Malaysia’s general premiums and takaful contributions is expected to stay flat in 2018 amid competitive pressures, the progressive impact of tariff liberalisation, and still-weak consumer sentiment that will affect new car sales, said RAM Ratings.
On the other hand, the combined life insurance and family takaful sector is expected to post healthy new business growth of 5% to 6% this year, supported by improving consumer awareness, a favourable demographic composition and measures to narrow the protection gap, the ratings agency said.
Takaful expansion will keep outpacing that of 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.
For the entire Malaysian insurance industry, the agency is maintaining its stable outlook 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. 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,” it said.
The regulatory impetus for ongoing sector-wide reforms from 2016 to 2019 will support the industry’s development and long-term sustainability. Nonetheless, there will be short-term adverse implications on profitability, especially as the measures gain traction and take effect. General insurance and takaful growth could remain anaemic with the possible step-up in the pace of motor and fire tariff liberalisation.
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”, the agency said.
In addition, the regulator’s call for insurers and takaful operators to make investments – from talent and product development to alternative distribution channels, digitalisation initiatives as well as the upgrading of core functions and systems – will raise operating costs, particularly for smaller companies.
The performance of Malaysia’s insurance industry has been mixed. Based on data released by industry associations, general insurance GWP contracted 0.1% in 2017, while for life insurance, new business premiums 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 events. 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”, said the agency. M