RAM Rating Services Bhd expects Malaysia's takaful sector growth trajectory to remain higher than the conventional counterpart, underpinned by growth in the family takaful (FT) segment. It said on Friday the FT penetration rate was substantially lower (15% of the population) relative to life insurance’s 41%.
RAM Ratings maintained its stable outlook on the Malaysian insurance and takaful sector in 2017, which is supported by the industry’s strong capital levels and regulatory reforms which augur well for the sector’s development.
“Amid expectations of a delicate economic recovery, general insurance (GI) gross premiums growth is anticipated to stay below 2% in 2017. Meanwhile, subdued consumer sentiment and inflationary pressures will slow the pace of life insurance (LI) gross premiums growth to about 5% this year,” it said.
It said the market conditions were challenging for general insurers and takaful operators in 2016.
RAM Ratings cited that gross premiums in the GI segment eked out a 0.9% increase (compared with more than 2.5% in 2015) to RM17.2bil due to weaker growth in the motor and fire lines of business. These two segments which collectively represent more than 60% of the sector’s premiums.
It also pointed out that general takaful (GT) gross contributions expanded at a slower rate of 4.7% (2015: +6.0%) to RM2.4bil.
Notwithstanding topline growth moderation, the profitability of the GI and GT sectors strengthened to RM3.4 billion (2015: RM2.8 billion) on account of better claims experience.
The LI and FT segments delivered a stronger performance in 2016. Total LI gross premiums rose 7.5% (2015: +5.2%), breaching the RM40bil mark, while FT contributions climbed 11.8% to RM7.8bil.
“Despite financial market volatility, the LI and FT sector’s investment earnings remained steady, backed by capital gains and higher valuations of long-term corporate bonds,” it said.
RAM Ratings said this, together with the stronger growth in premiums and contributions, supported the sector’s better profit performance of RM13.6bil (2015: RM12.1bil).
“Looking ahead, tariff liberalisation initiatives in respect of motor and fire products may result in some initial price undercutting, but will spur an improvement in product innovation and risk selection criteria of general insurers and takaful operators.
“On the LI and FT front, regulatory measures to promote greater operational efficiency and increase the focus on direct commission-free distribution channels will lead to more affordable product offerings.
“These will help address the protection gap in Malaysia and steer the sector towards the target penetration rate of 75%. Regulatory reforms are expected to support the industry’s growth prospects, which remain favourable, despite some near-term moderation,” said RAM Ratings.
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