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PART I - OVERVIEW...............................................................................

1
1.

INTRODUCTION....................................................................................................1

2.

PURPOSE...............................................................................................................1

3.

COVERAGE............................................................................................................2

4.

IMPLEMENTATION DATE ...................................................................................2

PART II - PRODUCT DESIGN ................................................................2


5.

GENERAL FEATURES.........................................................................................2

6.

CASH SURRENDER VALUE FOR PARTICIPATING POLICIES..................3

PART III - PROPOSAL FORM ................................................................4


7.

REQUIREMENTS ..................................................................................................4

8.

CONTENT ...............................................................................................................4

PART IV - NOMINATION FORM ............................................................5


9.

REQUIREMENTS ..................................................................................................5

10.

CONTENT ...............................................................................................................5

PART V - LIFE POLICY...........................................................................5


11.

REQUIREMENTS ..................................................................................................5

12.

CONTENT ...............................................................................................................6

13.

OTHERS..................................................................................................................6

PART VI - MARKETING MATERIALS ...................................................7


14.

APPLICATION........................................................................................................7

15.

REQUIREMENTS ..................................................................................................7

16.

GENERAL FEATURES.........................................................................................7

17.

CONTENT ...............................................................................................................8

PART VII - SALES ILLUSTRATIONS ..................................................10


18.

REQUIREMENTS ............................................................................................... 10

19.

GENERAL FEATURES...................................................................................... 10

20.

FORMAT .............................................................................................................. 11

21.

PROFIT TESTS FOR SALES ILLUSTRATIONS........................................... 12

PART VIII - POLICY INFORMATION STATEMENT ...........................15


22.

REQUIREMENTS ............................................................................................... 15

23.

CONTENT ............................................................................................................ 15

PART IX - ANNUAL STATEMENT.......................................................16

24.

REQUIREMENTS ............................................................................................... 16

25.

CONTENT ............................................................................................................ 16

PART X - WITHDRAWAL OF GUIDELINES/CIRCULARS ................17

BNM/RH/GL/003-14

Consumer and Market Conduct


Department

CODE OF GOOD PRACTICE FOR LIFE


INSURANCE BUSINESS

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PART I - OVERVIEW
1.

INTRODUCTION

1.1

This Code of Good Practice for Life Insurance Business, hereinafter referred

to as the Code, is issued under subsection 149(5) of the Insurance Act 1996 (Act),
which specifies that Bank Negara Malaysia (the Bank) may specify a code of good
practice in relation to any description of proposal form, policy or brochure.

1.2

This Code replaces the existing Code of Good Practice issued by the Bank

on 3 November 1997. This Code incorporates revisions due to the developments in


the life insurance business since 1997.

1.3

This Code shall be read in conjunction with the relevant guidelines and

circulars, which include, but are not limited to, the following:(a)

BNM/RH/GL/003-16 (Revised) - Submission of Actuarial Certificate


under Section 142 the Insurance Act 1996

(b)

J P I 2 9 / 2 0 0 4 - Appointed Actuarys Report to the Board on


Recommendation for a Reduction in Bonus Rates for Participating
Life Products

(c)

BNM/RH/GL/003-19 The Guidelines on Investment-Linked Business

2.

PURPOSE

2.1

The purpose of the Code is to set rules for life insurers to maintain ethical

standards in the design and sales of life policies. In order to maintain a high
standard of professionalism in the sale of life insurance products, the Code
provides illustration formats, prescribes standards and specifies disclosures that
are required to achieve the following objectives:(a)

ethical product features and design;

(b)

fair and sound pricing of products; and

(c)

truth in selling with full and proper disclosure

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3.

COVERAGE

3.1

All insurance companies carrying on life insurance business are required to

observe the Code. The Code covers product design, proposal form, marketing
materials ( including sales illustration, announcements, press statements or
advertisements), policy contract, information statement and annual statement in
respect of individual life products, including individual annuities.

3.2

The chief executive officer and the appointed actuary of a licensed life

insurer shall be individually responsible for compliance with the Code. Any
disregard of the Code or lack of due diligence to secure compliance shall render
the person to be not fit and proper to hold his position in the licensed life insurer.

4.

IMPLEMENTATION DATE

4.1

The Code shall apply to all new1/ life products filed to the Bank on or after 1

February 2007. A licensed life insurer must fully inform its agents or other
intermediaries of the requirements of the Code.

PART II - PRODUCT DESIGN


5.

