Impacts of Risk Based Capital Regulation in Malaysian Islamic Insurers (Takaful)

Hui Shan Lee (), Fan Fah Cheng, Annuar Md Nassir and Nazrul Hisyam Ab Razak
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Hui Shan Lee: Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Bandar Sungai Long, 43000 Kajang, Selangor, Malaysia
Fan Fah Cheng: Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia
Annuar Md Nassir: Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia
Nazrul Hisyam Ab Razak: Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia

Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 2019, vol. 15, issue 1, 27-59

Abstract: Risk Based Capital framework for Takaful operators (RBCT) is enforced by the Central Bank of Malaysia with the aim to ensure that Takaful operators have adequate capital to provide sound financial service. The objectives of this article is to examine the impacts of RBCT on efficiency, productivity and competitiveness level of Family Takaful Operators (FTO) and the relationship between efficiency and competitiveness in FTO in Malaysia. This study employs three methods namely Data Envelopment Analysis (DEA), Malmquist Productivity Index (MPI) and Panzar Rosse (PR) to investigate the impacts of RBC on the efficiency, productivity and competitiveness of FTO in Malaysia. The efficiency results indicate that after RBCT comes into effect, the cost efficiency has achieved higher efficient level. Although the productivity efficiency are improving, the technological systems of FTO are yet to achieve a reasonable level. From competitiveness results, the FTO are less competitive prior the implementation of RBCT, but has become more competitive after the regulation of RBCT framework. Furthermore, the more efficient of a Takaful market, the more competitive the market is. The implication of this study is that regulators need to impose prudent risk based capital regulation because it will improve the efficiency and competitiveness of Islamic insurers.

Keywords: Malmquist; Panzar-Rosse; risk based capital; Islamic insurance; Takaful (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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