Tackling Challenges in MalaysiaUsing actuarial skills and insights to solve nontraditional problems November 2021
This article was written based on a discussion with Alex S H Foong, FSA, public interest director for a private pension administrator and the second Malaysian to qualify as an actuary. It discusses issues with starting an agency force, early regulations in Asia and starting a national reinsurer. It also explores being an actuary as well as a member of a board of directors and nurturing the next generation of actuaries.
Brief History and Starting an Agency Force
Alex graduated from Universiti Malaya in 1975 with a degree in mathematics. He went on to attend Northeastern University in the United States with support from the Asia Foundation and graduated in 1977. In the 1970s, Northeastern was the place to go for actuarial science, and he studied under Professor Crofts (1924–2017).
Alex worked for AIA Malaysia for a year before transferring to Hong Kong, where he worked from 1978–1983. He received his FSA in 1981 while working in Hong Kong. Alex was the second Malaysian to become a qualified actuary (Steve S V Wong, FSA, was the first).
When Alex returned to Malaysia in 1983, he began working for British American Life Insurance (now Manulife). Steve was the CEO of the company at the time. Alex started as an actuary and worked his way up to the CEO position. He was responsible for starting an ordinary life agency force at British American, which historically was known for home service business (also known as industrial life). When Alex started the agency force, British American hired the third Malaysian actuary, Thavanesan Karthigasu, ASA, FFA. So, the first three Malaysian actuaries were all working for the same company, which was not one of the large insurers at that time. While other insurers in the country had actuaries, they were not Malaysians, but they contributed tremendously to the development of the actuarial profession in the country.
Major challenges of starting and running an agency force included communication and human relationships. In a sense, agents wanted to come work for British American because there was an actuary—a technical expert who could “speak their language” rather than simply deal with numbers and equations. Dealing with internal conflicts was a challenge in the actuarial role. As an actuary leading an agency force, Alex could no longer simply focus on cheap premium rates; rather, he had to take a balanced approach to financial matters and consider other aspects. Similarly, when Alex later became the CEO of Great Eastern Life in Malaysia until his retirement in 2009, he understood the technical issues thanks to his actuarial training, which helped him avoid problems such as reliance on lapse-supported products to drive sales.
In the 1970s to early 1980s, the tax basis in Malaysia was based on investment income minus expenses, where expenses included commissions. Thus, when an insurer was growing, it hardly paid any taxes. But once it started to mature, it felt the pain of the taxes it needed to pay. During this time, the tax basis formula changed to exclude commissions, which immediately hurt the insurers that were not growing quickly. Over several years, accumulated losses disappeared and hurt all insurers, greatly affecting their competitive positions. Complex tax issues and dealing with the tax authority were tasks that Alex, being a CEO and an actuary, had the training and rigor to understand and tackle. By working with the tax consultants and actuarial professionals from the industry, a more balanced basis was adopted.
Honing soft skills was another challenge Alex faced as CEO. This wasn’t something for which he could prepare, but rather he learned as he went along. One particular lesson was with respect to agent commissions. Any change in agent commissions must be carefully considered, as it affects the livelihoods of many people with vested interests.
In the early days of investment-linked or unit-linked policies, one insurer had exclusive rights to sell for the first few years. The commission rates were high when compared to today’s unit-linked commission rates, but lower than ordinary life. Since the insurer had a monopoly, there was a huge growth in sales. Lower commission rates made more sense from a technical point of view, so once all insurers were allowed to enter this market, Alex launched a product with lower commissions. Sales should have been huge since the product was more competitive than those of the other insurers, but, unfortunately, sales were low.
In discussions, the agents admitted: “If we sell this product to compete with the other insurers, we will both be in trouble. They will be in trouble because we would take the business away from them, but we would also be in trouble because our income is lower than what we are used to earning with ordinary life.” In the end, the low-commission-linked product was withdrawn and replaced with a market-rate commission product. Technical skills and justification can be perfect, but there is a human side to what actuaries do, which Alex learned to appreciate while running an agency force.
