian risk owners for the placement of international MAT risks2o. 20 BNM, “ASEAN Insurance Brokers are Now Allowed to Provide Cross-border Services as Approved International MAT Insurance Brokers in Malaysia”, 16th August 2012 http://www.bnm.gov.myJindex.php?ch=en announcement&pg=en announcement all&ac=178&lang=en Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  22  145

8. INDUSTRY OVERVIEW (cont’d) 3.2 Historical Market Size and Growth Trends The general insurance market in Malaysia has sustained a robust growth trend, recording a CAGR of 7.1 % for the period 2006 to 2011 despite the 2008-09 global financial crises. In 2011, the size of the general insurance market in l\IIalaysia as measured by gross direct premium was approximately RM13.6 billion, having grown by 8.0% from the previous year. In 2009, the year­on-year growth was recorded at 5.8%. General Insurance Market Size and Growth Rate in Malaysia, 2006-2011 9.1%20,000 c ~ 18,000 ‘E :E: 16,000 4.2% _—-~0::”. 7 ~% ————–13596 GR2006-20″.· —–,E 14,000 CA __ ———–12,585 11,531 :J .~ 12,000… 0­t) 10,000 ~ ~ 8,000 VI ol5 6,000 4,000 2,000 o -Gross Direct Premium -+-Annual Growth Rate (%) (RM million)
Source: Extracted from the IMR Report prepared by Frost & Sullivan The motor insurance segment continued to be a key segment for the general insurance industry in Malaysia due to the growing number of vehicles in the country and the mandatory regulatory requirement for all vehicles to have insurance coverage. In 2011, the motor insurance market segment accounted for RM6.3 billion or 46.4% towards the total general insurance market size (based on total gross direct premium). This was followed by the fire insurance segment of R1\II2.2 billion (16.5%), medical and PA insurance segment of RM1.9 billion (14.2%), and MAT insurance segment of RM1.4 billion (10.4%). Other miscellaneous segment contributed RM1.7 billion, or 12.5% towards the total gross direct premiums as shown below. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  23  146
8. INDUSTRY OVERVIEW (cont’d) Breakdown of the General Insurance Segments in Malaysia, 2011
Source: Extracted from the IMR Report prepared by Frost & Sullivan Between 2006 and 2011, the medical and PA insurance segment experienced the highest growth, with a CAGR of 12.1 %. The strong growth is largely driven by a number of factors such as population growth, rising medical costs, rapid urbanisation and GDP growth. This was followed by the insurance segments for motor, fire and MAT with CAGR of 7.7%, 5.1 % and 4.3% respectively during the same period. Meanwhile, other miscellaneous segments recorded a CAGR of 5.4%. General Insurance Segment in Malaysia, 2006 -2011 9.1%20,000 18,000’2 .2 16,000’E :E 14,000 CAGR 2006-20:~~~,~!o~ E 12,000 ::l —­’E 10,000 ~ a. …. 0 8,000 ~ is 6,000 I/) I/) 04,000.. Cl 2,000 0 2006 2007 2008 2009 2010 2011
_ MAT _ Fire ~ Medical and PA c:::::J Motor c:::::J Misc -.-Annual Growth Rate
Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary ofthe IMR Report  Page  © Frost & Sullivan 2013  24  147
8. INDUSTRY OVERVIEW (cont’d) 3.3 Supply Conditions 3.3.1 Key supply materials and sources Trained Agents General insurance companies generally rely on insurance agents to market their products and to reach out to the wider market. Trainings are usually provided to the insurance agents regularly to enhance their technical competency and product knowledge. Malaysia does not have a supply shortage of trained personnel in the insurance sector. BNM reported in its insurance annual reports that there were 35,609 registered agents in 2011 as compared to 35,236 in 2010. In 2011, there were approximately 60,000 candidates who registered with the Malaysia Insurance Institute (Mil) 21 for the Pre-Contract Examination for Insurance Agents (PCEIA), which is a prerequisite examination for a person to become an insurance agent in Malaysia. This is a positive indication that there should be a sufficient supply of new insurance agents that can be sourced by the industry players. 3.3.2 Factors affecting supply Distribution Channels Aside from insurance agents, insurance policies are also sold via other distribution channels such as telemarketing, the Internet, pas Malaysia branches and banks. In 1999, BNM allowed insurance companies to sell motor policies and collect premiums payment through the Internet. In 2000, the scope was expanded to allow for the purchase and/or renewal of full range of policies on the Internee2. Most of the online transactions are made up of motor insurance policies. Motor insurance can also be offered through pas Malaysia branches. This service allows pas Malaysia branches to become a one-stop centre for motorists to fulfil most of the regulatory requirements such as renewing driving license, purchasing motor insurance, and paying road tax. In 2013, there were 7 general insurance companies that offer their motor insurance through pas Malaysia branches namely Allianz General Insurance Berhad, Etiqa Insurance & Takaful, 21 Mil is a recognised insurance education and training institution that offers a wide range of quality education and training programmes for professionals in the insurance and financial services industries. 22 BNM “Internet Insurance in Malaysia”, 2000: http://www.bnm.qov.mvlfileslpublication/dqi/en/2000/10.Box3.pdf Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  25  148
