KUALA LUMPUR: The insurance and takaful sector in Malaysia will remain stable in 2016, underpinned by the industry's solid capitalisation, says Fitch Ratings. M&A (mergers and acquisition) activities are likely to pick up following a quiet 2015.
The rating agency said solid capitalisation in Malaysia will also support the sector's premium growth and potential underwriting volatility as economic growth decelerates.
Malaysia's robust regulatory framework and capital practices comes from a series of regulatory reforms implemented in recent years ahead of full liberalisation and economic integration with other south-east Asian economies.
The industry's consolidated risk-based capital ratio was strong at 239 per cent in the first half of the year, well beyond the regulatory minimum of 130 per cent.
Premium growth was slower in the first half on the back of lower automotive sales and private consumption as consumers adjust to the Goods and Services Tax implemented in April.
"Stable domestic demand and low insurance penetration will continue to support the general insurance and takaful sector, “said analyst Thomas Ng, in a report.
Fitch Ratings also said the growth in investment-linked policies is likely to stay strong given the low interest rates. "We expect life insurers to increasingly tap on health-related and retirement products as the population ages and medical costs rise."
High claims from the compulsory motor class will continue to pressure general insurers' profitability but this will be partly offset by healthy underwriting margins from fire and non-motor classes.
"We believe the deregulation of tariff rates in 2016 to have a mixed impact: motor insurers are likely to benefit from greater flexibility in pricing their risks adequately, but it could trigger competitive pricing among fire insurers and erode bottom-line profitability.
On the M&A, it said it will be driven by the regulatory requirement for composites to split their life and non-life operations within five years from 2013.
There are currently eight takaful and four insurance composites that have yet to split their operations.
(News Straits Times Online / 03 December 2015)---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com