Working Culture and Industry Insights
Having worked in both Malaysia and Hong Kong, Alex noted the differences in working culture. Hong Kong is fast-paced, which is even evident in how people walk across the street or up an escalator (they always seem to be running). This also can be seen when taking a taxi—if you start counting only upon arriving at the destination and slowly give the money to the taxi driver, you may get scolded for wasting the driver’s time. This same attitude is apparent in workers’ passion to meet business deadlines.
When Alex worked in Hong Kong, there wasn’t study leave given for actuarial exams. When he moved to Malaysia, he provided his employees with study leave for actuarial exams. While this was already common in the United States, it is believed to be a first for Malaysia.
Although China’s insurance market is huge today, it was very much in its infancy in the 1980s. Malaysian actuaries had a key role in the development of the industry in China. The first university to offer an actuarial science program in China, Nankai University, brought in Steve as a visiting lecturer. Several Malaysian actuaries were recruited to work in China, including in senior management positions.
There is an age-old debate in Asian actuarial circles as to which exams are easier: the U.S. exams from the Society of Actuaries (SOA) or the U.K. exams. Even in the 1970s, this was a hot topic. Did you prefer the multiple-choice exams of the United States (but with multiple books and materials to review) or the consolidated study material of the U.K. exams? So many things have changed over the decades, but so much has also stayed the same!
The Early Stages of Insurance Regulation in Asia
When Alex started working in the late 1970s, Malaysia already had a comprehensive insurance act. This 1963 Insurance Act required an actuarial valuation report and premium rates certification to be signed by a qualified actuary, with the definition of qualified actuary belonging to the SOA (United States), the Institute of Actuaries (United Kingdom) or the Faculty of Actuaries (Scotland). It wasn’t until the 1990s that other actuarial bodies were recognized.
In Malaysia before 1963, there were a lot of quasi-insurance companies (fraternities or cooperatives). Because they were loosely regulated, many quickly went bankrupt. Alex remembers the days just before the 1963 Insurance Act. Growing up in Kampar, Perak, it was common to see the elderly in tears because these companies cheated them and didn’t have money to pay benefits.
An interesting thing about the 1963 Insurance Act was that it contained a mixture of U.S. and U.K. terminology. For instance, in the United States, it is common to see dividend products with all surplus beyond the dividends paid belonging to shareholders, whereas in the United Kingdom, the convention was to have reversionary bonus products with surplus sharing rules among the shareholders and policyholders. However, in Malaysia, the ownership of excess surpluses upon liquidation has not been tested in court, if challenged. With respect to the rules relating to actuarial valuations, Malaysia followed the American concept of net premium valuation using full preliminary term (FPT). Having said that, Malaysia also used Zillmer, which was a U.K. concept.
Back in those days, new markets had the choice of adopting the regulations of more established markets almost verbatim, such as those of the United States or the United Kingdom, or mixing them (and hoping it made sense). Hong Kong had an insurance ordinance in the 1970s, and in the 1980s it adopted an insurance act similar to the U.K. insurance act. In the Philippines, the regulations closely followed the U.S. National Association of Insurance Commissioners (NAIC). Singapore adopted Malaysia’s 1963 Insurance Act until 1984.
Malaysia was unique in that it mixed regulations. The 1963 Insurance Act was designed by an Australian actuary who worked off of Australian regulations (which were similar to the United Kingdom) but included elements of U.S. regulations.
In some developing markets today, new regulations that take bits and pieces from different countries are emerging—and the pieces sometimes do not fit well together. Actuaries who practice there need to go beyond the technical details to understand the big picture of what the regulations are designed to do to ensure the regulations make sense for their particular market.
Reasons for Starting a National Reinsurer
Alex’s idea for a national life reinsurer, MLRe, was 70 percent ownership by the life insurers in Malaysia managed by a foreign reinsurer that had 30 percent ownership. The thought process behind starting a national reinsurer was due to his actuarial work. As part of his actuarial work, Alex reviewed the reinsurance rates in the market and noticed the rates of different reinsurers were nearly the same. Looking at the profitability, it was clear reinsurers were making large profits—why not bring those profits back to Malaysia? The reinsurers provided some services, such as underwriting help, but it wasn’t enough to justify the high rates.