8. INDUSTRY OVERVIEW (cont’d) Kurnia Insurans Berhad, IIIIIIIIIP, Multi-Purpose Insurance Berhad (MPIB) (a wholly-owned subsidiary of MPHB Capital), Syarikat Takaful Malaysia and Zurich Insurance Berhad. Bancassurance is an alternative method for insurance companies to distribute their products. Distribution is done through banks by focusing primarily on the banks’ customers. This channel allows insurance companies to leverage on the banks’ branches and their relationship with their customers to achieve higher insurance sales. This relatively low risk method of establishing a presence is encouraging insurers to explore new partnership with banks to expand their reach. 3.4 Demand Conditions 3.4.1 Drivers Industry drivers are demand conditions that encourage positive growth of the industry. Industry drivers for the general insurance industry are set out below: Rising Income Per Capita According to the FSBP, for the period 2011-2020, the annual income per capita for the middle income population (20th to 80th percentile) is expected to reach RM36,000 (2007: RM20,400) by 2020. This expected increase is expected to translate into growth in the middle and high income class populations in Malaysia. A wealthier population would generally have higher disposable income and greater ability to spend on items such as cars and properties as well as greater aspiration for better quality healthcare. For the entrepreneurs, this may provide opportunities for them to set up new businesses. Furthermore, Malaysia has a national savings ratio of approximately RM298.7 billion or 33.0% of the Gross National Income (GNI) in 2012. 23 The overall increase in wealth is expected to provide an opportunity for the general insurance companies to cater for the middle and high income class population. Increasing Awareness Under the Economic Transformation Programmes (ETP), the Government is undertaking efforts to educate the public on financial planning and the importance of having insurance protection. For example, Perbadanan Insurans Deposit Malaysia (PIDM) has implemented an education 23 BNM Annual Reporl2012 Executive Summary of the IMR Reporl  Page  © Frost & Sullivan 2013  26  149
8. INDUSTRY OVERVIEW (cont’d) programme on financial literacy known as PIDM Project MoneySmart to educate 300,000 secondary school students and 100,000 students in institutions of higher learning. The increase of financial literacy and awareness is expected to translate to greater demand for insurance, especially for medical and PA insurance and fire insurance. In addition, there are other drivers that can affect a specific insurance segment as highlighted below: Marine, Aviation and Transit Implementation of ETP: Under the ETP, the Performance Management & Delivery Unit (PEMANDU) has identified eight strategic reform initiatives, including reinvigorating private investment, and 12 national key economic areas. These initiatives are expected to boost the local economic growth which in turn may spur trading activities and improve business sentiments in the country. Increasing business activities may also provide insurance opportunity for general insurance companies especially in the MAT insurance segment. Medical and PA Increased number of outbound travellers: In 2012, there were 33.4 million passengers departing from Malaysia’s airport24 , an increase of 5.4% from 2011. The strengthening of the Malaysian currency, the introduction of tourism initiatives such as the Malaysian Association of Tour and Travel Agents (MATTA) Fair, availability of affordable / bUdget airlines and the ease of purchasing flight and travel packages via the Internet are among key contributors towards this trend of increasing outbound travel activities. This has contributed to the increased purchase of travel insurance. Regulatory Requirement: Under the ETP recommendation, all foreign workers are reqUired to have medical insurance coverage effective from 15t January 2011 under the Hospitalisation and Surgical Scheme for Foreign Workers (SPIKPA). According to PEMANDU, this initiative is expected to deliver RM 171.0 million in GNI by year 2020. 24 Include both domestic and international flights Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  27  150
