The Reinsurance Industry In Malaysia And Singapore Accounting Essay

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Global reinsurance capital remains competitive in the market for 2012 outlook but reinsurance industry always need to response faster in the uncoordinated in economic prospect due to large and unpredicted catastrophes losses such as hurricane, typhoon season, earthquake, flood and etc. In today's competitive market, it is very important for reinsurers in Malaysia and Singapore to react faster in order to lead their business effectively and efficiently. Reinsurance companies in Malaysia and Singapore are still using traditional measure and focus solely on the financial performance such as underwriting ratio, return on equity and return of asset, number of policy written, total premium and number of losses occurred. According to Calendro and Lane (2003), underwriting ratio relates to underwriting expenses and claim losses to reinsurance premium. Managers often omitted the non-financial measures in the evaluation of firm's performance, they use financial measures just to fulfill regulatory, concentration on company's rating and accounting reporting requirement. Malaysia is govern by Bank Negara Malaysia and regulated under Insurance Act, 1996 while Singapore is under regulation of Monetary Authority of Singapore.

1.0.2 History Development of Insurance Industry in Malaysia and Singapore

Insurance in Malaysia can be dates back to 18th century where there were colonial and growth of trading firms with United Kingdom. There were agency houses like Harrisons and Crossfield, Boustead and Sime Darby act as an agent to accept risk and settle claim to insuring trade. In the early 1960, insurance and reinsurance business continue to growth. Upon the achievement of independence, there was an effort to establish domestic insurance companies. The early 1960's saw the growth of many life and general insurance companies. Malaysia insurance and reinsurance companies are monitored by Insurance Act, 1963 and it has been replaced by Insurance Act 1996.

In 1950s, insurance sector in Singapore had been developed, however it wad dominated by foreign company. Local insurance companies only had 4 at that time. Chew (1986) and was less than 10 percent in market share.

After Singapore independence in year 1965, insurance industry has grown dramatically and became a regional hub for insurance and reinsurance center.

Total Premium written by Malaysia and Singapore

In 2012, there are 104 reinsurance and broker firms in Malaysia and Singapore and represent 28% of the whole Asia Pacific region. Based on the data provided by Asia Insurance Review (2013), the reinsurance market in Malaysia and Singapore premium was written at USD14,272 million and USD19,463 million respectively, accounting for about 2.50% of the Asia Pacific reinsurance market. Japan and China are the leaders of Asia Pacific which over 65% of the premium written in year 2011. From the chart below, total premium written by Malaysia and Singapore increased from year 2008 to 2011.

Table below shows the total premium in US$ written by Malaysia and Singapore

Premium US$ (million)















Performance Measurement System (PMS)

Performance is the action of company to achieve objectives and target based on the decision made earlier. According Lebas (1995), the main objective of an organization is to reach targets, time required and how the preference ordering to achieve the target.

Performance measurement is the tool to ensure accurate and timely strategy in an organization. There is different definition of performance measurement by researchers. Performance measurement defined by Franco et. al (2004) as below:

" a set of processes an organization uses to manage its strategy implementation, communicate its position and progress, and influence its employees' behaviors and actions. It requires the identification of strategic objectives, multidimensional performance measures, targets and the development of a supporting infrastructure."

Neely et. al (1995) and Kennerly and Neely (2002) defined performance measurement system as an individual performance or a set of people, methods and tools that used internal and external factor to generate, analyze, diagnose data.

Traditional performance measurement system in the earlier stage only focus on financial measure, it has been criticized as they are only focusing on short-term measure rather than long-term measure, focusing the historic measurement rather than the future measurement. It fails to fulfill customers' needs and unable to analyze how competitors react. As a result, traditional performance measurement system is not capable to provide accurate information for organization in order to continuous meet customers and stakeholders' demands.

1.0.3 Introduction of Balanced scorecard

Kaplan and Norton ((1992, 1996a, b, c, 2001) recognized the shortcomings of using traditional performance measurement system and introduced balanced scorecard (BSC) to combined financial and non-financial measure of performance. Although balanced scorecard have been implemented by a number of organizations worldwide but there are very few articles published in journal examine how BSC is implemented in reinsurance industry in Malaysia and Singapore region. According to Hsiao (2012), only few empirical studies done in insurance or reinsurance industry. (Stenzel and Stenzel, 2004), previous researchers only focus on bank. Morium (2002), hospital (authors), local government Chan (2004) and most study have been conducted in manufacturing industry (Jusoh, Ibrahim and Zainuddin, 2008).

The balance scorecard (BSC) introduced by Kaplan and Norton in 1992 is a new framework which assess company's past and future performances towards company's objective by integrating financial measures with three additional non-financial measures (customer, internal process and long-term learning and growth perspectives). According to Kaplan and Norton (1992), BSC is a performance management tool that helps companies to balance lagging and leading indicator in order to improved problem solving and decision making. BSC is a communication tool to translate company's goals, values, and beliefs into a tangible set of performance measures. (Malina & Selto, 2001 ; Tuan and Venkatesh, 2010)

Although the use of BSC has gained increasing popularity and attention among industry practitioners and researchers over the years but BSC approach is not a popular method to measure performance in reinsurance industry.