GENERAL FEATURES

5.1

The marketing name of a life insurance product shall not be misleading to

the public. For example, a product must not be described as vanishing premium.

5.2

A level annual premium term assurance policy or an extension to a life policy

extending beyond the age of 80 years should not be designed as a term assurance
product.

1/

The revision of an existing product shall be regarded as a new product

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A standalone individual pure endowment assurance plan must provide for

payment of surrender value in the event of death before the maturity date.

5.4

(a)

An extension to a life policy must not be made compulsory whether


for one year or during the duration of the policy.

(b)

In the event that a packaged product is created by combining a life


policy and extension(s) to a life policy, where all benefits are made
compulsory, all components of the packaged product shall remain
compulsory throughout the policy term.

5.5

The sum insured by a personal accident extension to a life policy shall not

exceed five times the sum insured by the policy.

6.

CASH SURRENDER VALUE FOR PARTICIPATING POLICIES

6.1

For participating policies, the policy owner shall not get less than the policys

asset share on average as the total cash surrender value in any particular policy
year, subject to the Act requirement. This shall be guided by the following:(a)

Surrender values for the early years should be at least 90% of the
total asset share for each group of policies in the expected main age
range, with a 3% deviation allowed for other ages. However, at least
100% of the asset share should be paid from the 15th policy year
onward for whole life plans, and from mid-term of the policy onwards
for all other plans;

(b)

If the asset share (regardless of premium mode) is higher than


RM100, the cash value based on the asset share is payable.
However, companies may still provide surrender value even if the
asset share is less than this threshold for the first policy year; and

(c)

Any balance of unpaid asset share in any year must be rolled over to
next years next asset share to determine the surrender value for that
particular year. Any balance of unpaid asset share or estate for each
group of policies must be completely distributed by maturity.

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PART III - PROPOSAL FORM


7.

REQUIREMENTS

7.1

A proposal form to be completed for purchase of a life insurance product

shall be written in clear and simple language and the questions shall be specific
and not such that it requires the proposer to guess as to what information should be
provided in reply.

8.

CONTENT

8.1

A proposal form shall incorporate the following notices:(a)

notice required under subsection 149(4) of the Act;

(b)

a notice that proof of age will be required; and

(c)

where applicable, a notice that the proposer should ask for and study
the marketing materials, including the sales illustration in respect of
the life policy product, paying particular attention to benefits which are
guaranteed, benefits which are not guaranteed and the duties of the
policy owner under the policy contract.

8.2

(a)

A proposal form containing questions regarding purchase of any


extension to a life insurance product should explicitly state that
purchase of such extension is not compulsory and is entirely at the
discretion of the proposer. Exceptions shall be made for packaged
products identified in subparagraphs 5.4(b) of this Code.

(b)

Where an insurer uses a common proposal form in respect of two or


more products which are not compulsorily linked, the proposal form
should contain a printed notice stating that the proposer is at liberty to
buy or not to buy any of the several products covered by the proposal
form.

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PART IV - NOMINATION FORM


9.

REQUIREMENTS

9.1

A life insurer shall provide a form in which a policy owner may record his

nomination under section 163 of the Act.

9.2

A nomination form shall invite the attention of a policy owner to the

provisions of Part XIII of the Act on Payment of Policy Moneys under Life Policy or
Personal Accident Policy.

10.

CONTENT

10.1

A nomination form shall explicitly state that:(a)

a nomination to which section 166 of the Act applies shall create a


trust in favour of the nominee;

(b)

a policy owner should appoint a trustee for the policy moneys and in
the event of failure to do so, the competent nominee shall be the
trustee; and

(c)

if the policy owner intends the nominee to receive the policy money as
beneficiary and the nominee is not his spouse, child or parent under
section 166 of the Act, then he should assign the policy benefits to the
nominee.

PART V - LIFE POLICY


11.

REQUIREMENTS

11.1

A life insurer shall provide a copy of the proposal form and a copy of the

sales illustration where applicable (refer to paragraph 18.1 below), relating to the
policy to the policy owner together with the policy.

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12.

CONTENT

12.1

A life insurance policy shall incorporate within its body, the following
minimum particulars:(a)

marketing name of the product;

(b)

whether it is participating in profits immediately or whether

it is

participating in profits with a deferment period to be specified or


whether it does not participate in profits;
(c)

name and IC number of the policy owner;

(d)

name and IC number of life assured if different from the policy owner;

(e)

age of the life assured and whether the age has been admitted;

(f)

name and IC number of the nominee, if any;

(g)

whether trust is created in favour of nominee;

(h)

date of commencement of the policy;

(i)

premium amount, periodicity of payment and date of final payment;

(j)

the consequences of failure to pay premium;

(k)

amounts of benefits payable, contingencies upon occurrence of which


they are payable, and date of maturity or expiry of the policy; and

(l)

limitation on benefits and the duration for which it is applicable, if any.

