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AMB Country Risk Report

August 18, 2015

Our Insight, Your Advantage.

Malaysia
Country Risk Tier

The Country Risk Tier (CRT) reflects A.M. Bests assessment

of three categories of risk: Economic, Political and Financial
System Risk.

CRT-3

Malaysia has moderate levels of economic and political risk

and a low level of financial system risk. A.M. Best considers
the majority of countries in Southeast Asia to be categorized
as CRT-3 or CRT-4. The exceptions are Micronesia and Papua
New Guinea, as CRT-5 countries, and Singapore, the sole
CRT-1 country.

Economic Risk
Moderate
Low

High

Very Low

Gross domestic product (GDP) growth is expected to

slow from 6.0% in 2014 to a forecasted 4.8% in 2015. Lower
growth stems mainly from weaker tax revenues, lower
investments and lower export earnings due to the decline in
oil price. Growth over the medium term is expected in the
5.0% range.

Very High

Political Risk
Moderate

Iceland
Greenland

Finland
Sweden

Low

High

Norway
Estonia

Isle of Man

Very Low

Ireland

Lithuania

Very
High
Belarus

United
Kingdom

Netherlands

Liechtenstein

Czech
Republic

Austria
Switzerland

France

Ukraine

Slovakia

Luxembourg

Jersey

Bosnia & Serbia

Herzegovina

Bulgaria

Montenegro

Georgia

Macedonia

Armenia

Albania

Spain

Portugal

Gibraltar

Tunisia

Malta

Cyprus

Syria

Moderate

Lebanon

North Korea

Tajikistan

South
Korea

China

Afghanistan

Iraq

Israel

Japan

Iran

Jordan

Low

High

Algeria

Kuwait

Libya

Mauritania

Egypt

Saudi Arabia

Bhutan
Bangladesh

U.A.E.

Myanmar

India

Taiwan

Northern Mariana Islands

Hong Kong

Laos

Wake Island

Macau

Mali
Chad

Niger

Eritrea

Sudan
Very
High

Thailand

Yemen

Vietnam

Philippines

Cambodia

Benin

Nigeria

Ethiopia

Equatorial Guinea
Sao Tome & Principe

Somalia

Sri Lanka

Central Africa Republic

Togo

Brunei

Gabon

Congo

Palau

Malaysia
Singapore

Cameroon
Uganda

Kenya

Sumatra

Rwanda
Dem. Republic
Burundi
of Congo

Seychelles

Tanzania

azil
Malawi

Nauru
New Guinea

Indonesia

Namibia

Market Outlooks

Mauritius
Madagascar

Botswana

Solomon Islands

Reunion

Australia

New Caledonia

Swaziland

Norfolk Island

Lesotho
South Africa

Tuvalu

Vanuatu

Mozambique

For information on companies followed

Papua
New Guinea
Coral Sea
Islands

Comoros

Zambia
Zimbabwe

Federated States
of Micronesia

Borneo

East Timor
Angola

Marshall Islan

Guam

Dijbouti

Burkina Faso
Ghana
Guinea
Sierra
Cote d'Ivoire
Leone
Liberia

Nepal

Qatar

Oman

Senegal

Guinea-Bissau

Pakistan

Bahrain

Western Sahara

Very Low
Gambia

Uzbekistan

Turkmenistan

(Occupied by Morocco)

Cape Verde

nd

la

Is

Kyrgyzstan

Azerbaijan

Turkey

Greece

Monaco

ril

Ku

Russia

Financial System Risk

Italy

Mongolia

Romania

Croatia

Andorra

Morocco

Kazakhstan

Republic of
Moldova

Hungary

Slovenia

San Marino

Canary
Islands

Sakhalin

Poland

Germany

Belgium

Guernsey

Azores

Russia

Russia

Latvia

Denmark

CRT 1 2 3 4 5

Copyright 2015 by A.M. Best Company, Inc.

All rights reserved. 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.

New Zealand

AMB Country Risk Report

Malaysia

Regional Summary: Southeast Asia

Economic growth for the region will
vary depending on country specific
factors. Gross domestic product growth for
the Association of Southeast Asian Nations
(ASEAN) as a whole is forecasted at 5.1%
for 2015 and 5.3% for 2016. Growth is
expected to be driven by exports and an
increase in consumer consumption.
Potential external risks for the region in
the coming year include the slowdown in
the Chinese economy, the normalization
of the United States monetary policy,
potential exchange rate volatility, lower
commodity prices, regional unrest and the
potential for increased political instability.
Political changes and social unrest
have the potential to affect foreign direct
investment inflows and tourism revenues.
The region has been attractive due to
low labor costs, the prevalence of natural
resources and the need for new and
improved large-scale infrastructure.

