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MALAYSIA: Despite
unfavorable global market conditions from 2014 (soft oil prices and weak
global trade and investments) which are likely to persist this year,
Malaysian Takaful operators are expected to not only maintain its healthy
double-digit growth story, but to also gather slight speed buoyed by the
country’s moderate economic growth, low insurance penetration rate,
growing insurable population and rising consumer awareness, according to
RAM Ratings.
Assigning a stable outlook to Malaysia’s insurance and Takaful industry,
the rating agency forecasts for the Takaful sector to realize a minimum
10% growth in gross contributions; while its conventional counterpart is
projected to generate a 6% premium increase for the life segment (2014e:
5.8%) and 7.5 (2014e: 7%) for the general business.
Registering a 16% cumulative annual growth rate (CAGR) for the general
segment and 14% for family in the last five years, the Takaful industry
has accumulated contributions of RM8.1 billion (US$2.26 billion) in 2013,
commanding approximately 20% of total insurance premiums.
“After a growth spurt in 2013, last year turned out to be a languid one
for Family Takaful – the dominant segment in Malaysia,” noted RAM, in its
latest sector commentary. Recording a 6.6% expansion in gross
contributions in the first six months of 2014 as compared to the
corresponding period of 2013 – relatively pale in comparison to the
sector’s five-year CAGR of 14% – the Family Takaful segment nonetheless
is expected to gather momentum in 2015 with at least a 10% growth to more
than RM7 billion (US$1.95 billion) (from the estimated 2014 figures of
RM6.5 billion (US$1.81 billion)). Whereas for the General Takaful
business, which realized a 12% year-on-year increase in contributions in
the first half of 2014, contributions are forecast to rise 10-12% to
stand at RM2.4 billion (US$670.02 million) this year. The sector’s key
operating metrics are also anticipated to continue improving.
“Optimistically, if the industry continues its high-growth trajectory of
about 15-20% per annum, it could reach half the size of the conventional
industry by 2018, making it potentially much more lucrative to
investors,” said RAM.
In the next few years, the Malaysian insurance and Takaful fraternity
will be bracing themselves for several major market changes including the
introduction of goods and services tax (GST) in April 2015, motor
detariffication in 2016 and segregation of composites in 2018. Apart from
the imposition of GST on General Takaful/insurance (whose affects would
more or less be relatively neutral as it can be passed on to customers),
the abolition of motor tariffs and mandatory legal separation of licenses
are likely to alter the landscape to a significant degree.
Transitioning from a tariff model to a market pricing mechanism, will
create an environment of fiercer competition and will be conducive for
greater innovation which are beneficial to the growth of the industry.
Some initial price undercutting to remain competitively advantaged is
expected; however, RAM anticipates for premiums to eventually settle at
new higher levels to reflect the claims experience. Whereas in a sector
with 11 operators (out of which, eight are composite players), the
Takaful segment is likely to experience consolidation over the next few
years leading up to the mandatory separation of their General and Family
Takaful businesses, as smaller General Takaful players struggle to meet
the minimum capital requirements.
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