Malaysia's trouble-plagued insurance sector may be restructured into a two- tier system to weed out the weak and strengthen the rest.

Under a plan floated by the central bank, the director general of insurance would raise the minimum capital requirement of insurers to 100 million Malaysian dollars ($40 million), double or triple current levels. It would be achieved over two to three years.Analysts say companies should have paid-up capital of M$5 million for each business and a solvency margin of 20 percent of premiums per line of business.

Central bank figures show the industry, with 58 companies, was capitalized at M$1.2 billion as of June 1994.

It's not clear whether the higher minimum being considered by Bank Negara, the central bank, will actually be made policy, or whether it is another in the regulator's series of proddings to improve standards.

In July, Ahmad Mohamad Don, the central bank governor, first raised the idea of a M$100 million minimum.

"We cannot afford to have companies, which after being landed with a single large claim, find themselves facing winding-up (insolvency) as well," he said.

After several disasters in recent years, the central bank is not prepared to save ailing financial institutions any more, he said.

The governor also said in July that brokers might have to increase their capital to more than M$500,000 within the next few years.

A statement Friday after the bank's annual meeting with the insurance industry said the regulator "shares the bank's vision of having 15 well- capitalized, well-managed Malaysian insurers which could be recognized national, regional and eventually world-class players."

Under the proposed two-class system, solidly based companies would be rated Tier-1, as are the bigger banks, giving them more latitude to operate and greater recognition elsewhere.

As so often, Bank Negara urged insurers to improve underwriting skills, review business strategies, identify competitive advantages and develop well- trained professionals.

The bank reiterated concern often expressed that general insurers have yet to attain the objectives of covering large and specialized risks.

"Premium outflow remains substantial and more efforts would be required to retain a bigger share of the business within the country." The bank's report urged insurers to work together to improve national retention capacity.

Malaysia suffers a chronic deficit on so-called invisible trade such as insurance.

Overall, the regulator said the industry should take full advantage of new technology to set up integrated systems within companies and establish industrywide connections.

Growth in life business last year was 19 percent, to M$5.37 billion, while the general sector showed income up 16.5 percent, to M$3.77 billion. Life assets at the end of the year stood at M$15 billion, a gain of 23 percent. New life policies grew 15.8 percent compared with 13.5 percent in 1993.

The non-life sector registered a 16.5 percent increase in net premium income, to M$2.75 billion, the report shows. General insurance assets increased 19.8 percent, to M$5.88 billion.