13.

OTHERS

13.1

Where a life insurer provides provisional insurance protection from the date

of receipt of a payment towards the premium, the receipt for the premium shall
specifically state the terms and conditions and limitations attaching to such
insurance protection during the period up to the date of issue of the life policy.

13.2

Where a life insurer does not provide insurance until the proposal has been

examined and accepted by the insurer, the receipt for a payment towards premium
shall specifically state that insurance protection shall only be provided effective
from the date of issue of the life policy.

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The termination of a yearly renewable individual life policy by the insurer is

only allowed on policy anniversary or premium payment date.

13.4

Changes to premiums can only be made on policy anniversary with a written

notice to policy owners of at least 90 days.

PART VI - MARKETING MATERIALS


14.

APPLICATION

14.1

This part applies to all announcements or advertisements in respect of a life

insurance product, sales brochures, sales illustrations, telemarketing scripts or any


other material used at the point of sale, hereinafter referred to as marketing
materials.

15.

REQUIREMENTS

15.1

A life insurer shall immediately withdraw any marketing material which

becomes misleading following any change of circumstances.

15.2

A life insurer or its agent shall not issue or use marketing materials providing

information that is inconsistent with the contents of the actuarial certificate filed with
the Bank.

16.

GENERAL FEATURES

16.1

Marketing materials shall be written in simple, unambiguous and easily

comprehensible language.

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The font style and size used, including those applicable to all qualifying

statements, should be clearly legible.

16.3

The general layout of marketing material should be clear and easily

understood.

16.4

Technical or industry terms must not be used without a clear explanation of

their meaning which can be readily understood by the general public.

16.5

All graphs, tables and other diagrams must be clearly labelled and where

applicable, drawn to scale. Where drawing to scale is not possible, a qualifying


statement should be included to highlight this.

16.6

There should be no statement or description of any benefit which is so

worded as to cause a misunderstanding about the nature, quantum or the character


of such benefit. For example, there should be no statement which may induce a
misunderstanding such as "bonus once declared is guaranteed'.

17.

CONTENT

17.1

Marketing materials shall contain the following minimum information:(a)

name and address of the insurer. Where financial information about


the insurer is included, it must be accurate as at the last audited
financial year. Any n o n -financial information included should be
relevant.

(b)

a key features statement containing:(i)

a simple statement describing the product and its main


objectives and purposes;

(ii)

details of the events, circumstances or contingencies upon


which benefits are payable and the form of the benefit
payments;

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(iii)

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circumstances in which exclusions or restrictions of benefits


apply should be briefly mentioned;

(iv)

guaranteed or non-guaranteed nature of premiums and the


term over which it is payable to secure the benefits under (ii)
above;

(v)

in respect of participating life policies, a brief description of the


nature of bonus (whether cash, reversionary or terminal- with a
statement of reference to the sales illustration for further
information), deferment period, if any, together with the events
upon which they are payable and a statement that the full value
of the reversionary bonus is not payable on early termination or
conversion of the policy; and

(c)

for a participating life policy, a sales illustration of payments and


benefits complying with the Code either as a part of the main
marketing material or as a separate document.

(d)

important notices to the proposer in appropriate wordings such as:(i)

the policy may not have a guaranteed minimum cash value on


termination until after you have paid premium for three years
(for regular premium plans);

(ii)

if you terminate your policy in the early years, you may get
back less than the amount you have paid in;

(iii)

you should satisfy yourself that this plan will best serve your
needs and that the premium payable under the policy is an
amount you can afford;

(iv)

please refer to the sales illustration pertaining to your policy (if


applicable) provided to you by your insurer; and

(e)

where information on the position of the premium payable for that


product in terms of deduction for income tax is stated the insurer must
ensure that the information is accurate.

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PART VII - SALES ILLUSTRATIONS


18.

REQUIREMENTS

18.1

For a participating policy, a life insurer or its agent shall provide to the

proposer at the point of sale, an illustration of the premiums and benefits applicable
to the specific proposal hereinafter called a sales illustration. Where an insurer
issues sales illustration for a non-participating policy, the degree of disclosure
should be similar.

19.

