TA Securities has maintained its overweight recommendation on the insurance sector despite the motor segment facing high claims ratio and increased competition.
The research house believes next year will be the time for travel insurance business to shine mainly due to the Visit Malaysia Year 2020 (VMY2020) campaign, which targets to bring in 30 million international tourist arrivals. This may indirectly help to drive up demand for travel insurance products.
Based on the forecast from the Malaysian Aviation Commission, the air passenger traffic across all airports in Malaysia is expected to grow between 5% and 6% year-on-year (yoy) to about 115.5 million next year, driven by the VMY2020 campaign and increase in domestic seat capacity growth.
General insurance, on the other hand, particularly for the motor segment, is expected to remain extremely challenging due to intense price competition and high claims ratio.
Malaysia still has one of the highest numbers of road accidents in the world, so claims ratio for the motor segment is expected to stay on the high side in 2020.
According to the General Insurance Association of Malaysia, the general insurance industry posted a 1.4% yoy drop in gross written premiums amounting to RM8.9 bil for the first half of 2019.
Motor remained the largest segment under general insurance with a marginal decline of 0.2% yoy at RM4.2 bil.
“Meanwhile, we expect the government to gradually push for full liberalisation of both the motor and fire tariffs in order to encourage competition and product innovation,” noted TA Securities analyst Chan Mun Chun.
Malaysia has already implemented the liberalisation of tariff for both motor (±10% from base rate) and fire (±30% from base rate) since July 2017.
For the motor segment, the process of liberalising tariffs has already commenced while the decision to fully liberalise the fire insurance has been extended to 2020.
So, should the government proceed with full liberalisation in the coming year, the motor segment will see stiffer competition and increased pressure on underwriting margins for insurance players in Malaysia.
TA Securities maintains a buy call on Tune Protect Group Bhd with a target price of 70 sen based on 0.9x calendar year 19 price to book value while maintaining an overweight call for the sector.
“Despite the ongoing challenges in the general insurance segment, we are of the view that Tune Protect could be one of the potential beneficiaries of the VMY2020 campaign as the group’s earnings are largely driven by travel insurance that comes with higher underwriting margin in comparison with motor and other general insurance products,” said Chan.
In addition, the loss ratio in travel insurance is generally at low single digit. As such, the group is expected to see slower premium growth for the less lucrative motor segment as the focus will be on the travel insurance and non-motor segment. – Dec 27, 2019