Performance Of Investment Linked Insurance Plan In Malaysia Finance Essay

Introduction

Investing is defined as an activity that utilizes money in order to have positive returns and increase wealth or production in the hereafter. From a state position, investing is of import in order to hike up the market and protect a state from devolution. However from an single side, investing is of import to increase your return and make wealth to you, so you have more fiscal freedom. Malaysia has many options for investing, such as, fixed sedimentation, existent plus, equity market, money market, unit trust, every bit good as insurance.

Insurance covered two chief types which are life insurance and general insurance. Life insurance is an insurance coverage that pays out a certain sum of money to the insured or their donees upon a certain event such as decease, critical unwellness, or entire lasting disablement ( TPD ) of the person who is insured. Life insurance screen more than one twelvemonth, it required periodic premium payments by monthly, quarterly or yearly. Life insurance includes several types of merchandise, which included whole life, gift, term, investing linked, life rente program, every bit good as medical and wellness. However, general insurance is an insurance program that protects and covered any losingss and amendss other than life insurance. Normally general insurance covered merely one twelvemonth, and the premiums are paid by one clip footing. General insurance covered liability originating from harm caused by policyholder to a 3rd party, belongings loss, and inadvertent decease or hurt. General insurance program includes motor insurance, travel insurance, homeowners insurance and others.

In 21st century, insurance will be one of the investor ‘s picks when they want to do investing ‘s determination. This is because people would wish to hold more return at the same clip with protection coverage on their investing. Previously, insurance policy is merely a policy with protection tool to the populace. However, today, insurance companies provide non merely the basic insurance protection. Most of the insurance companies in Malaysia providing added services go with basic protection coverage which included investing and gift, retirement, instruction, wellness and medical in order to guarantee that investors would incorporate loss bar every bit good as safe and sound fiscal status. Therefore, insurance industry is quickly increasing today.

( Beginning: www.bnm.gov.my )

Figure 1

Year

New Business

Entire Premium ( Billion )

Changes ( Percentage )

2005

6.70

0.6 %

2006

7.16

6.9 %

2007

7.59

5.9 %

2008

7.23

-4.6 %

2009

7.52

4.0 %

Figure 1 shows that Malaysia ‘s life insurance new concern entire premium is increasing annually, except in 2008. This is due to the planetary economic lag. Fiscal crisis affected insurance industry, as a consequence new concern in entire premium declined.

( Beginning: www.bnm.gov.my )

Figure 2

Year

Net Premium ( Billion )

Changes ( Percentage )

2005

7.55

9.3 %

2006

7.77

2.8 %

2007

8.19

5.4 %

2008

8.98

9.7 %

2009

9.35

4.1 %

Figure 2 shows that general insurance is turning steadily from twelvemonth 2005 to 2009.

ILIP is a life insurance that combines investing, salvaging and protection. Part of the premiums will be invested in specific investing financess of investors ‘ pick. ILIP have the flexibleness to allow investor apportion their insurance premiums towards protection and investing every bit good as take the type of financess based on investor ‘s hazard aptitude. ILIP includes equity fund, bond fund, managed fund, balance fund, Islamic fund, Asia managed fund, and other financess. ILIP has two types of program, there are individual premium and regular premium program. Single premium program is the policyholder wage a individual ball amount premium payment alternatively of paying the premium monthly. However, regular premium allows investors to pay premium either monthly, quarterly, semi-annually or yearly.

( Beginning: www.bnm.gov.my )

Figure 3

Year

New Business

Entire Premium ( Billion )

Changes ( Percentage )

2005

1.72

-23.6 %

2006

3.17

84.5 %

2007

3.68

16.09 %

2008

2.48

-32.6 %

2009

2.07

-16.5 %

2010

2.62

26.6 %

Figure 3 illustrated ILIP had boost up in twelvemonth 2006 by 84.5 % . However, ILIP declined in new concern entire premium in twelvemonth 2008 and 2009. This is because Malaysia was hit really difficult by the planetary depression in twelvemonth 2008 and 2009. After fiscal crisis, consumers have become more risk aware. In 2010, ILIP entire premium increased by 26.6 % . ILIP allowed investors to reassign the hazard associated with an implicit in investing.

1.10List of Insurance Company in Malaysia as of 2011

There are 10 Life and General insurance companies in Malaysia as of 2011. Out of 10 companies, merely 9 of the undermentioned provide ILIP.

