News Life and Health13 May 2022

Malaysia:Insurance & takaful market remains resilient despite uncertainties

| 13 May 2022

The insurance and takaful sector in Malaysia is expected to remain resilient despite volatilities on the investment front and the normalisation of claims experience on the road to COVID endemicity, says RAM Ratings.

Thus, the credit rating agency has maintained a 'Stable' outlook on the Malaysian insurance and takaful sector, said Ms Sophia Lee, RAM’s co-head of Financial Institution Ratings.

Key expectations for the sector, detailed in RAM's latest commentary –"Insurance and Takaful Insight: Raising the Game"– are outlined below:

  • New-business growth in the life and family takaful segments to come in at 10% and 20%, respectively, in 2022 (2021: +12% and +29%) as the sector rides the recovery wave.

  • The profitability of life and family takaful players will stay pressured by uncertainties on the external front.

  • The claims experience of general insurance and takaful players is anticipated to normalise upward.

  • Competition in the motor and fire segments will intensify, with further liberalisation still on the horizon.

  • Capitalisation will remain sturdy, staying adequate against downside risks.

New business

The life and family sector’s new business rebounded strongly in 2021 after having been subdued by the pandemic in 2020. Investment-linked plans continued to be the main growth driver in terms of new business premiums and contributions, although the number of new ordinary life/family policies spiked.

The increase stemmed mainly from the take-up of Perlindungan Tenang policies by individuals in the bottom 40% (B40) income group who received MYR50 ($11.38) vouchers from the government for the purpose. A total of 1,710,877 vouchers were redeemed amounting to MYR85.4m in premiums/contributions. As these are generally small-ticket policies, they only contributed 0.4% to aggregate new-business premiums and contributions in 2021.

Notwithstanding the turnaround in new-business growth, unfavourable investment valuations and some cost pressures weakened the life and family sector’s profit performance. Excess of income over outgo – a proxy of the sector’s bottom line – almost halved to MYR13.1bn in 2021 (2020: MYR22.3bn). The main causes were domestic equity valuations which were dampened at the close of 2021 due to the emergence of the Omicron variant, as well as revaluation losses on insurers’ bond portfolios given higher Malaysian government securities yields. The latter largely resulted from the expectation that interest rates would rise in tandem with economic recovery.

“Going forward, external uncertainties – including but not limited to the Russia-Ukraine war and the pace of interest rate normalisation in advanced economies – could heighten volatilities in financial markets. These will exert pressure on the bottom lines of life insurers in 2022, even with our new-business growth expectation and in-force business holding its ground,” said Ms Lee.

General insurance

The general insurance and takaful sector’s underwriting performance improved for the second consecutive year in 2021. Better claims experience – largely from motor covers in view of reduced road activity – lifted the underwriting margin of general players to 13% (2020: 10%; 2019: 6%). The improvement would have been more significant if not for higher flood-related claims seen in December. The estimated gross insured loss of around MYR2.2bn, at a third of the aggregate MYR6.1bn of economic losses is telling of the fact that many homes and vehicles in Malaysia are uninsured or underinsured.

“Greater awareness of the availability of flood and special perils (natural disaster) cover among households and businesses, particularly small-medium enterprises, could shield them from the sudden impact of such events and help safeguard financial wellbeing,” Ms Lee said.

The fire class remained the second-largest segment for general players after motor (20% and 50% of aggregate premiums and contributions in 2021, respectively), supporting the overall 4% growth in the non-life sector’s premiums and contributions to MYR21.5bn last year (2020: flattish; 2019: +2%).

Looking ahead

The adoption of Malaysian Financial Reporting Standard 17 (Insurance Contracts) in 2023 which requires insurers to recognise profits only as they deliver insurance services/coverage (versus when premiums are received upfront), will have a greater effect on life and family players in view of their longer-term contracts.

Industry players will have to adapt to the changing landscape as the sector gears up to raise its game amid digitalisation accelerated by the pandemic, the impending entry of digital insurers and takaful operators and regulatory push for structural reforms to drive greater industry dynamism, inclusivity and sustainability.

Further liberalisation of motor and fire tariffs is likely to spur greater innovation and competition in the segments. Reforms such as those to contain medical cost and claim inflation, while likely to yield benefits only in the long run, are definitely steps in the right direction.

RAM’s "Insurance and Takaful Insight: Raising the Game" report can be downloaded at

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