1Company NO.1 01 0253-W I 8. INDUSTRY OVERVIEW (cant’e!) Motor New Motor Cover Framework: The New Motor Cover Framework is intended to provide a holistic approach especially towards the settlement of issues such as pricing distortions and inefficiencies in the claims settlement process. The new framework allows for gradual adjustments of motor tariff premium rates over a four-year period beginning January 2012 until 2016. The Government intend to liberalise the motor insurance industry by 2016, thus allowing general insurance companies to vary the premium based on the risk profile of individual vehicle owners. This would allow individual vehicle owners to pay premium which is reflective of their respective risk profile whereby higher premium would be charged to individuals who are categorised in the “high risk” bracket. Sales of Vehicles: The combined sales of passenger, commercial and 4×4 vehicles, have risen along with GNI at current prices over the past 20 years. In 1980, the annual sale of vehicles was recorded at 97,262 units and this has since increased to 627,753 units in 2012, registering a CAGR of 6.0% for the said period. This positive trend is expected to persist and is expected to benefit the general insurance industry especially after the implementation of the New Motor Cover Framework from 2012 to 2016. Fire Growing Property Market: According to the Valuation and Property Services Department (JPPH), the Malaysian property market strengthened from 430,403 transactions worth RM137.8 billion in 2011 to 427,520 transactions worth RM142.8 billion in 2012. The incoming supply of residential units increased by 11.9% from 553,884 units in 2011 to 619,950 units in 2012. Regulatory requirement such as the Strata Titles (Amendment) Act 2013 requires the management corporation to provide sufficient insurance coverage against fire for buildings under their care is a key driver for the uptake of fire insurance. The increasing number of property units in Malaysia provides an opportunity for general insurance companies to provide fire insurance coverage for these property owners. 3.4.2 Restraints Global Economic Slowdown Resulted in Decline of Import and Export Activities The growth of the MAT insurance segment is tied closely to the development of the country’s economy. Any slowdown in the economy would result in the decline of import and export activities. During the 2008/2009 global financial crisis, the revenue for MAT insurance segment decreased by 0.6% and 0.9% in 2008 and 2009 respectively. Furthermore, during the economic Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  28  151
8. INDUSTRY OVERVIEW (cont’d) slowdown, most companies would reduce their inventories which in turn reduce the value of goods that are stored in the warehouses. This is expected to have a negative impact on the fire insurance segment since the premium rates are charged based on the total value insured. Given that the uncertain financial situation and the looming recession in some of the EU countries may lead to reduced global trade activities, the growth of the general insurance market particularly in the MAT insurance segment and to some degree, the fire insurance segment may be impeded. Heavily Subsidised Public Healthcare System Public healthcare system in Malaysia is heavily subsidised by the Government, making public healthcare available to majority of the public at very low costs. Under the public healthcare system, civil servants, old-age pensioners, school children, and the very poor enjoy free medical and dental services in pUblic healthcare facilities. Hence, they are among the major groups that seek public healthcare treatment. Others pay Government-subsidised fee when seeking treatment and medication in pUblic healthcare facilities. In 2011, the public healthcare expenditure contributed to approximately 42.2% or RM18.3 billion of the total healthcare expenditure. The heavy subsidies of pUblic healthcare services may result in lower uptake of medical and PA insurance. Nevertheless, the growing middle and high income class population may still seek treatment and medication from the private healthcare facilities to avoid longer waiting time in public hospitals in addition to enjoying better services and treatments. Competition from Takaful Products The general takaful insurance scheme prOVides general insurance coverage catered to Muslims in conformity with Islamic principles. Due to the nature of the scheme, the popUlarity of takaful scheme may impede the market growth of general insurance industry in Malaysia, especially since majority of the population in Malaysia are predominantly of Muslim faith. The general takaful insurance market size, based on gross contributions grew at a CAGR of 15.8% from RM767.6 million in 2006 to RM1.6 billion in 2011. The recorded CAGR was much higher as compared to the CAGR for the general insurance of 7.1 % during the same period, proving that the popUlarity of takaful products is gaining traction in the country. Executive Summary ofthe IMR Report  Page  © Frost & Sullivan 2013  29  152
