Malaysian Insurers Relatively Healthy

The economic fallout from Covid-19 is expected to cripple insurance premium growth this year, before any rebound could be anticipated in 2021. Based on historical data, new business for the life insurance sector contracted 4.6% during the global financial crisis in 2008 and 10.2% amid the Asian financial crisis in 1998.

In 2019, the life insurance industry’s new business premiums expanded 14.2% to RM11.8 billion (2018: 1.8%), driven by stronger sales of investment-linked (IL) products and endowment policies. The contraction of general insurance premiums is expected to be more pronounced in 2020, taking into account the challenging economic conditions and gradual effects of tariff liberalization for the motor and fire segments.

Last year, the general insurance industry’s premiums declined 0.8% to RM17.4 billion against a growth of 1.8% the year before. Tariff liberalization for the motor and fire segments, coupled with a high level of motor claims, has also been depressing the industry’s underwriting margin which narrowed to 7.1% last year against the previously recorded 8%.

The domestic insurance sector is expected to remain stable throughout the year despite repercussions arising from the economic impact of Covid-19. Insurance players’ strong capitalisation is anticipated to cushion the impact of heightened financial markets volatility and higher capital charges amid low-interest rates and mounting credit stress.

However, the downside risks remain as there is a high degree of uncertainty over the momentum of the coronavirus’ spread and its ultimate global peak. As at end-December 2019, the life insurance and family takaful sec- tor’s preliminary capital adequacy ratio (CAR) stood at 207% — equivalent to 1.6 times the minimum requirement, while the general insurance and takaful sector also had a strong CAR at 283%.

Under the government’s economic stimulus package to mitigate the effects of Covid-19 and the Movement Control Order, life insurance policyholders and family takaful participants have the option of deferring regular premium payments for three months without affecting their coverage.

A protracted low interest-rate environment will also place pressure on life insurers’ capital adequacy. Notably, most life insurers in recent years have been selling more IL products, which pass on investment risks to policyholders and attract lower capital requirements. IL products constituted about 56% of life players’ in-force business in 2019.

Its financial institution ratings co-head Sophia Lee said the mounting risks arising from more volatile financial markets and heightened credit stress amid the economic downturn will affect the insurance industry. However, most insurers have conservative investment strategies, with the bulk of these assets constituting highly rated bonds.

The equity portfolios of the top 10 life and general insurers, which account for over 90% and 70% of their respective industries by assets, stood at just 15% and 3% of their respective overall invested asset portfolios as at end-June 2019 (2018: 16% and 4%).