Insurances

Insurance is:
a contract whereby one person (the
insurer) undertakes to compensate
another person (the assured) by
paying him a sum of money on the
happening of a specific event
The consideration of the insurers
promise is the payment by the assured
premium
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Insurances
Categories of Insurance Business:
Life insurance
General insurance
both will be treated as separate
source of insurance business

Terminologies
Actuary - person evaluate risk and
financial consequences.
Re-insurance minimize risk, offload
their risk to another insurer (not alone,
and vulnerable to large unexpected
loss)
Reserve fund for unexpired risk
intention to cover insurers potential to
risk for general insurance still in force
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Terminologies
Actuarial surplus- applies for life
insurance, the actuarys assessment
of the excess of life funds held over
the amount needed to be held back
to cover future claims.

LIFE INSURANCE BUSINESS

The operator will be deemed to have 2

source of income life fund & shareholders
fund

If an insurance co also carries on: life reinsurance business and inward life reinsurance business, both businesses shall
be separated from life insurance business
and shall be treated as general insurance
business sources

Scope of charge:
Resident
- world basis
- is taxed on income derived from investments
or sale
of investments made out from life fund or
s/holders fund
- entitled for bilateral or unilateral relief
Non-resident
- is taxed on income from investments and sale
of investments from the Malaysian life fund,
whether arising from Malaysia or elsewhere
* Malaysian life fund: the fund established
pursuant to S38 of the Insurance Act 1996 in
respect of life business
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Life Insurance
Income of life fund
refer as Malaysian Life Fund (Insurance Act
1963) all receipts attributable to life
business including investment made from
life fund
Income from shareholders fund in respect
of life business
- funds representing his capital and other
resources not required by Malaysia life fund.
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Resident Life Insurance

Business:

1. Types of income (S60(3), S60(3A)

Gross income from investments

made from any of the insurers
Gross proceeds (whether or not of
an income nature) which are first
receivable in that period in
connection with the realization of
those investment or any rights
from
The amount of the actuarial
surplus from the life fund that is
transferred to the s/holders fund

Life Fund:
S60(3)

S/holders fund:
S60(3A)

Life fund

S/holders fund

Life fund

S/holders fund

N/A

S/holders fund

Life Insurances
2. Gross premium for life insurance policies

The premium received is not to be treated

as profits of the insurer
the actuarial surplus (transferred from life
fund) is taken as gross income of the
s/holders fund (income)
the actuarial deficit (transferred to the life
fund) is deducted from s/holders fund
(deductions)
no deduction is given for claims paid or
payments made on maturity of life policies
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Life Insurances
3. Types of expenses: [S60(3)(b),
S60(3A)(b)]
Life Fund:
S/holders
The cost of acquiring and
realizing the investment or rights
arising from
Amount transferred from the
s/holders fund to set off the
actuarial deficit (subject to any
adjustment as the DG may think
fit) for that period arising from
the life fund

S60(3)(b)

fund:
S60(3A)(b)

Life fund

S/holders
fund

N/A

S/holders
fund

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Life Insurance
Commission and management
expenses are not allowed as
deduction against gross income to
derived adjusted income.

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Life Insurances
The treatment of capital allowance
[S60(4B), S60(10B), S60(10C)]

the adjusted income from the s/holders fund

is deemed to be statutory income of that
source
unabsorbed & current year capital allow of life
insurance business shall only be set off
against the adjusted income of the life fund of
the insurer
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Life Insurances
The treatment of losses
S60(10A):
Any unabsorbed losses in respect of the
life business shall only be set off against
the statutory income of the life fund.
Current year loss:
The act is silent; normal tax treatment
under S44(2) is accorded (allowed in
arriving total income)
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Life Insurances
Tax rate and S108 account
Life fund:
the chargeable income is levied at 8% tax
No franking of dividend (No exemption
account)
tax payable is not allowed to be credited to
S108 account
S/holders fund
the CI is taxed at 25%
tax payable is credited to S108 account and
available to frank dividend to its s/holders
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Tax Format Life Insurance

Life Fund

Shareholders Fund

Dividend Income

Interest Income

Rental Income

Gross proceed on
realisation of
investment

Actuarial surplus
N/A
transferred from life
fund to s/holders fund

Less:
Cost of acquiring and
realizing investment
Management
Expenses
Adjusted income

N/A

N/A
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Tax Format Life Insurance

Life Fund

Shareholders Fund

Less:
CA b/f
Current CA

N/A

Statutory income

Less:
Unabsorbed losses b/f

N/A

Chargeable income

Tax rate

8%

25%

Income Tax

Less : sec 110

Tax payable

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Non-resident life insurance

business
The tax treatment is the same as the
resident life insurance business

Life fund: refer to the Malaysian life fund

only

S/holders fund: refer to non-resident

s/holders fund
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GENERAL INSURANCE
comprises of marine, fire, accident, motor,
engineering, aviation, burglary and public
liability insurance
Inward re-insurance - re-insurance policies
where the risk is outside Msia and original
policy issued by NR insurer (not a branch in
Malaysia) or by resident insurer through a
branch outside Msia.
Offshore insurance - risk is outside Msia
issued by resident insurer or NR through a
branch in Malaysia. Risk in transit in Msia
deemed to be outside Msia
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Adjusted Income
Income
- Gross insurance premiums received less
returns
- Other gross income fr general insurance
including commissions and income fr
investment of general business
- Gross proceeds of realising such investment
- Amount received or receivable under reinsurance contracts
- Reserve for unexpired risk at the end of the
previous period
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Adjusted Income
Less : Deductions
- Claims in connection with general
insurance policies
- Re-insurance premiums payable
- Commission payable and discounts allowed
- Management expenses
- Reserve for unexpired risk at end of the
current period
- Cost of acquiring and realising any
investment disposed,
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General Insurance
Types of income [S60(5)(a)]

