Published on 16 February 2015
The Malaysian insurance and takaful
landscape has evolved significantly in the last 5 years. The
liberalisation of the Malaysian financial sector in 2009, which allowed
higher foreign equity in insurance/takaful companies, had
sparked a wave of M&As in the industry, paving the way for greater
competition, if not more challenging times ahead for the incumbents. At
present, there are 18 general (down from 24 in 2010), 9 life and 5
composite insurers. Meanwhile, there are 11 takaful operators.
Regulatory developments have kept pace with
liberalisation – these include the introduction of risk-based capital
frameworks for insurers and takaful operators, the amalgamation
of various acts into a single legislative framework and other changes.
These developments are positive for the industry’s financial soundness,
with some measures providing an impetus to increase operational
flexibility. The evolving landscape is changing the way insurance/takaful businesses are managed. The right business strategy, product innovation and distribution will set market leaders apart.
Against this backdrop is an industry that holds good
mid- to long-term prospects, underpinned by Malaysia’s moderate economic
growth, a low 54% penetration rate, a growing insurable population, as
well as greater consumer awareness amid rising medical and living
expenses.
Under the circumstances, RAM has maintained a stable
outlook on the sector in 2015. The implementation of the GST will have a
neutral impact on the industry, although life insurers and family takaful operators
will need to absorb slightly higher costs for exempted life/family
premiums. Premiums/contributions may post marginal growth and traction
this year, given the recent headwinds that could dent domestic growth
and curb consumer spending. The investment climate is also expected to
become more volatile in the coming quarters, affecting insurers’
investment returns – although this must be considered against offsetting
insurance liabilities.
That said, the key financial metrics of our rated
portfolio including Etiqa Insurance Berhad (AAA/Stable/P1) as well as
Hong Leong Assurance Berhad (AA2/Stable/P1) and those of the leading
insurers/takaful operators should remain strong given their
established market positions. For 2015, RAM forecasts a 6% growth for
life premiums (2014e: 5.8%) and 7.5% (2014e: 7.0%) for the general
segment. Takaful gross contributions are expected to expand at least 10%, partly due to a small-base effect.
Click here for report.
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