Vital Statistics 2014

Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2013 - 2014)

USD bn
mil
USD
%
%
USD mil
USD mil
%

326.93
30.3
10,804
6.0
3.1
10,231
5,633
3.4

Regional Comparison
Country Risk Tier
CRT-3
CRT-4
CRT-4
CRT-1
CRT-3
CRT-4

Malaysia
Indonesia
Philippines
Singapore
Thailand
Vietnam
Source: IMF, Axco, Swiss Re and A.M. Best

Economic Growth

Economic Risk: Moderate

Despite a fairly well diversified
economy, Malaysia remains a significant
exporter of hydrocarbons, deriving
approximately 15% of its GDP, 30% of
government revenues and 15% of its
exports from the hydrocarbon sector.

8
Real GDP

CPI Inflation

Malaysia should benefit from improving

conditions in the United States, one of
the countrys largest export markets.
The U.S. accounts for about 20% of
merchandise exports. A weaker ringgit,
the countrys currency, is also expected
to boost manufactured exports through
increased competitiveness.

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

-1

-2

Source: IMF World Economic Outlook and A.M. Best

Additional economic growth in 2015 is

expected to be led by consumption and
growth in private investment in the nonoil sector.
2

AMB Country Risk Report

Malaysia

Political Risk: Moderate

Political Risk Summary

The United Malays National Organization

is the dominate political party. However,
it lost its two thirds majority vote, first
in 2008 and again in 2013, indicating an
increasingly more polarized population.

Score 1 (best) to 5 (worst)

Malaysia

World Average

International Transactions
Policy

5
4

Legal System

Monetary Policy

While the government is generally stable,

an alleged corruption scandal involving
the countrys prime minister has the
potential to cause political instability.The
prime minister is accused of embezzling
hundreds of millions of dollars from the
state development fund.

2
1

Regional Stability

Fiscal Policy

Social Stability

Business Environment

Government Stability

Labor Flexibility

Source: A.M. Best

Malaysia is a pro-business country with

excellent infrastructure and a highly
qualified labor pool.The country ranks
18th out of 189 countries in the World
Banks 2015 Ease of Doing Business Survey.

GDP Per Capita and Population

for Selected Countries

Financial System Risk: Low

60,000

300
GDP Per Capita

Population

250

40,000

200

USD

Millions

50,000

30,000

150

20,000

100

10,000

50

Malaysia

Indonesia

Source: IMF and A.M. Best

Philippines

Singapore

Thailand

As a result of falling oil revenues, the

country has been proactive in mitigating
the projected budget shortfall by
implementing a goods and services tax and
abolishing fuel subsidies. It is estimated
that Malaysia spent approximately 20% of
its total fiscal budget on subsidies in 2014.

Vietnam

The insurance industry in Malaysia

is regulated by the central bank, Bank
Negara Malaysia.
Malaysias financial system is strong
and well diversified, with the banks
well-capitalized and profitable. However,
the financial sector does face potential
vulnerabilities with regards to years of
rapid credit growth.
Malaysia has a deep domestic bond
market which reduces its reliance on
external financing.
Asset quality continues to improve,
with a non-performing loan ratio of 1.8%
compared with 6% at the end of 2007.
3

AMB Country Risk Report

Malaysia

GUIDE TO BESTS COUnTry rISk TIErS

A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Bests Credit Ratings. Countries are placed into one of five tiers, ranging from CRT-1 (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to CRT-5 (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurers financial stability, strength and performance.
A.M. Bests Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.

Country risk Tiers

Country risk Tier

Definition

CRT-1

Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.

CRT-2

Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.

CRT-3

Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.

CRT-4

Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.

CRT-5

Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.

Country risk reports

A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a countrys Country
Risk Tier assignment. It is not intended to summarize A.M. Bests opinion on any particular insurance market or the prospects for that market.

Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.

Category of risk

Definition

Economic Risk

The likelihood that fundamental weaknesses in a countrys economy will cause adverse developments for an insurer.
A.M. Bests assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.

Political Risk

The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the governments economic policies.

Financial System Risk

Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industrys level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.

Political risk Summary

To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.

Category

Definition

International Transactions
Policy

Measures the effectiveness of the exchange rate regime and currency management.

Monetary Policy

Measures the ability of a country to effectively implement monetary policy.

Fiscal Policy

Measures the ability of a country to effectively implement fiscal policy.

Business Environment

Measures the overall quality of the business environment and ease of doing business.

Labor Flexibility

Measures the flexibility of the labor market, including the companys ability to hire and fire employees.

Government Stability

Measures the degree of stability in a government.

Social Stability

Measures the degree of social stability, including human development and political rights.

Regional Stability

Measures the degree of stability in the region.

Legal System

Measures the transparency and level of corruption in the legal system.

Country risk Tier Disclosure

A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Bests Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Copyright 2015 by A.M. Best Company, Inc.

Version 091714

Copyright 2015 by A.M. Best Company, Inc.

All rights reserved. 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.