Gross premium first receivable in that period in

respect of general policies (less any premium on
general policies returned)

Other income including commission, interest or

other income held in connection with that business

Gross proceeds (whether or not of an income

nature) which are first receivable in connection
with the realization of those investments or rights
arising from them

Any amount recovered/ recoverable under

reinsurance contracts

Reserve fund for unexpired risks (opening balance)

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General Insurance
Types of Expenses [S60(5)(b)]
a)Claims incurred in that period in
connection with general policies
B)Re-insurance premium payable
in that period in connection with
general policies, if the re-insurer
does not have a business/branch
in Msia, only 95% of the amount
is deductible [S60(7)]

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General Insurance
c) commission payable and discounts
allowed in connection with gen buss
d) management expenses incurred in
connection with gen buss
e) reserve fund for expired risk
(closing balance)
f) the cost of acquiring and realizing
the investments or rights
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General Insurance
Reserve fund for unexpired risk [S60(9)]
an estimate of future liabilities which will be
incurred on existing gen ins policies i.e a provision
for unearned premium
the unearned premium would not be
recognized as income as the risk has not been
expired
is ascertained as follows:
25% of the net adjusted premiums in respect of
marine, aviation, transit policies
40% of the net adjusted premiums of accident,
fire and other gen ins. (prior to 2001)

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General Insurance
Prior to 2001 :40% net adjusted
premiums of accident, fire and other
gen ins.
YA2001 onwards: the amount
calculated for accounting purpose is
accepted, provided consistently
used.

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General Insurance
net adjusted premium
= difference between the gross
premiums receivable and the amount
of re-ins premiums payable (being the
95% if paid to a re-insurer who does
not carry on re-insurance in Malaysia
orinsure such risk through a Msian
branch or 100%)

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General Insurance
note: marine, aviation, transit,
accident etc ins would be aggregated
as one source (gen ins)
The segregation is only used to
compute the reserve fund for
unexpired risks

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General Insurance
Reinsurance premiums
Non-resident gen ins, offshore ins and
inward reinsurance:
may elect that no deduction shall
be made for reins premiums
payable
any amounts recoverable under
re-ins contracts shall not be taxed
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General Insurance
Inward re-insurance business (S60A)
Definition [S60(11)]
Any re-insurance of a risk under a gen
policy where the risk is outside Msia and
the original insurance policy:
Is issued by an insurer who is not
resident in Msia (but not issued by a
branch in Msia of such insurer); or
Is issued by a foreign branch of an
insurer resident in Msia
Risk in transit in Msia shall be deemed to
be outside Msia
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General Insurance
the adjusted income is to be
calculated in the same manner as for
general insurance business
insurance carries all general
business in one operation.
Mgmt expenses and capital
allowance need to apportion btwn
diff types of general business.
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Tax Rate
the tax rate on chargeable income
5% (for inward re-insurance and
offshore insurance for both resident and
non-resident)
for resident inward re-ins and offshore
ins co, CI after tax shall be credited to
an exempt account (two tier basis)
Normal corporate rate 25% for general
insurance with a reduced rate for SME.
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General Insurance
where mixed insurance business is
carried on, the CI is arrived at with
reference to the statutory income
from inward reinsurance buss and
the aggregate statutory income from
all sources of the insurer

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General Insurance
Life-reinsurance business
Where life-reins buss is carried on
together with life ins buss, it shall be
treated as separate source and regarded
as general business
reserve fund for unexpired risks will be
substituted with actuarial valuation
reserve
premium from life-reins will be taxed
claims and management expense would
be deductible

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General Insurance
Inward life re-ins business
Where inward life-reins buss is
carried on together with life ins
buss, it shall be treated as separate
source and regarded as general
business
The tax treatment is the same as
inward re-ins buss with the
preferential tax rate of 5%.

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General Insurance
Offshore Insurance Buss (S60B)
Definition:
S60(11) insurance of risk under a general policy
where the risk is outside Msia and the policy of
insurance is issued by an insurer resident in Msia or
by a branch in Msia of an insurer not resident in
Msia.
Any risk in transit in Msia is deemed to be outside
Msia
Special incentive and computation of CI is similar to
inward reinsurance buss
The tax rate is 5% (both for resident and nonresident)
Exempt dividend:
For a resident, the CI after tax shall be credited to
an exempt account

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Tax Format General

insurance
General
Insurance

Inward Reinsurance

Income:
Gross premium less returns
Commission receivable
Interest, dividend, rent ,
investment income)
Sale proceeds of investment
Amount recovered under reinsurance
Balance b/f of reserve fund for
unexpired risk
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Tax Format General

insurance
General
Insuranc
e

Inward
Reinsurance

Less : allowable expenses

Claims incurred for general policies
Re-insurance premiums payable
(100% allowed if re-insured in Malaysia)
(95% allowed if re-insured outside Malaysia)
Commission payable
Discount allowed
Management expenses
Cost of acquiring investment or rights
Expenses incurred on sale of
investment/rights
Balance to be c/f of reserve fund for
unexpired risk

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Tax Format General

insurance
General
Insuran
ce

Inward
Total
Reinsuranc
e

Gross Income Allowable expenses

Adjusted Income

Capital allowance

Statutory Income

Agregrate Income

Less: current loss

donations (limit 10%)

X
X

Chargeable income (CI)

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Tax Format General

insurance
Apportionment of CI and Tax payable
SI(Inward Re-Ins)
------------------------ x CI X TR (5%) =
Total SI (Inw+Gen)
Tax on Inward Reins + tax on General
less sec 110
Exempt Account (only for Inward Re- Ins
and Offshore (CI-Tax payable)
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