Growth in the Malaysian insurance and takaful sectors is expected to moderate in 2016 amid the challenging landscape and uncertainties in the financial markets that are anticipated to continue through the year, according to RAM Ratings.
In a statement yesterday, the credit rating agency said against its gross domestic product forecast of 4.4% for 2016, gross premiums are projected to expand about 5% for life insurance, 2-3% for general insurance and 4-5% for takaful contributions.
“Insurers and takaful operators were not spared the fallout from slower economic growth and subdued consumer sentiment in 2015.”
Last year, RAM said gross premiums in the general insurance segment edged up 1.7% year-on-year to RM15 billion, while life insurance premiums fared slightly better, advancing 5.4% to RM37.4 billion.
It said although family takaful continued to expand at 8% last year, growth in the general takaful segment eased 6%, ending the year with RM7 billion and RM2.3 billion of gross contributions, respectively.
Overall, RAM said the sector’s profit declined 13.8% as benefits and claims as well as commissions and management expenses outpaced the increase in premiums/contributions and investment returns fell amid a volatile market.
However, it said despite the likelihood of slower momentum in the near-term, the industry’s mid to long-term outlook remains favourable given the low insurance penetration rate, rising consumer awareness and greater efforts in product innovation and distribution.
“Insurers and takaful operators’ capitalisation levels and reserves remain robust and the industry is supported by a sound and prudent regulatory framework.
“Against this backdrop, we have maintained a stable outlook on the credit profiles of our rated insurers and takaful operators,” it noted.
Over the next few years, RAM said the operating landscape will evolve with regulatory-driven liberalisation.
It added that the de-tariffication of motor and fire insurance, to be implemented in phases beginning this year, bodes well for the sector as premiums will gradually commensurate with underwriting.
In addition, RAM said it expects the life and family takaful sectors to see greater operational flexibility as initiatives set out under the life insurance and family takaful framework are gradually implemented.