Bank Negara Malaysia issues Policy Document on Universal Life Business
15 February 2023
Bank Negara Malaysia issued a
Policy Document on Universal Life Business (‘
Policy Document’) that came into effect on its date of issuance,
13 February 2023.
The Policy Document applies to licensed insurers carrying on life business under the Financial Services Act 2013 which offer, market or sell universal life policies (“
universal life business”).
A universal life policy is an insurance policy that provides for premiums to be paid by a policy owner into a non-unitised account to build up the account value of the policy. The policy account is invested at the discretion of the licensed insurer and the returns to the policy account are quoted based on annual crediting interest rates applied at the discretion of the licensed insurer. The account value is used to fund the insurance protection for the policy owner and other fees and charges related to the policy
1 (Paragraph 1.1 of the Policy Document).
Bank Negara Malaysia acknowledges the principal-agent problem that exists for universal life policies whereby the licensed insurer makes the decisions on the investments and crediting rates of the account value while the policy owner bears the investment risk, and hence attempts to address the same by setting the following objectives in the Policy Document:
- facilitate the orderly development of universal life business in Malaysia;
- promote and maintain high standards of governance and professionalism in the administration of universal life business by licensed insurers; and
- enhance product transparency and ensure policy owners are treated fairly.
To achieve the aforesaid objectives, the Policy Document sets out the requirements in the following areas that a licensed insurer which carries on universal life business is required to comply with:
- the roles and responsibilities of the board and senior management in the licensed insurer’s management of universal life business;
- the overall governance in the management of universal life business, including product design, sustainability of cover, maintenance and management of insurance fund, imposition and revision of fees and charges and management of expenses;
- investment, valuation and capital treatment of the universal life fund; and
- disclosure requirements to promote transparency to universal life policy owners.
1 Flexibilities that may be provided to the owner of a universal life policy include: (a) premium top-ups, partial withdrawals and/or premium holidays; and (b) changes to insurance coverage to meet the consumer’s changing needs for protection or financial circumstances, by adding or removing extensions of cover.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.