DESPITE market volatility, the Malaysian insurance and takaful sector is expected to remain resilient due to sound Government policies and better consumer awareness.
“Despite volatility on the investment front and normalisation of claims experience on the road to endemicity, the insurance and takaful sector is expected to remain resilient,” RAM Ratings co-head of financial institution ratings Sophia Lee said in a statement.
Elaborating, she said the flood situation in parts of Peninsula Malaysia recently had raised awareness among the public on the importance of insuring households and businesses, particularly small and medium enterprises.
“They understand now that the coverage could shield them from such natural disasters and safeguard their financial wellbeing.”
Lee remarked that the fire class came as 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 RM21.5 bil last year (2020: flattish; 2019: +2%).
She added that 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.
In general, the life and family sector’s new business generation rebounded strongly in 2021 after having been subdued by the pandemic in 2020 (mostly in 2Q).
“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 mainly stemmed from the take-up of Perlindungan Tenang policies by B40 income group who received RM50 vouchers from the Government for the purpose.
“As of now, 1,710,877 vouchers were redeemed amounting to RM85.4 mil in premium/contribution value. As these are generally smaller-ticket policies, they only contributed 0.4% to aggregate new business premiums and contributions in 2021,” Lee noted.
Be wary of rate hikes
Despite the promising outlook, she cautioned that things may not improve too much as many nations are expected to hike up rates following 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 this year, even with our new business growth expectation and in-force business holding its ground,” Lee said. – May 9, 2022