8. INDUSTRY OVERVIEW (cont’d) 3.5 Relevant Laws and Regulation FSA FSA which is expected to come into effect by mid-2013 will replace the BAFfA, the Insurance Act 1996, the Exchange Control Act 1953 and the Payment Systems Act 2003. The new Act provides for the regulation and supervision of financial institutions, payment systems and other relevant entities and the oversight of the money market and foreign exchange market. Insurance Act 1996 BNM regulates the insurance industry under the Insurance Act 1996. The act provides new laws for the licensing and regulation of insurance business, insurance broking business, adjusting business and financial advisory business and for other related purposes. The act also provides for but not limited to the following: • licensing of insurer, insurance broker and adjuster,
• the requirement for insurers to maintain a minimum capital adequacy ratio under the RBC framework
• compulsory provision of motor insurance and participation in IVIMIP

Guidelines on Internet Insurance The guidelines on Internet Insurance were issued by BNM to promote the orderly development of the use of Internet in the Malaysian insurance industry. The gUidelines serve to identify potential risks of offering insurance using the Internet as a distribution channel and prescribe the minimum requirements which insurers must observe in the provision of insurance through the Internet. RBC Framework The RBC framework requires all insurance companies in Malaysia to maintain a capital adequacy level that reflects their respective risk profiles. This framework serves to improve transparency and allow greater flexibility in the general insurance industry by allowing insurance companies to operate at different risks level in line with their business strategies, as long as the companies hold sufficient capital levels determined in proportion to their risks and observes the safeguards set by BNM. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  30  153
8. INDUSTRY OVERVIEW (cont’d) PIDM Act 2011 PIDM is a statutory body established under the Malaysia Deposit Insurance Corporation Act 2005 to administer the national deposit insurance. It complements Bf\lM’s role as the primary regulator and supervisor of the financial system, by providing incentives for sound risk management in the financial system and promoting and contributing to the stability of Malaysia’s financial system. Under this legislation, PIDM’s role has been expanded to provide protection to Takaful beneficiaries and insured persons from loss of part or all of their Takaful and insurance benefits certificates and insurance policies. It is also compulsory for all Takaful operators and insurance companies to join PIDM. In addition, PIDM will take over the role of maintaining the Insurance Guarantee Scheme Fund (IGSF) for general insurance business and life insurance business from BNIVI. IGSF was established with the aim of bUilding up a readily available pool of funds to meet the claims of policy owners of failed insurance companies. It is funded by the insurance companies to minimise the need to utilise public funding for resolving claims of failed insurance companies. 3.6 Reliance and Vulnerability to Imports The general insurance industry is primarily a service industry and relies primarily on skilled insurance agents and local brokers to distribute the insurance products to the local market (Kindly refer to section 3.3.1 for further details on insurance agents). Generally the industry is neither reliant nor vulnerable to imports due to the nature of the industry. 3.7 Substitution of Products or Services Insurance is a form of risk management whereby the risk of a loss is generally transferred from one entity to another, in exchange for payment of premium. As such, there is no service that may substitute for insurance services. Nevertheless, the general Takaful insurance may be considered as a substitute for the conventional general insurance due to the nature of the scheme. (Refer to section 3.4.2 for further detail on the nature of Takaful insurance) 3.8 Industry Risks and Challenges Insurance Cycle The insurance industry is cyclical and generally has two market conditions, the soft market condition and the hard market condition. When market condition is soft, the insurers may tend Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  31  154