Although some insurers were worried a local life reinsurer would not survive, the regulator was fully supportive. National or regional reinsurers are common, but having a reinsurer owned by the insurance industry was a new concept at that time. In a sense, this is similar to the idea of setting up a captive insurer. Captive insurers are designed to consolidate all of the insurance needs into one place (e.g., for one large corporation, a group of sister companies or an industry) and get access to the reinsurance market directly. By doing this, the company can get superior rates and consolidate its risk management program. On a national level, this created more competition in the reinsurance industry and reduced rates for everyone. The idea for the national reinsurer was thus focused on actuarial science, reviewing the experience of the reinsurers and finding a way to keep more of the profits in Malaysia.
While this scenario was in the past in Malaysia, the situation is similar for frontier markets now. In some markets today, reinsurance rates can be very high. Starting a national reinsurer owned by the industry with strong foundations in actuarial science can jumpstart the market to ensure fairness in rates.
Advantages of Being an Actuary and a Member of a Board of Directors
Alex has had a number of roles as a member of the board of directors for insurers and other institutions, such as Aviva Ltd Singapore, Private Pension Administrator, Malaysian Insurance Institute, Perbadanan Insurance Deposit Malaysia (Malaysia Deposit Insurance Corporation) and Bank Simpanan Nasional (National Savings Bank), and past president of Life Insurance Association Malaysia and Actuarial Society of Malaysia. He has been an actuary as well as a CEO, so he has two sets of knowledge and experience to draw upon and share.
Alex relies on general management skills, which he learned as a CEO, to add value in a board setting. As an actuary, he had rigorous training on reasoning through situations. He also is able to draw upon knowledge of technical actuarial issues, such as lapses and mortality, to better understand other technical issues, such as asset-liability matching in banking, for example.
Dealing With the New Normal—Lessons From the Past
Actuaries today are dealing with COVID-19 as a shock to the system—this is the new normal. But it’s not new that actuaries have needed to adapt quickly to other shocks in the past.
During the financial crisis in 2008, many companies were technically insolvent and regulators had to make allowances—actuaries had to do a lot to survive. This was also the case for solvency rules as risk-based capital came in, as well as the transition from net premium to gross premium valuation (made possible with the advent of computers).
Advice for the Next Generation of Actuaries
Alex’s advice to young actuaries is to focus on communication—you must be able to communicate your opinions well. You need to understand actuarial issues and be able to communicate these issues clearly.
It is also important to learn the operational side of the business, so it is ideal to develop actuarial rotations into agency business and other departments. Alex tried this in the past, but it was hard when young actuaries were not willing to embrace learning in different areas.
Actuaries must aggressively move into risk management. This is not limited to the insurance industry—try venturing into the banking sector where there still isn’t a lot of respect for the actuarial skill set in the risk management field. Similarly for investment work, portfolio management and the need to regularly rebalance the portfolio are tasks for which actuaries are well-suited. On the banking side, there are few actuarial staff in this type of role, but it is a real need and opportunity for the next generation of actuaries.
In the general insurance field, there is a lot of potential for actuaries. Actuaries have been working with data for a long time; there is no reason for actuaries not to be the experts in blockchain and big data. Actuaries are naturally suited to managing data—even in applications outside of the traditional actuarial field of actuarial valuations, such as data related to consumer behavior.
Actuaries have rigorous training. Interpreting data is a major strength and offers potential for future opportunities. For example, some actuaries work with death, but if they simply change death to other incidents, they now have a skill set for banking. There are many new challenges, and actuaries are well-positioned to adapt and succeed.
In Malaysia today, there are plenty of examples of actuaries who hold the top positions in the insurance industry, both local and overseas, such as Ng Keng Hooi, FSA, former group chief executive and president of AIA Group Limited and currently senior adviser of the group; Tan Suee Chieh, former group CEO of National Trades Union Congress (NTUC) in Singapore and immediate past president of Institute and Faculty of Actuaries; Dato’ Sri Hassan Kamil, FSA, group managing director of Syarikat Takaful Malaysia; and Anusha Thavarajah, CEO of Life and Health, Allianz Asia Pacific.
Now is the time for the next generation of actuaries to venture out to solve nontraditional problems!
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Copyright © 2021 by the Society of Actuaries, Schaumburg, Illinois.