GENERAL FEATURES

19.1

A life insurer shall not illustrate the costs and benefits of an extension of a

life policy together with the life policy unless a clear distinction is made between the
costs and benefits of the life policy and those of the extension. Exceptions shall be
made for packaged products identified in subparagraphs 5.4(b).

19.2

Any information or data provided i n a sales illustration shall be current,

accurate and be presented in a manner that will not be misleading.

19.3

Any reference to the past performance of the insurer in the sales illustration

shall be appropriate to the product being illustrated and shall include a statement
that past performance may not be a guide to future p erformance which may be
different.

19.4

The sales illustration shall clearly state the benefits which are not

guaranteed. The sales illustration shall emphasise that these benefits are not
guaranteed and that the quantum declared in future may be less or more than the
values illustrated. Non-guaranteed benefits should be shown separately from the
guaranteed benefits. In the case of a collateral policy where the maturity proceeds
are for loan settlement but which are dependant on non-guaranteed benefits, the

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sales illustration should mention that there is no guarantee that the full loan
amount will be available on maturity.

19.5

The sales illustration shall incorporate a section providing important

information regarding the participating policy to the proposer. This will include, but
is not limited to, suitable definitions / explanations on the following:(a)

Definition of a participating policy;

(b)

Explanation of the different types of bonuses payable on the policy;


and

(c)

Explanation on how the bonuses are determined (in general).

An example of this section is shown in the final page of Schedule I and Schedule II.

19.6

A life insurer shall not represent that premium is not required for each year of

the premium payment term of the policy. For example, a life insurer shall not
illustrate premium being financed through guaranteed cash value of the basic sum
assured.

20.

FORMAT

20.1

A sales illustration shall conform to the format as appropriate to the life

insurance product from the specimen formats given in Schedules I and II. Where
none of these formats is appropriate to the specific product, the life insurer may use
a different format without reducing the extent of disclosure provided such format
has been filed with the Bank together with the actuarial certificates.

20.2

A sales illustration shall show the values as at the end of each policy year for

policy years 1 to 20 and every 5 years thereafter until maturity or the age of 70
years, for a life assured in respect of:(a)

the premium paid;

(b)

the guaranteed survival benefits;

(c)

the guaranteed death benefits;

(d)

the guaranteed surrender value; and

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the non-guaranteed benefits, such as:

reversionary bonuses

cash bonuses

terminal bonuses

identifying each component separately.

21.

PROFIT TESTS FOR SALES ILLUSTRATIONS

21.1

Sales illustrations with bonus scales at two different investment return

scenarios shall be applicable for participating policies. Sample profit tests for both
scenarios must be submitted to demonstrate the supportability of illustrated
benefits, with assumptions no more favourable than the following:-

(a)

Age and term - age shall be taken as 25 and 35 years and the
projection shall be for the entire term of the policy. For juvenile plan or
any other plans which are available for age zero and above, age 1
and 5 years shall be taken for the purpose of conducting profit test.
For other plans where the abovementioned ages are not reflective of
the target market, the relevant main target ages shall be used in the
profit test;

(b)

Premium - shall be as filed in the actuarial certificate;

(c)

Guaranteed benefits - based on the features of the product and the


premium used for the illustration;

(d)

Guaranteed surrender value - based on the features of the product;

(e)

Non-guaranteed benefits - based on the assessment of the appointed


actuary of the levels of benefits most likely to be declared if the
assumptions herein contained are realised. This shall apply to all
types of bonuses, namely, cash bonuses, simple or compound

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reversionary, terminal or special bonuses and in respect of limited


payment policies, provision must be made for bonus after the
premium-paying period. The non-guaranteed benefits illustrated shall
correspond to the two rates of interest stipulated in paragraph 21.1(g)
below. The cash bonus and reversionary bonus scale illustrated for
the higher interest rate scenario shall be based on the scale derived
from the interest rate implied by the premium;

(f)

Mortality insurers best estimate mortality assumptions, or prevailing


industry table, if the insurer does not have sufficiently credible
mortality experience;

(g)

Interest rate - the two rates of interest assumed shall reflect the
potential variability of returns of the participating fund, subject to the
following:-

(i)

The higher rate of interest assumed shall not exceed the


yield of an A2-rated private debt security with a 10-year
term to maturity (which can be obtained in the website
https://fast.bnm.gov.my/), or the average market rate of
return of the participating fund for the preceding five
years plus 50 basis points, whichever is lower. For
insurers with three or less years of experience, the
industry average return (including capital gains) for the
preceding five years, as stated in the latest Insurance
Annual Report, shall be used.