8. INDUSTRY OVERVIEW (cont’d) to ease their policies to increase their revenue and market share. As such, the premium rates is expected to decrease during this period, which leads to lower profit margins as insurance companies are forced to compete or risk losing out their market share in the long term. During this period insurers may provide risky insurance coverage at unrealistic low premiums. This trend is expected to continue until the claims experience turned adverse or there is a major claim or catastrophe event that results in significant losses from the resulting payments to meet the huge claim. When this occurs, less stable companies may be driven out of the market while larger insurance companies may face a reduction in their capital base resulting from the payment of large claims. When this happens, the insurance cycle enters into the hard market condition as insurance companies are more averse to risk taking. The underwriters may tighten their insurance policies and charge higher premium to filter out risky insurance coverage. However, after a few years of financial stability, these higher premiums may appear very profitable and attract more companies to join the market which then forces existing players begin to lower their premium to compete with the new entrants. Hence, the insurance cycle repeats itself. Competition from Foreign Insurance Companies Since 2009, the liberalization of the financial sector in Malaysia has attracted many foreign companies to participate in the insurance industry, reSUlting in a number of foreign insurance companies acquiring or merging with local companies. Foreign insurance companies with a large capital base would have the ability to undertake a higher risk portfolio, which usually requires a much higher capital base. Hence, the entrance of these cash-rich foreign owned insurance companies is expected to make it more difficult for the smaller local companies to compete in the local market. Regulatory Requirement for Motor Segment In Malaysia, the motor insurance premiums and the scope of coverage under the motor insurance policies are determined by the Malaysian motor tariff which has not been revised since 1978. However, the increasing frequency and escalating costs of motor accidents have changed the risks profile associated with motor insurance. As such, the motor insurance segment has become the least profitable segment due to high claims ratio and fixed tariff premium rates. Nonetheless, the introduction of the New Motor Cover Framework which will pave the way towards de-tariffing of the motor insurance premium by 2016 is expected to mitigate this issue by allowing general insurance company to vary the premium rates based on the risk profile of individual vehicles owners. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  32  155
8. INDUSTRY OVERVIEW (cont’d) Fraudulent Cases Difficult to Prove Insurance fraud is defined as any deliberate deception or dishonesty committed for unjustified financial gain. The nature of these frauds may vary from an exaggerated value of a legitimate claim to a completely fabricated claim where losses never occurred. During economic downturns, the tendency for insurance fraud would generally increase. Most of the fraudulent claims are difficult to prove. General insurers would need to continually upgrade their skills and improve their fraud-detection capabilities, while at the same time collaborate with loss adjusters and forensic scientists to detect fraud cases. 3.9 Barriers to Entry Barriers to entry are obstacles that make it difficult for new players to enter into the industry. High initial investment Insurance industry is a capital intensive sector. In Malaysia, BNM sets a minimum RM100 million paid up capital and a CAR requirement of 130%. The requirements would generally make it harder for smaller new entrants to achieve profitability especially if it takes a long period before the actual gains can be obtained. This high initial investment is often a barrier and may prevent many new entrants from entering the industry. Operating License The insurance industry in Malaysia is regulated by BNM and insurance companies are required to apply for a license in order to operate. Currently, BNM is encouraging insurance companies to strengthen by mergers. As such, new entrants may face difficulties in applying for new licenses during this consolidation phase. 3.10 Competitive Analysis 3.10.1 Competitive Landscape There are 26 licensed general insurance operators in Malaysia, out of which 12 companies have majority foreign ownership and 14 are categorised as local-owned. Several of these companies may also provide life insurance. Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  33  156
8. INDUSTRY OVERVIEW (cont’d) 3.10.2 Industry Players Other than the motor insurance segment which is required to be provided by law, most of the industry players operate in all four of the main sectors namely MAT insurance, fire insurance, medical and PA insurance as well as other miscellaneous insurance. Nevertheless, there are some industry players that predominantly operate in a dominant class of business within their insurance portfolio such as motor, medical and PA or MAT whereby the segment contributes more than 40% revenue to the company’s portfolio. Licensed General Insurance Operators in Malaysia, 2013 8. INDUSTRY OVERVIEW (cont’d)
