A version of this article was first published in the December 2024 edition of the Asia Insurance Review.

In recent years, we have seen the growth of (re)insurance across Malaysia, with these sectors expected to grow at a compound annual growth rate of 7.8% from MYR22.6bn ($5.2bn) in 2024 to MYR30.5bn in 2028.

Malaysia has both capacity buyers and sellers. For the capacity sellers, particularly those within the reinsurance sector, there are clear opportunities for growth during 2025.

Two crucial factors for the reinsurance sector will be the rise of captive insurance, coupled with mitigating against increasing climate risk.

Captive activity

Captive insurance in Malaysia, especially through Labuan, is set to expand significantly in 2025. The Labuan Financial Services Authority has revised its guidelines, including expanding allowable risk coverage types and simplifying processes for global businesses.

As a result, there will be opportunities for reinsurance brokers. As more and more captives begin to be established, there will be a further increase in demand for reinsurance coverage, particularly in areas like excess-of-loss. This demand will provide the reinsurance sector with a flow of premium income and a variety of risks to underwrite.

Numerous captives in Labuan are being formed to address complex or hard-to-place risks which the traditional insurance market cannot adequately cover, including environmental risks and cyber liability.

The Labuan reinsurance sector should be able to capitalise on this need by providing bespoke solutions to help captives mitigate these unique risks. As more businesses Malaysian reinsurers have opportunities in captive insurance As captives in Labuan are being formed to address complex risks, there will be demand for reinsurance coverage in areas like excess-of-loss, says Mekong Re’s Mr Rajguru K.
establish captives to manage these risks, local reinsurance brokers are likely to see growing demand for solutions to cover high-severity, low-frequency events that captives may not retain independently.

Coupled with the rise in captives, another important area reinsurance brokers must focus on in 2025 is climate-related risks. This is an issue across Asia, and as a result, in 2025, businesses will be under ever-increasing pressure to implement climate mitigation strategies.

Flood risks

With flooding set to increase, the reinsurance sector must adapt to growing demand for products that address urban flood risks. Traditional insurance products may not fully address the complex and evolving nature of climate risks which Malaysia faces.

The most notable insurance solution which is likely to continue to grow in 2025 is parametric insurance.

Furthermore, the Malaysian Ministry of Housing and Local Government has recently allocated MYR219.6m to upgrade drainage systems and maintain retention ponds. In 2025, there will therefore be more opportunities for the reinsurance sector to collaborate with the government in schemes that help develop more climate-resilient infrastructure.

Lastly, there is likely to be further chances for the reinsurance sector to collaborate with local tech firms that specialise in climate analytics. Partnering with start-ups focusing on imaging and data could also provide essential insights into weather patterns and risk assessments. In states which are prone to seasonal monsoons, drones have been deployed to assess flood damage. This footage not only informs government disaster relief efforts but ensures the reinsurance industry can make an initial assessment to expediate financial support.

As we head into 2025, the reinsurance industry in Malaysia will be faced with a variety of opportunities. Along with the growth in captives and climate risk, reinsurance businesses will also be able to optimise the increasing use of AI and big data, and the growing prevalence of litigation and liability risks, to name a few. With these opportunities comes challenges, and those in the sector that do not adapt services to these transformations in the years ahead will risk getting left behind.