KUALA LUMPUR: RAM Rating Services Bhd (RAM Ratings) has maintained a stable outlook on the Malaysian insurance sector for 2020, asserting that it is expected to stay resilient despite the considerable economic impact of the Covid-19 pandemic.
In a statement today in conjunction with the release of its commentary – Insurance Insight – the credit rating agency said the strong capitalisation of the insurance players is expected to sufficiently cushion the impact of heightened financial markets volatility as well as higher capital charges amid low interest rates and mounting credit stress.
“However, we caution that downside risks remain as there is a high degree of uncertainty over the momentum of the coronavirus’ spread and its ultimate global peak. Our industry outlook may be revised if the extent of the economic impact exceeds our current expectations.” said RAM Ratings.
As at end-December 2019, the life insurance and family takaful sectors’ preliminary capital adequacy ratio (CAR) stood at a strong 207% – equivalent to 1.6 times the minimum requirement.
Similarly, the general insurance and takaful sectors boasted robust CAR of 283%.
As part of the government’s economic stimulus package to soften the repercussions of the crisis, life insurance policyholders and family takaful participants will have the option of deferring regular premium payments for three months without affecting their coverage.
The financial impact from this relief measure, available from April 1 to Dec 31, should be manageable for industry players.
“The mounting risks arising from more volatile financial markets and heightened credit stress amid the economic downturn will affect the insurance industry,” said RAM’s co-head of financial institution ratings Sophia Lee in the statement.
“However, most insurers have been conservative in their investment strategies, with the bulk of these assets constituting highly rated bonds.
“The equity portfolios of the top 10 life and general insurers, which account for over 90% and 70% of their respective industries by assets, stood at just 15% and 3%of their respective overall invested asset portfolios as at end-June 2019 (2018: 16% and 4%),” Lee added. – April 14, 2020, Bernama