ACE Jerneh Insurance Berhad  ACE Jerneh Insurance Berhad was formed on 4th January 2012 with the successful merger between ACE Synergy Insurance Berhad and Jerneh Insurance Berhad. Ace Jerneh Insurance is a subsidiary of ACE Group.  General  Foreign  Allianz General Insurance Company (AGIC)  AGIC is a wholly owned subsidiary of Allianz Malaysia Berhad (AMB). AMB acquired Commerce Assurance Berhad in 2007 and transferred its general insurance business to AGIC in 2009.  Motor  Foreign  American International Assurance Berhad (AlA Berhad)  AlA Berhad, a member of the AlA Group, started its operations in Malaysia in 1948.  Medical and PA  Foreign  AmG Insurance Berhad (AmG)  AmG is a joint venture between AmBank Group and Insurance Australia Group. On 12th April, 2012, AmG acquired Kurnia Insurance (M) Berhad for RM1.6 billion. Post-acquisition, both AmG and Kurnia brands will be retained.  Motor  Local  AXA Aftin General Insurance Berhad (AXA)  AXA is a joint venture between AXA SA and Affin Holding Berhad. It was incorporated on 12th July, 1975 as a licensed general insurance company. In 2010, AXA acquired BH Insurance (M) Berhad, and operate as a single entity under AXA brand starting from 1st January 2011.  Motor  Local  Berjaya Som po Insurance Berhad (Berjaya Sompo)  The company was incorporated as The Tokio Marine and Fire Insurance (M) Sdn Bhd in 1980. After several branding exercises, it became a pUblic company under the name Berjaya General Insurance Berhad. In 2007, the company changed name to its current name to reflect the partnership between Berjaya Capital and Sompo Japan Insurance Inc.  Motor  Local  Chartis Malaysia Insurance Berhad (Chartis)  The company changed its name from AIG General Insurance (M) Berhad to Chartis Malaysia Insurance Berhad with effect on 1st December 2009, following the rebranding exercise by its ultimate holding company, American International Group Inc.  General  Foreign
Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  34  157
“::§),:”;;,,,”:. ::-. ~-~~’:;’~” “,>-,,-‘o~ :,~”” ~ ~~-:’;” , ~ ,,,,~~ ~~’:!;.: =• ~ “~~,’ :~ ‘””, _ ,~~-~/,,/’ .’ ‘” .-‘-” ~,y ” {Jns~t~~cie;C~rl,\pa’p~/i; ‘~ ~:’ , :> :’~~: :”~:-‘ “: ,~ptbfile -,: , ~ ~ ~’/. :’:;’,KeY B~~~eSs ,:, O~nership , -,::t~t~::/~:<~’;;~~:’~~v£”;:~~<l~~,::~:'(‘~~\[~:>~),f ;”‘~’~:'<;~>’~~~~(‘~~~~::\,y -‘ ~:’~j:’ -,~’,~-:~. ~ F 0 (‘. ‘ ~> :~~< ~ At the end of 2007, Malaysia National Insurance and Takaful Nasional merged with Malayan Banking Bhd’s (Maybank) insurance and takaful arm, Mayban Fortis Holdings Bhd,Etiqa Insurance MATconsisting of Mayban Life Assurance Bhd, LocalBerhad (Etiqa) Mayban General Assurance Bhd and Mayban Takaful Bhd to become Etiqa which operates under two entities, Etiqa Insurance Berhad and Etiqa Takaful Berhad. The company was incorporated in 1973. It was formerly known as Aetna Universal Insurance ING Insurance Medical and Berhad before changing its name in May 2002. ForeignPABerhad (ING) ING operates as a subsidiary of ING Groep NV. Kurnia commenced operation in 1991 to conduct general insurance business. In 2012,
Kurnia Insurans (M) it was acquired by AmG. Post-acquisition, Motor LocalBerhad Kurnia’s brand will still be used until the integration process is complete which is expected within two years from 2012. Lonpac, a wholly owned sUbsidiary of LPILonpac Insurance Capital Berhad, was incorporated in Malaysia General LocalBerhad (Lonpac) on 12th July 1994. In 2002, MCIS Insurance Berhad merged with MCIS ZURICH Zurich Insurance (M) Berhad to form MCIS General LocalInsurance Berhad Zurich Insurance Berhad. MSIG is a subsidiary of Mitsui Sumitomo Insurance Company, and a member of MS&AD Insurance Group. MSIG was formed MSIG Insurance (M) when Mitsui Sumitomo Insurance (M) Berhad Motor ForeignBerhad (MSIG) merged with Aviva Insurance Berhad in 2006. In 2010, Hong Leong Assurance Berhad merged its general insurance with MSIG. MCI was established in 1976 as a joint venture MUI Continental general insurance company between Malayan Insurance Berhad Motor LocalUnited Industries Berhad and CNA Financial (MCI) Corporation. Multi-Purpose
MPIB was established in 1973. It is a wholly Insurans Berhad
owned subsidiary of MUlti-Purpose Capital (MPIB), a wholly
Holdings Berhad, which in turn is a wholly General Local owned subsidiary of owned subsidiary of Multi-Purpose Holdings MPHB Capital
Berhad. OAC was incorporated in 1998. In 2000, it became the member of the Great EasternOversea Assurance Holdings Group, following the merger of OAC Corporation (M) General ForeignSingapore with Great Eastern Holdings Ltd inBerhad (OAG) Singapore. In 2010, OAC acquired Tahan Insurance Malaysia Berhad. P&O was established in 1972 as a licensed Pacific & Orient insurer. It is a subsidiary of Pacific & Orient Insurance Co.