Company

1

Great Eastern Life Assurance ( Malaysia ) Berhad ( Great Eastern )

2

American International Assurance Bnd. ( AIA Bhd. )

3

ING Insurance Berhad ( ING )

4

Prudential Assurance Malaysia Berhad ( PAMB )

5

Malayan Assurance Alliance Berhad ( MAA )

6

MCIS ZURICH Insurance Berhad ( MCIS ZURICH )

7

Manulife Insurance Berhad ( Manulife Malaysia )

8

Tokio Marine Life Insurance Malaysia Berhad ( TM ASIA Life )

9

Allianz Malaysia Berhad ( Allianz )

Great Eastern was certifies by the Malaysia Book of Records in 1998 as the “ Oldest & A ; Largest Life Insurer ” in Malaysia, as the company already operations in Malaysia for 102 old ages in 2008. Great Eastern owns 21 operational subdivision offices countrywide.

AIA Bhd is a member of AIA Group, which is a taking life insurance organisation in Asia with alone heritage of functioning clients across the universe ‘s most dynamic part for 90 old ages. AIA Bhd offering life and general insurance, it supported by a web of 23 subdivisions countrywide.

ING is a life and general insurance company. The company is a portion of the ING Group, a planetary fiscal establishment of Dutch beginning offering assortments of fiscal services to over 85 million private, corporate and institutional clients in more than 40 states.

PAMB was established in Malaysia in 1924. PAMB is portion of Prudential pls of the United Kingdom, established in London in 1848. Prudential plc is one of the universe ‘s prima retail fiscal services group. Prudential plc has already operation for over 160 old ages. PAMB provides life and general insurance, and a full scope of fiscal services through 42 subdivisions countrywide.

MAA was incorporated in 1968 and is a subordinate of MAA Holding Berhad. MAA Holding Berhad is listed on the chief board of the Bursa Malaysia Securities Berhad. MAA offering life and general insurance, every bit good as provide assortment fiscal services to the populace.

MCIS ZURICH has a strong planetary links with Zurich Financial Services in Switzerland. The company provides life and general insurance, sustain with 28 subdivision offices.

Manulife Malaysia was established in 1963, as a subdivision of Bahamas-based British American Insurance Company. Manulife Malaysia became Manulife Holdings Berhad in 2008. Manulife Holdings Berhad is listed on the Bursa Malaysia. Manulife Holdings Berhad is a member of Canada-based Manulife Financial Corporation, a taking Canadian-based fiscal services group.

TM Asia Life is a life insurance company with more than 60 old ages. TM Asia Life is a member of Tokio Marine & A ; Nichido Fire Insurance Co. Ltd, which is one of the oldest and largest insurance company is Japan. Tokio Marine & A ; Nichido Fire Insurance Co. Ltd has a worldwide web throughout 38 states.

Allianz is an investing keeping company for life and general insurance company in Malaysia. Allianz is the subordinate of the Allianz Group, which founded in 1890 in Germany, it operates in approximately 70 counties.

Problem Statement

Although ILIP has been developed around 10 old ages in Malaysia, but non all investors are familiar with the trifles of ILIP in the market. Although marketing attempt of insurance companies have been made, but still there are some investors do non understand the trifles of ILIP. At the same clip, deficiency of consciousness it cause the public be deficient in cognition and understanding about the basic construct of ILIP. As a effect, public will lose their confident towards ILIP. In add-on, public are believing that investing in portion market is really hazardous, as ILIP is related to portion market. Besides that, there are a figure of insurance companies offer ILIP in the market, investors do non cognize which one to take. Furthermore, in Malaysia some of the Muslim citizens think that ILIP is a sort of gaming program, therefore they do non lend or prolong the program.

Aim of Study

This undertaking would wish to happen out the public presentation of Investment Linked Insurance Plan ( ILIP ) that Malaysia insurance companies provided.

Furthermore, explore and understand how the ILIP helps policyholder to make wealth or better return with protection coverage.

Provided a comparing of fund public presentation analysis to policyholder, therefore they can choose the fund that suited for their hazard capacity and insurance companies that runing in the market.

Potential policyholder know which companies to take when they want to purchase ILIP.

