The management of Syarikat Takaful Malaysia’s (STM), the country’s biggest listed insurer in terms of market capitalisation, expects gross earned contributions (GEC) growth for family takaful to be slower this year due to increased competition, especially in the corporate medical business segment.
This is despite the fact that growth in family takaful GEC is seen as remaining strong at double-digit rates on a y-o-y basis in January to February 2017, according to a report by CIMB Research.
STM’s net claims ratio moved upwards in the past two years from 53.2% in FY14 to 54.5% in FY15 and 58.3% in FY16. The management said this was mainly due to the higher claims ratio for the group medical business, while the rates for these businesses have been dragged down by keen competition.
To address this issue, STM has been reviewing some of its corporate accounts for the group medical business. It even stopped underwriting some unprofitable businesses to improve its claims ratio.
GEC growth for family takaful will also be affected by weaker loan growth for Bank Islam, which is one of the key contributors of STM’s family takaful business. However, the potential drop in business volume from Bank Islam could be partly cushioned by expected higher contributions from its other bancatakaful partner, RHB Islamic Bank.
CIMB Research gathers that RHB Islamic Bank has just received approval to grant Amanah Saham Nasional loans, which are loans for the purchase of securities. This would create additional demand for STM’s takaful products.
CIMB Research expects the 1QFY17 results to be higher. “On the assumption of strong growth in family takaful GEC, we estimate 1QFY17 net profit to be higher quarter-on-quarter than the MYR38.8 million (US$8.8 million) recorded in 4QFY16, which was dragged down by weaker investment income. However, on a y-o-y basis,
1QFY17’s net profit is likely to be flattish or slightly lower compared to the MYR46.4 million posted in the corresponding period last year, which was lifted by strong investment income and a low tax rate,” said CIMB Research.
Splitting of businesses
Meanwhile, to comply with Bank Negara’s requirements, STM submitted its final plan to the central bank in December last year to split its family and general takaful businesses. The plan is awaiting the regulator’s approval.
STM expects to incur an upfront cost of MYR6 million to MYR8 million for the exercise to split its business into two entities. Following the split, the additional operating cost will be between MYR3 million and MYR5 million per annum due to the duplication of certain functions, like underwriting and marketing, for the two entities.
Under the Financial Services Act and Islamic Financial Services Act (IFSA), which came into force on 1 July 2013, composite insurers and takaful players are, among other rules, required to split their life and general insurance businesses under separate licences. IFSA requires composite takaful operators to operate under separate licences with effect from January 2018.
In addition, STM is actively pursuing FinTech initiatives to distribute its products through the internet. STM launched its online motor takaful business in November 2016. M
MYR1 = US$0.23