Berhad. In 2012, Sanlam Ltd. concludes the Motor Local Berhad (P&O) agreement to acquire 49% of Pacific Orient Insurance Co. Berhad. The company was established on 8th June Progressive 1974 under the name Sri Bumi Insurance Sdn LocalGeneralInsurance Berhad Bhd before it was renamed to Progressive Insurance Sdn Bhd on 7th December 1975.
Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  35  158
8. INDUSTRY OVERVIEW (cont’d)
Prudential Assurance Malaysia Berhad (Prudential) QBE Insurance (Malaysia) Berhad (QBE) RHB Insurance Berhad The Pacific Insurance Berhad Tokio Marine Insurans (M) Berhad Tune Insurance (formerly known as Oriental Capital Assurance Berhad) UnLAsia General Insurance Berhad  The company was converted to a public company on 30th May 1997 to become Progressive Insurance Berhad. Prudential was established in 1924. It is a part of Prudential pic of the United Kingdom. The company was established in 1905 as a joint venture between aBE and MBf Insurans Berhad. In April 2002, both company merged to form aBE-MBF Insurans Berhad. On 31st December 2004, the company changed to its current name. Currently, it is a member of the aBE Insurance Group and forms part of its Asia Pacific Division operations. The company was incorporated in 1979 as NEM Insurance (M) Sdn Bhd before changing its name to D&C Insurance Sdn Bhd in 1990. In July 1997, it was renamed to its current name. The company was established in 1984 as The Netherlands Insurance (M) Sdn Bhd. The name of the company was changed to The Pacific Netherlands Insurance Berhad 1994 and The Pacific Insurance Berhad in 1995. On 24th March 2011, Fairfax Asia Limited acquired 100% of the equity of The Pacific Insurance Berhad, and Fairfax Financial Holdings Limited of Canada became the ultimate holdinQ company. The company was incorporated in 1980 as Tokio Marine & Fire insurance (M) Sdn Bhd. After several name changes, the company changed to its current name in 1999 after acquiring Wing On General Insurance Berhad. It acquired Amanah General Insurance Berhad in 2002, Asia Insurance (Malaysia) Berhad in 2007 and PanGlobal Insurance Berhad in 2009. Tune Insurance was incorporated in 1976 under the name of United Oriental Assurance Sdn Bhd. It was converted to United Oriental Assurance Berhad in 1997. In 2003, the company assumed its present name after the successful merger with Capital Insurance Berhad. in 2012, Tune Group acquired 80% stake in Oriental Capital Assurance Berhad and renamed it as Tune Insurance The company was established in 1977 when South East Asia Insurance Berhad obtained its general insurance license. In 1985, DRB­Hicom acquired the company. The company expanded in 2002 by acquiring Overseas Union Insurance Berhad. In 2003, the company adopted its current name as a result of a strategic partnership between DRB­HICOM Berhad and United Overseas Bank Group.  Medical and PA General General General Motor Motor Motor  Foreign Foreign Local Foreign Foreign Local Local
Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  36  159
8. INDUSTRY OVERVIEW (cont’d) Historical Property Market Transaction Value in Malaysia, 2001-2012 160,000 140,000 “2 120,000 ~ ·E 100,000 :E 80,000~ GJ ::s 60,000iii > 40,000 20,000 0
2001 4.2 Property Investment Prospects in Selected Area in Malaysia Penang Island The Penang Island is part of the North Corridor Economic Region (NCER). There are three primary corridor areas that are highlighted as a primary development corridor for the Penang Island. They are: • George Town -Sayan Saru -Sayan Lepas
• George Town -Ayer Itam -Paya Terubong
• George Town -Tanjung Tokong

Of the three corridors, the George Town -Sayan Saru -Sayan Lepas encompass the largest area in Penang Island whereby the key development activities are comrnercial, industrial and residential activities. The George Town -Ayer Itam -Paya Terubong corridor will be developed with emphasis on commercial and residential sectors. Development of tourism based activities will be mainly focused in the George Town ­Tanjong Tokong corridor area. The development activities that are permitted in this corridor include the development of hotels, resorts, service apartments as well as residential and· commercial properties that Planned Corridor Development in Penang Island Executive Summary of the IMR Report  Page  © Frost &Sullivan 2013  41  164

Notes: • Main development corridor 1. George Town -Bayan Baru -Bayan Lepas
2. George Town -Ayer /tam -Paya Terubong
3. George Town -Tanjong Tokong

Source: Extracted from the IMR Report prepared by Frost & Sullivan Tun Razak Exchange (TRX)  TRX (previously known  as  Kuala  Proposed Site of the KLFID  Lumpur  Financial  International  District) is a 70 acre land located  .’,  within  the  vicinity  of Jalan  Tun  Razak,  Jalan  Sultan Ismail and  the Putrajaya elevated highway at  the  southern  part  of  the  city.  Under the  ETP,  TRX  has been  identified  as  one  of  the  Entry  Point Project to transform Kuala  Lumpur into an  international hub  for banking and finance as well as  related professional services, and  BAN DAR MALAYSIA  is  expected  to  generate  RM26  billion  in  development  projects.  Source: Extracted from the IMR Report p repared by Frost & Sullivan  The Government has designated
8. INDUSTRY OVERVIEW (cont’d) support tourism activities. Due to the scarcity of land in the Penang Island, the development of these corridors has contributed to the rise of prices for both properties and lands. In the past five years, property prices have increased by more than 25%.