(ii)

The lower rate of interest assumed shall be at least 200


basis points lower than the higher rate of interest.

(h)

Income tax - the prevailing tax rate on investment income shall be


applied;

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(i)

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Commission - the cost shall be based on actual commission scales


payable to intermediaries (including basic and overriding commission,
production and persistency bonus);

(j)

Expenses

of

management the best estimate expenses as

appropriate to the product and insurers circumstances shall be used.


The insurer shall also make allowance for inflation of expenses as
appropriate.

(k)

Withdrawal rates the best estimate withdrawal rates as appropriate


to the product and insurers circumstances shall be used;

(I)

Valuation reserve - on the statutory valuation basis; and

(m)

Cost of bonus - the bonus assumption shall be the same as that given
in the sales illustration and the cash value of bonus shall be based on
the statutory basis.

21.2

In the profit test, the fund at the end of the year shall be the accumulation of

the cash flows for the respective projected years, without taking into account the
change in reserves, but after considering transfer to/from shareholders, subject to
the minimum statutory reserves.

21.3

In order to test the profitability of the plan, the profit margin concept shall be

applied using the same basis as that used in the profit test for cashflow pricing.
Overall, the product shall not be loss-making. Where the transfer to shareholders is
shown to be less than that allowed under the statutory limit as specified in
Regulation 11 of the Insurance Regulation 1996, a certified copy of the Board
Resolution shall be provided. Transfers to shareholders are not allowed if the
accumulated estate is negative.

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21.4

The above points shall also be applicable for single premium products.

21.5

After taking into consideration the points mentioned in paragraphs 21.1 to

21.3 above, the cash flows and profit estimates shall be shown as in Schedule III.

21.6

Each profit test shown, as mentioned in paragraph 21.5 above, should be

accompanied by a comparison of the total surrender value payable against the


asset share per policy, in all policy years, as shown in Schedule IV.

21.7

An insurer shall review the assumptions in its sales illustrations for a ll

products which continue to be offered, at least annually to ensure that the


assumptions used remain relevant.

PART VIII - POLICY INFORMATION STATEMENT


22.

REQUIREMENTS

22.1

A life insurer shall issue together with a life policy, a policy information

statement containing at least the information required to be provided in compliance


with this Part.

23.

CONTENT

23.1

A policy information statement shall include information which will help the

policy owner to observe his obligations under the policy including:(a)

the requirement for proof of age to be provided where age is not


already admitted;

(b)

the facility available for payment of premium;

(c)

the facility for nomination of a person to receive policy moneys;

(d)

the facility to secure a loan on security of the policy and a reminder to


enquire on the applicable loan rate;

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the availability of a surrender value with the caution that the policy
owner will lose if he surrenders his policy;

(f)

the person or office to be contacted for any enquiry or service relating


to the policy;

(g)

the importance of advising the insurer of any change of address of the


policy owner or the nominee; and

(h)

details of the obligation to pay premiums and the implications of


ceasing payment of premium.

23.2

A policy information statement shall inform the policy owner about the

provisions of section 148 of the Act on Objection to life policy.

23.3

A policy information statement shall inform the policy owner about the

availability of the Financial Mediation Bureau and the insurers Complaints Unit, its
address and its role in the resolution of any dispute arising from the policy.

PART IX - ANNUAL STATEMENT

24.

REQUIREMENTS

24.1

A life insurer shall annually provide information to each participating life

policy owner on their life policy.

25.

CONTENT

25.1

The annual statement shall contain the following minimum information:(a)

the status of the policy;

(b)

the sum assured and the vested bonus and other vested nonguaranteed benefits as at the date of the statement;

(c)

the bonus or other non-guaranteed benefit which was vested since


the date of the last statement;

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the guaranteed cash value (for basic sum assured plus vested
bonus);

(e)

the non-guaranteed terminal bonus upon surrender (if any);

(f)

the total cash surrender value;

(g)

caveats on the non-guaranteed nature of bonuses;

(h)

the balance of loan amount and accrued interest, and the policy loan
rate at the date of the statement, in case of a loan taken on the
security of the policy; and

(i)

whether the policy has been assigned or has a nominee and if so, the
name and address of the person.

PART X - WITHDRAWAL OF GUIDELINES/CIRCULARS


26.

With the issuance of this Code, the following circular is hereby withdrawn:-

Guideline/Circular Title

Date

JPI: 46/1997

3 November 1997

Code of Good Practice for Life


Insurance Business