Discussion Paper on Risk-Based Capital Framework for Insurers and Takaful Operators (Framework Design)

Issuance Date

30 June 2021

Summary

This Discussion Paper explores proposed enhancements to the design of the capital adequacy framework for licensed insurers and licensed takaful operators, as part of the Bank’s multi-phased review of the overall solvency framework. These proposed enhancements aim to ensure that the framework remains effective under changing market conditions and facilitates consistent and comparable capital adequacy measurement across the insurance and takaful industry, where appropriate. In developing the proposals, the Bank has also taken into consideration the developments in global capital standards. 

This Discussion Paper seeks to initiate discussions and solicit feedback from ITOs on the following four key areas:

• recognition of the loss absorbing capacity of management actions under Total Capital Available;
• appropriate target risk level for calibration of capital charges;
• comprehensiveness of the risk components under Total Capital Required and the appropriateness of the approach for measuring these risks; and
• feasibility of introducing a single formula for calculating the Capital Adequacy Ratio for ITOs, which promotes greater comparability of capital adequacy across the two industries but reflects uniqueness between insurance and takaful business models.

The Bank invites written feedback on this Discussion Paper, including suggestions for particular areas to be clarified or enhanced and any alternative proposals that the Bank should consider. To facilitate a constructive consultation process, the feedback should be supported with clear justifications, especially on the practical aspects, and accompanying evidence or illustrations, where appropriate.

In addition to providing general feedback, it is highly recommended that respondents also provide feedback to the specific questions set out in this Discussion Paper. 

Responses must be submitted electronically as per the template provided to pfpconsult@bnm.gov.my by 30 September 2021.

In the course of preparing your feedback, you may direct any queries to the following officers:

1. Rajeswari Eliyathamby (rajeswari@bnm.gov.my)
2. Wan Fatin Hamimi Wan Azman (fatinhamimi@bnm.gov.my)
3. Mah Mei Foong (meifoong@bnm.gov.my)
4. Khairul Danial Imran Khairul Nizam (danialimran@bnm.gov.my)

Refer Attachment: 

• Discussion Paper on Risk-Based Capital Framework for Insurers and Takaful Operators (Framework Design)
  • Response Template