Theoretical Footing

Portfolio public presentation rating is applied in this research undertaking. Portfolio public presentation rating concerned both hazard and return position of a portfolio investing. Performance rating is the portfolio which focal point on the return earned at the same clip see to the hazard taken to accomplish the portfolio return. Required return is indispensable to all investing determinations Risk affects expected return on every investing. Greater degrees of hazard reflect greater possible return on the investing. The aim of investing is maximizes the return and minimizes the hazard of portfolio.

Investing hazard includes systematic hazard and unsystematic hazard. Systematic hazard can impact the full market, while non-systematic hazard is specify to company, industry, plus or investing. Systematic hazard can non be diminished through variegation. However, unsystematic hazard besides known as diversified hazard can be reduced through important variegation. Investing hazard can be cut down by increasing the figure of investing in your portfolio or put in different types of portfolio. Invest in two or more scope of industries can cut down the investing hazard, this is because different industries will non respond in the same manner to inauspicious events.

Hazard affects expected return on every investing. Greater degrees of hazard reflect greater possible return on the investing. The public presentation rating can be applied through Sharpe and Treynor step. The aim of investing is maximizes the return and minimizes the hazard of portfolio. Sharpe use standard divergence as measuring, it evaluates return comparative to entire hazard, whereas Treynor apply beta as the measuring of return and systematic hazard.

Sharpe =

Treynor =

Diversification plays an of import function in investing. “ Do n’t set all your eggs in one basket ” , means do n’t put a big sum of investing financess into a individual security or portfolio, if your investing depreciates in value, your full financess will be severely affected. On the other manus, “ transporting your eggs in more than one basket ” , can cut down unsystematic hazard and convey better possible returns. Investor should ever diversify because variegation gets rid of a significant per centum of portfolios.

There are few factors to see in public presentation rating. First, determine whether the return of peculiar portfolio or security is big plenty for a given degree of hazard. Second, the clip period must be the same, when comparing the consequences of portfolios. Next, the benchmark must be appropriate reflect the aim of the portfolio. Choose the same type of portfolio as the benchmark to do the comparing easier. Degree of variegation besides takes into consideration in public presentation rating. A director can execute variegation to cut down non-systematic hazard, therefore earned an equal return. Fifth, consistence of portfolio ‘s public presentation is of import. The portfolio public presentation must be consistent over the old ages, the chance of future return will be higher. Therefore, Association for Investment Management and Research ( AIMR ) set a guideline as 10 old ages public presentation record.

Research Questions

Is there a difference in the hazard of ILIP between top 4 insurance companies in Malaysia?

Is there a difference in the return of ILIP between top 4 insurance companies in Malaysia?

Is there a difference in the variegation of ILIP between the top 4 insurance companies in Malaysia?

Is there a difference in the protection coverage of ILIP between the top 4 insurance companies in Malaysia?

Is there a difference in selling point of ILIP between the top 4 insurance companies in Malaysia?

Is there a difference in trifles of ILIP between the top 4 insurance companies in Malaysia?

Is there a difference in characteristics of ILIP between the top 4 insurance companies in Malaysia?

What are the factors that affect the fund ‘s monetary value motion?

Research Significance

Insurance plays an of import function into state, as insurance industry is one of the cardinal countries that would lend to the state ‘s economic growing, because insurance companies supply occupation to people, therefore the unemployment rate lessening.

In the insurance companies ‘ side, throughout this research, consciousness of ILIP can be created towards public. Hence, it will increase the gross revenues every bit good as net income of the company.

For the bing policyholder position, through this research, they will cognize the factors that affect the fund monetary value ups and downs. Therefore, policyholder will take the financess that go good with them the most based on their hazard aptitude every bit good as exercising hazard direction method. . Furthermore, investor can place how ILIP function into kids ‘s instruction, retirement planning, investing chance, and other fiscal demands.

However, possible policyholder will be cognizant of ILIP among 9 insurance companies in Malaysia, therefore they know which companies to travel if they want to purchase ILIP. Furthermore, they can find the attraction of ILIP every bit good as observe and acknowledge how the ILIP create wealth to them

Study Scope

The range of this research undertaking is study on public presentation of ILIP of top 4 insurance companies ( Great Eastern, AIA Bhd, ING, and PAMB ) in Malaysia. ILIP is an insurance policy where value is straight linked to investing public presentation and included protection to the investor or policyholder. Equity fund and balance fund are chosen to measure the ILIP fund public presentation. The 4 insurance companies ‘ Investing linked fund public presentations are analysis from twelvemonth 2007 to 2009.