Citing "foreign domination," Malaysia said this week it will not open up its insurance sector to more foreign firms until at least the next century.

"In the medium term, or to the end of the decade, the door is closed," said Rafidah Aziz, the country's International Trade and Industry Ministry. ''There will be more room later for maneuver."The most recent figures available from the director-general of insurance showed 59 insurance companies in Malaysia at the end of last year. Of these, 17 were foreign-incorporated, including brokers and adjusters.

Ms. Rafidah, alluding to the years of British colonial rule, said Malaysia's

financial sector "has a very long tradition of foreign domination. We subscribe to the principle of progressive liberalization."

The minister, speaking to a Swiss delegation, said the country of 18 million people already has a large foreign presence in both insurance and banking. A Malaysian firm entering the U.S. market was hardly noticeable, she said, while a U.S. company arriving in Malaysia was significant.

Ms. Rafidah, excerpts of whose remarks were made available here Wednesday, suggested Malaysia must develop further before additional overseas insurance or other financial companies could comfortably be accommodated.

Malaysia's insurance sector has suffered in recent years from the insolvency of some domestic firms, a generally low level of risk expertise and poor underwriting performances.

Malaysia's central bank took over supervision in 1988 and has introduced a series of regulations in hopes of sorting out the industry.

Regulators seized some firms and forced others to merge. The insurance supervisory agency reported 11 failures in 1991, down from 13 the year before.

Vehicle insurance, which accounts for 44 percent of all non-life policies, is particularly weak. Losses in 1991, the most recent complete year, more than doubled from 1990 to M$333 million (US$128 million).

In his annual report, central bank governor Jaffar Hussein lamented the dominance of overseas firms, especially in the life business. Five foreign companies wrote 65 percent of such policies in 1991.

Mr. Jaffar also bemoaned the heavy reliance on offshore reinsurers, which adds to the country's so-called invisible trade deficit. Reinsurance premiums in 1992 rose 19.5 percent to M$1.5 billion, of which just under half went abroad.

Malaysian insurers counter that they have few options since local firms cannot manage the business. Earlier attempts to create a reinsurance pool collapsed on a single claim some years ago.

At a seminar in August, the chairman of Malaysia National Insurance Sdn. Bhd. urged airline operators and local insurers to make more effort to increase domestic underwriting of aviation risks.

Annuar Senawi said only four insurers directly write such business, covering 250 aircraft worth about M$10 billion. His firm is the largest, handling part of cover for flag-carrier Malaysian Airline Systems Bhd., domestic Pelangi Air Sdn. Bhd. and Malaysian Helicopter Services.

Those policies are on a co-insurance basis with European firms. Portions of its share are contributed to a Malaysian Aviation Pool established in 1989. Its premiums, however, were only M$590,000 at the end of last year.

Finance Minister Anwar Ibrahim said last month the life sector also needs to do more to play an effective role in economic development. Life policies amount to a mere 2.2 percent of all Malaysian insurance with only perhaps 15 percent of the population covered.

The ministry is being urged by Malaysia's life insurers to increase the tax exemption on premiums paid to encourage more people to take out policies.