Based on the various study of researchers, the adoption rate of BSC by countries are tabled as below:


Adoption rate





Silk,1998; Kaplan & Norton,2001;Karathanos, 2005; Paladino, 2000

Fortune 1000 companies in USA



Brewer, 2002

Publicly traded firms



Speckbacher et al. 2003




Chenhall & Langfeild-Smith, 1998

Karunakar, 2006; McCunn,1998

- Australia's top 1000 companies



Malmi, 2001



Gosselin 2005

Manufacturing firm



Anand et al. 2005

Manufacturing and service organizations




-Jusoh at al. 2006,2008

-Jusoh, Ibrahim and Zainuddin, 2008

Manufacturing firm



Youngvanitch & Guthrie 2007

Diverse industries

1.2 Research problem statement

In Asia region, there are 365 reinsurance and broker firms in Asian region. Malaysia and Singapore consist of 104 reinsurers and brokers, they represent 28% of market share as compare to Asian region. Below is the table and chart show the total of 104 companies in the region:

















104 of reinsurers and brokers in Malaysia and Singapore

Source: Reinsurance Directory of Asia 2013, published by Asia Insurance Review

Today, reinsurance industry is competing in dynamic, complex, globalize and high catastrophe losses of environment. The balanced scorecard converts organization's vision, mission and strategy into objective and measure in four perspectives area. The implementation of the balanced scorecard is an innovative way to create strategic awareness in the organizations. The balanced scorecard has successful application across the globe in diverse organizations. Several organizations have implemented the balanced scorecard as an effective instrument of measuring organizational performance. Globally, the scorecard was created to develop a comprehensive system of performance measurement, which not only serves as a device to guide strategy formulation, implementation and effective communication but also tracks the business for proper control and evaluation and to serve.

Research questions

The main purpose of this paper is to study the performance measurement in reinsurance industry using the four perspectives, namely financial, customer, internal business process and learning and growth perspectives of balanced scorecard. The research questions in this paper are structured as follow:

RQ 1: What is the relationship of reinsurance performance between four perspectives (financial, customer, internal business process and learning and growth) in Balanced Scorecard?

RQ 2: Is the caused-and-effect relationship in the four perspective of the BSC linked together?

RQ 3: What are the obstacles faced by reinsurance industry in the implementation of the BSC?

Objective of the research

BSC provides insight for organizational to face future challenges. It is necessary for reinsurance industry to understand the current economic and demands of insurance and reinsurance products and service and gain effective information to reach organizational goals. The present study is conceived with the following objectives:

RO1: To examine the relationship of reinsurance performance between four perspectives (financial, customer, internal business process and learning and growth) in Balanced Scorecard.

RQ2a: To identify whether learning and growth will drive to improve internal business process.

RQ2b: To examine whether the improvement in internal business process will eventually lead to customers' satisfaction.

RQ3b: To study whether customer satisfaction will improve the financial performance of the organization

RQ4: To investigate the difficulties faced by reinsurance industry when implementing BSC.

Significant of the study

High catastrophe losses occurred in the world has affected the performance of the reinsurance market in Malaysia and Singapore. Catastrophe losses such as Tornado, hail, Japan tsunami, Thailand flood and even Sandy flood happen in America recently forced reinsurance industry to seek more capital, new measurement to cover the significant retained losses and aiming to increase the earning and capital. The drawbacks of the traditional performance measurement are not sufficient for reinsurance companies in Malaysia and Singapore to improve their services and increase the market competition in the global.

The motivation of the current study is driven by several reasons. Despite of the benefits of the implementation of BSC and many studies on balanced scorecard in various industries, however there were very limited studies on balanced scorecard in reinsurance industry. Most of the studies focuses on develop countries. (e.g Ching and Chan, 2004; Punniyamoorthy and Murali (2008); Braam and Nijssen (2008); Wu at el (2008). BSC is not a popular method for strategic performance management tool for reinsurance companies especially in Malaysia and Singapore region. With greater liberalization and catastrophes losses occurred in recent years, reinsurance industry has come to play a much larger role in the allocation of resources than in the past and its role in future can be expected to much larger than at present. Given the significance of the reinsurance industry in the allocation of resources, traditional financial performance such as underwriting ratio, total premium, return on asset (ROA) and return of equity (ROE) are not sufficient, there is a need to also focusing on the performance measurement on non-financial indicators. The current study opens avenues to the literature by addressing this issue in reinsurance companies in Malaysia and Singapore and intends to recognize the importance and the inter-relationship of performance measurement using the four perspectives measurement in balanced scorecard.

1.4 A guide to the remaining chapters of this research

The paper is constructed into five chapters as follows: the first section start with introduction of performance measurement in reinsurance industry, introduction of balanced scorecard and historical review of reinsurance industry in Malaysia and Singapore. The upcoming section contains a literature review to provide an overview of various aspects and issues through in depth review in the relation to the performance measurement using balanced scorecard. Next in third section, the research methodology covers research design, scope of the study, sample and sampling design, research hypothesis and theoretical framework. The forth section includes the analyzed of the survey results and findings about reinsurance performance measurement system and the implementation of the balanced scorecard. The conclusion of the implications of the research findings pertaining to performance measurement systems, as well as research limitations of the current study, conclusion and scope for the future research has also been presented in the final sections.