Malaysia: Takaful business expected to witness stable profitability and capitalisation
Source: Middle East Insurance Review | Apr 2024
The heightened awareness of medical and weather events coverage is likely to stimulate takaful growth, but the market will face some headwinds, including the inflationary environment, market volatility, weakening ringgit, and the end of the passenger car tax exemption, said Fitch Ratings.
In a report titled ‘Malaysia Takaful Dashboard: 2024’, Fitch said it expects profitability and capitalisation to remain stable on sustained growth despite macroeconomic challenges.
A supportive Islamic finance ecosystem will strengthen Malaysia’s position further as one of the global centres of Islamic finance and takaful. The family takaful contribution declined by 3.9% y-o-y in 1H2023 after rising significantly over two consecutive years.
Growth in protection products is steady, but the contributions are offset by a decline in investment-linked products amid market uncertainties. General takaful growth of 20.1% y-o-y in 1H2023 was driven by the motor contribution, boosted by tax-free sales of passenger cars booked before 31 March 2023.
The takaful sector maintained its market share at 32% of the insurance market in 1H2023. Fitch views improvement in risk selection as the main driver for wider margins. The higher general takaful claim ratio of 64.3% in 2023 (2022: 60%), due to frequent floods, resulted in underwriting losses.
Meanwhile, family takaful’s underwriting margin was hit by medical inflation. Fitch sees growing demand for digital services as a catalyst for takaful growth.
The Malaysian central bank plans to finalise the regulatory framework for digital insurers and takaful operators by 1H2024. Malaysia takaful has applied Malaysia Financial Reporting Standard (MFRS) 17 since January 2023 and the impact of reporting changes on family takaful is mostly positive. Meanwhile, the financial outcomes of general takaful are similar to MFRS4, affected by its shorter duration. M