A critical analysis of the Malaysian risk-based capital framework: A comparison between general insurance and takaful

Yusof, Aida Yuzi and Lau, Wee Yeap and Osman, Ahmad Farid (2016) A critical analysis of the Malaysian risk-based capital framework: A comparison between general insurance and takaful. Institutions and Economies, 8 (4). pp. 23-41. ISSN 2232-1640

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Official URL: https://ijie.um.edu.my/index.php/ijie/article/view...

Abstract

This paper aims to critically analyse the Malaysian solvency system by comparing the existing Risk-Based Capital (RBC) framework for Conventional and Takaful against the seven specific objectives of the original US Risk-Based Capital which was introduced in 1994. In addition, the Malaysian Risk-Based Capital framework is also assessed against the four extended objectives developed by Holzmüller in 2009. The critical evaluation results indicate that the Malaysian Conventional and Takaful Risk-Based Capital frameworks have various shortcomings from both qualitative and quantitative aspects. The framework only fully meets three out of seven objectives of the US Risk-Based capital framework and fulfils one out of four additional objectives developed in 2009: Malaysia’s Risk-Based Capital framework only fulfils the following: the appropriate incentive for capital expansion, measurement of economic values of assets and liabilities, sound financial reporting and assessment of management. As a consequence, it is clear that the current one-size-fits-all approach must be reviewed to improve the Malaysian RBC Framework in view of different sizes and assets of existing firms in the industry.

Item Type: Article
Uncontrolled Keywords: Insurance supervision; Risk management; Risk-based capital; Takaful
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculty of Economics & Administration
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 28 May 2018 03:55
Last Modified: 20 Dec 2019 07:06
URI: http://eprints.um.edu.my/id/eprint/18745

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