Greater KL as a National Key Economic Area (NKEA). As such, the city will receive prioritised Government support and fast-tracked approvals for its development projects. The development in various regional economic corridors and Greater KL is expected to have a positive impact on property development and the market in the coming years. Pengerang Pengerang is located at the southeastern part of Johor. It is located along international shipping routes with deep water port facilities and is close to petroleum production facilities. The prices of real estate in the area have been rising substantially since the announcement of oil and gas projects in 2011. Many of the lands in the area are being acquired for the development of the RM60.0 billion PETRONAS Refinery and Petrochemical Integrated Development (RAPID) project. Slated for full operations in 2016, the RAPID project in Pengerang is expected to be bigger than the combined areas of the other PETRONAS hubs in Terengganu (Kerteh), Melaka Executive Summary of the IMR Report  Page  © Frost &Sullivan 2013  42  165
8. INDUSTRY OVERVIEW (cont’e!) and Pahang (Gebeng). The second LNG import and regasification facility for Peninsular Malaysia is being planned to be built at Pengerang as part of the RAPID project. The RAPID project is part of ETP, and the Government has identified it as a high-impact project. Pengerang Development Area in Johor
Source: Extracted from the IMR Report prepared by Frost & Sullivan THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Executive Summary of the IMR Report  Page  © Frost &Sullivan 2013  43  166
8. INDUSTRY OVERVIEW (cant’e/) Growth is expected to be highest in the medical and PA insurance segment (CAGR 2011-2016: 13.8%), mainly attributed to rising income per capita, increasing awareness, increasing number of outbound travellers, and regulatory requirement to purchase medical insurance coverage for foreign workers under SPIKPA. The improvement in trade and business sentiments, as well as the economic development plan and the Government’s spending in the construction sector are expected to spur the growth of MAT and fire insurance segments, which are forecast to grow at a CAGR of 7.0% and 7.8% respectively for the period 2011-2016. Prospect in the motor segment is expected to improve further with the expected lifting of the motor insurance tariff by 2016. This segment is forecast to grow at a CAGR of 7.6% from 2011 to 2016. The property occupancy rate in Malaysia is still high, with the national occupancy rate in 2012 for purpose-built office and shopping complex at 82.3% and 79.1 % respectively. The high occupancy rate translates to high demand for the property investment sector. Furthermore, the expected development in Greater KL as one of the designated NKEA and investment in the oil and gas industry at Pengerang are expected to create a higher demand for properties within the vicinity, positively impacting the land value within the vicinity. The stability of the financial sector and positive outlook on the properties market in Malaysia in general, provides a promising growth prospect for MPHB Capital whose key business activities is in the financial service-general insurance industry and property investment. For the general insurance business, their sound financial and risk-management, vast industry experience and home-grown expertise, supported by their wide local distribution channel, providing them with the platform to compete in the local environment. For the property investment business, MPHB Capital is expected to benefit positively as its properties and landbanks are strategically situated in the areas earmarked for development such as the Penang Island, TRX, and Pengerang area. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Executive Summary of the IMR Report  Page  © Frost & Sullivan 2013  45  168

 

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