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Malaysia: Takaful sector expected to recover gradually by year-end from COVID-19 impact

Source: Middle East Insurance Review | Jun 2020

The economic impact of the coronavirus pandemic on the takaful sector is viewed as severe but temporary, and the Islamic insurance market would gradually recover by year-end, said RAM Ratings Services.
The outlook on the Malaysian takaful industry for 2020 is “stable”, despite the economic slowdown aggravated by the COVID-19 pandemic, said RAM in a statement.
The credit rating agency’s financial institution ratings co-head Sophia Lee said the industry’s strong capitalisation is sufficient to withstand headwinds.
“We caution that downside risks remain, considering the high degree of uncertainty over the momentum of the spread of COVID-19 and its ultimate global peak.
“We may revise our industry outlook if the extent of the economic impact exceeds our current expectations,” she said.
In 2019, family takaful new business contributions grew 25% to MYR6.2bn ($1.4bn), an additional 13 percentage points from 2018, mainly driven by the national health protection scheme MySalam.
Excluding MySalam, growth was still commendable at an estimated 16%, anchored by credit-related takaful products and the employee benefits group business. Similarly, the general takaful industry expanded by a strong 20% in 2019, led primarily by the motor business.
“Family takaful’s profit more than doubled to MYR3.8bn in 2019, supported by improved contributions and a better investment performance,” said Ms Lee.
The profitability of the general takaful business is also expected to be strained in the tough economic environment as the segment has seen thin net underwriting margins.
However, this should be cushioned by the industry’s investment income, said RAM Ratings, as the segment has limited exposure to the equities market and may record some gains from its fixed income portfolio, considering further overnight policy rate (OPR) cuts in 2020.
“However, we foresee the industry’s profitability in 2020 to be softer in view of a subdued top line and downside pressure on investment income, owing to volatile capital market movements in recent months,” Ms Lee said. M 
MYR1 = $0.23
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