Technical Terms

AM. Best Company AM. Best Company AFS capital charge ~AR ceding insurer claim combined ratio excess of loss treaty extended warranty facultative treaty gross direct premiums gross premiums hull insurance product AM. Best Company is a global full service credit rating agency dedicated to serving the insurance industry. Its financial strength rating is an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. A rating of “A” is assigned to an insurer that has an excellent ability to meet their insurance obligation Available-for-sale financial assets refers to financial assets that are designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss The amount of capital that is required to be held by an insurance company which is determined based on the risk profile of each insurance company’s assets and liabilities and the amount of business underwritten by the insurance company Capital adequacy ratio, measures the adequacy of the total capital available in the insurance and shareholders’ funds of an insurer to support the total capital reqUired An insurer that reinsures part or the whole of a risk with one or more reinsurers A demand made by an insured person or the beneficiary of an insurance policy in respect of a loss which is within the scope of cover of the insurance policy Combined ratio provides a measure of the underwriting profitability of a general insurance company. A combined ratio of less than 100% represents an underwriting profit while a combined ratio of more than 100% represents an underwriting loss A type of reinsurance treaty which provides that the reinsurer pays all of or a specified percentage of loss arising from a particular occurrence or event (frequently of a more or less catastrophic nature) in excess of a fixed amount and up to a stipulated limit Extended warranty refers to insurance coverage that extends the warranty period for certain products such as electrical/electronic appliances and motorcycles A reinsurance contract under which a ceding insurer has the option to cede and the reinsurer has the option to accept or decline individual risks Gross direct premiums represent premiums written by MPIB without deduction for premiums ceded by it to reinsurers, and excludes premiums ceded to MPIB from other insurers in its inwards reinsurance business Gross premiums represent premiums written by MPIB without deduction for premiums ceded by it to reinsurers, and includes premiums ceded to MPIB from other insurers in its inward reinsurance business Hull insurance product refers to insurance coverage for marine vessels and aircrafts. Marine vessels include barges, cargo vessels and ocean going liners. Aircrafts include helicopters, light aircrafts and commercial aeroplanes xvi IBNR liability insurance management expenses management expenses ratio MAT MMIP net claims incurred net claims incurred ratio net commission expenses net commission ratio net earned premiums net retained loss net retained premiums PA premium premiums ceded to reinsurers Incurred but not reported claims, refers to losses which have occurred during a stated period, usually a financial year, but have not yet been reported to the insurer as of the date under consideration Type of insurance policy that protects the policy holder against legal liabilities from a third party Management expenses reflect the expenses incurred in the day-to­day operations of MPIB other than net claims incurred and net commission expenses Management expenses over net earned premiums. This ratio measures operational expenses, mainly relating to staff costs, general administration and marketing expenses as a proportion of net earned premiums. A higher ratio indicates higher management expenses as a proportion of net earned premiums, hence lower profitability Marine, aviation and transit The Malaysian Motor Insurance Pool, refers to a pooling arrangement between general insurance companies operating in Malaysia to jointly underwrite insurance cover for vehicles whose owners are unable to obtain coverage from any individual insurer Net claims paid less provisions for outstanding claims at the beginning of the year plus provisions for outstanding claims at the end of the year Net claims incurred over net earned premiums. This ratio is one of the measures of underwriting profitability of insurance policies. A higher ratio indicates higher net claims incurred as a proportion of net earned premiums, hence lower profitability Net commission expenses reflect the commission expenses incurred after deducting commission income received from reinsurers Net commission expenses over net earned premiums. This ratio measures the cost of acquiring policies through agents and brokers as a proportion of net earned premiums. A higher ratio indicates higher net commission expenses as a proportion of net earned premiums, hence lower profitability Gross premiums less premiums ceded to reinsurers and net changes in UPR The amount of loss retained by an insurance company after deducting the share of all the reinsurers who have accepted a certain percentage of risk from the insurance company Gross premiums less premiums ceded to reinsurers Personal accidents The monetary consideration payable once or periodically by a policy owner to an insurer in return for the insurance coverage provided The portion of gross premiums ceded to reinsurers (who share part of the insurance risk that we have assumed under the general insurance contracts written), which correlate to the amount of insurance contract risks that are transferred to our reinsurers. xvi; proportional treaty An agreement under which an insurer and a reinsurer participate proportionately in the premiums and losses on every risk that comes within the scope of the agreement RBC Framework Risk-Based Capital Framework for Insurers issued by BNM, the capital adequacy framework for all insurers licensed under the Insurance Act reinsurance The practice of sharing or spreading of an insured risk of an insurer or the reinsured by ceding part of the risk to another insurer or the reinsurer. The reinsurer, in consideration of a premium paid to it, agrees to indemnify the reinsured for part or all of the liability assumed by the reinsured under a contract or contracts of insurance which the reinsured has issued retention ratio The ratio of net retained premiums to gross direct and reinsurance accepted premiums less reinsurances. Retention ratio indicates the amount of risks and the corresponding premiums that an insurer is prepared to take for the insurance policies it underwrites based on their risk appetite and financial capacity rider An attachment to an insurance policy that modifies its conditions by expanding benefits S&P Standard & Poor’s is a financial-market intelligence provider. A rating of “A” assigned to a company denotes strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances special risk insurance Special risk insurance products refer to specialised insurance policies designed to meet the special needs of certain industries or market segments such as those designed for the oil and gas industry, jewellery shops, pawnbrokers, professional indemnities, libel and slander, port operators liabilities and for freight forwarders Tier 1 capital The aggregate of the following: (i) issued and fully paid-up ordinary shares (or working fund, in the case of a branch of a foreign insurer);
(ii) share premiums;

