Malaysia - Life Outshines General

Ratings expects Malaysia's general insurance and takaful premiums and contributions to stay flat in 2018. The rating agency said on Monday the flat outlook would be due to competitive pressures, progressive impact of tariff liberalization, and still-weak consumer sentiment that will affect new car sales. 

“On the other hand, we expect the combined life insurance and family takaful sector to chart healthy new business growth of 5% to 6% this year. This will be supported by improving consumer awareness, a favorable demographic composition and measures to narrow the protection gap,” it said. 

RAM  pointed out takaful expansion would continue to outpace the conventional segment, aided by measures to accelerate insurance penetration as well as education and awareness initiatives among the Muslim-majority mass market and untapped population.

The rating agency is maintaining its stable outlook on the Malaysian insurance industry for 2018. 

“Against the backdrop of a slew of structural changes, the stable outlook reflects our expectation that the industry’s capital adequacy ratio will remain sturdy this year,” it said. 

RAM said the steady pace of economic expansion, with a projected 5.2% GDP growth for 2018, is also supportive of the sector’s development amid an environment of wide-ranging reforms.

Commenting on the regulatory impetus for ongoing sector-wide reforms from 2016 to 2019, it expected these would support the industry’s development and long-term sustainability. 

However, it cautioned there would be short-term adverse implications on profitability, especially as the measures gain traction and take effect. RAM said general insurance and takaful growth could remain anaemic with the possible step-up in the pace of motor and fire tariff liberalization. 

Although the major reforms under the LIFE Framework allow life insurers and family takaful operators more flexibility in managing operating expenses, they are also more onerous in terms of safeguards for policyholders, professionalism and transparency. 

It also noted that the regulator’s call for insurers and takaful operators to make investments – from talent and product development to alternative distribution channels, digitalization initiatives as well as the upgrading of core functions and systems – to raise operating costs, particularly for smaller companies.

On the Malaysian insurance industry’s performance, it said that it had been mixed. 

Based on data released by the industry associations, general insurance gross written premiums contracted 0.1% in 2017. 

However, life insurance new business premiums, meanwhile, rose 3.8% last year. 

Despite subdued growth, the general insurance and takaful sector’s performance is expected to remain steady in the absence of natural calamities and catastrophic accidents. 

Although the recent lifting of the overnight policy rate may provide life insurers and family takaful operators some respite from low interest rates, the extent of any reprieve will depend on the entity’s investment mix, asset-liability matching and degree of contractually guaranteed obligations.