(iii) paid-up non-cumulative irredeemable preference shares; (iv) capital reserves;
(v) retained profits(1);
(vi) the valuation surplus(2) maintained in the insurance funds; and

(vii) 50% of future bonuses(3). Notes: (1) In the event that an insurer has accumulated losses, the losses should be deducted from the capital.
(2) Gross ofdeferred tax, if any.
(3) Future bonuses defined as maximum (zero; the difference between the par reserves on total benefits and par reserves on guaranteed benefits only, calculated on the bases described in Paragraph 3.2 of Appendix VII of the Risk-Based Capital Framework for Insurers issued by BNM). For the purpose of determining future bonuses, the value of ‘par reserves on guaranteed benefits only’ should be zerorised if it is negative.

xviii xix Tier 2 capital  Includes the following capital instruments:  (i)  cumulative irredeemable preference shares;  (ii)  mandatory(1) capital loan stocks and other similar capital instruments;  . (iii)  irredeemable subordinated debts;  (iv)  available-for-sale reserves(2);  (v)  revaluation reserves for self-occupied properties and other assets;  (vi)  general reserves; and  (vii)  subordinated term debts.  Notes:  (1)  Refers to irredeemable loan stocks mandatorily convertible to equity.  or  capital instruments  which  are  (2)  In the event that an insurer has fair value losses for available-for-sale instruments, the losses should be deducted from the capital.  Total capital available  The aggregate of Tier 1 capital and Tier 2 capital of the insurer less the following deductions:  (i)  goodwill and other intangible capitalised expenditure);  assets  (for  instance  (ii)  deferred tax income/(expenses) and deferred tax assets;  (iii)  assets pledged to support credit facilities obtained by an insurer; and  (iv)  investment in subsidiaries  Total capital charges  The aggregate of capital charges for credit risk, capital charges for market risk, capital charges for general insurance liabilities and capital charges for operational risk  Total capital required  The aggregate of the total capital charges for each insurance fund and the total capital charges for all assets in the shareholders’ fund or working fund, in the case of a branch of a foreign insurer. It is the higher of the aggregate of capital charges for credit, market, insurance and operational risks faced by an insurer or the surrender value capital charges(1), where applicable  Note:  (1)  Surrender value capital charges is only applicable for life insurance companies. Surrender value is the sum of money an insurance company pays to the policy holder in the event the policy is voluntarily terminated by the policy holder before its maturity or the occurrence of the insured event  underwriting  The process of examining and classifying insurance risk, in order to decide whether to accept such risks and the conditions on which the risks should be accepted  underwriting profit 1loss  Net earned premiums less net claims incurred, expenses and management expenses  net commission  UPR  The portion of net retained premiums less the related acquisition costs of insurance policies written that relate to unexpired periods of the policies at the end of the financial year  net the

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