PETALING JAYA: The new business premiums (NBPs) for the life and family takaful industry is anticipated to chalk up a higher single-digit growth in the second half of 2022 and 2023 amid the challenging market conditions, says RAM Rating Services Bhd.
The life insurance industry’s NBPs for the first nine months of 2022 grew 8.5% to RM1.51bil, based on the Life Insurance Association of Malaysia’s (Liam) statistics.
Overall new business premiums for the period posted a slight dip of 3.1% due to lower take-up rate of investment-linked (IL) business.
This was also attributed to the lower premium size (average of RM75 per policy) offered by life insurers under the Perlindungan Tenang Voucher (PTV) programme.
RAM Ratings co-head of financial institution ratings Sophia LeeRAM Ratings financial institution ratings co-head Sophia Lee, who closely monitors the insurance industry, told StarBiz: “While the weaker take-up of IL products could persist in light of the still challenging financial market conditions, driven largely by external headwinds, the industry’s NBP growth is supported by higher demand for medical and health products.
“This is because of the rising medical costs as well as greater awareness of the benefits of such protection after the Covid-19 pandemic.”
Lee said credit-related products such as mortgage-reducing term assurance and takaful could also see higher growth following a pick-up in property market transactions and the gradual economic recovery.
The industry recorded a total of 1.42 million new policies in the nine months of 2022, reflecting a growth of 25.9% as compared to the same period in 2021.
The increase was mainly attributed to ordinary life business registering 50.6% growth or 920,254 new policies.
As for profitability, she said despite the healthy top line growth, the profit performance of life and family takaful players may remain pressured by weaker investment valuations.
The industry’s bottom line went into the red in the first half of 2022, mainly due to significant net unrealised losses from bond investments because valuations have declined as bond yields spike in anticipation of interest rate hikes during the period and weaker performance of equities.
Excess of income over outgo of the life and family sector for the first half of 2022 stood at a loss of RM4bil compared with a profit of RM3.9bil in the first half of 2021.
Lee expects benefit payouts to remain relatively stable for the second half of 2022 and 2023.
LIAM chief executive officer Mark O’Dell
The life insurance industry recorded the highest claims payout in the nine months of 2022 over a five-year comparison, Liam chief executive officer Mark O’Dell said.
Total claims recorded an increase of 17.7% to reach RM9.9bil compared with RM8.5bil over the same period in 2021.
Medical claims reached a record high of 37.6% or RM4.4bil during the period, which was attributed to higher incidence of treatment and hospitalisation for elective surgeries.
During the movement control order in 2020 and 2021, medical claims recorded a decline of 8.3% and 2.28% in 2020 and 2021, respectively.
O’Dell said higher medical claims are expected to put added pressure on premium increases, going forward.
For the said period, insurance protection for the life sector in the form of sum assured registered a healthy growth of 9.6% to RM394.8bil, from RM360.2bil during the same period last year.
O’Dell said the healthy performance of the industry reflects the increase in consumer awareness on the importance of life insurance protection.
He said Malaysians are increasingly aware of their responsibility to be financially protected against unforeseen circumstances or unfortunate events that could happen anytime.
“Covid-19 is one example of how fragile life is and Malaysians have learnt so much from the pandemic,” he noted.
He said the collaboration between the government and the insurance and takaful industry through the PTV programme is a noble effort in introducing financial planning to the lower income group in the country.
“This incentive has encouraged more Malaysians to take up life insurance protection and made them aware of the importance of protection.
“The PTV products are important in providing immediate financial relief in the event of misfortune or unforeseen circumstances.
“Family members can have the peace of mind knowing that financial relief is available in an easy and timely manner. Hence, the industry hopes that the PTV incentive will continue under the new unity government. “
Meanwhile, the non-life and general takaful industry charted a strong 11.9% recovery in premium growth in the first half of 2022 compared with 3.8% in 2021 and minus 0.1% in 2020, as economic activities returned to pre-pandemic levels.
Lee expects the growth to moderate slightly in the second half of the year owing to the ending of the sales tax exemption for cars on June 30, 2022.
The industry’s premium growth is expected to normalise to mid-single digit for 2023, given the prior year’s higher base, she noted.
She expects the motor and fire segments, which accounts for around 50% and 20% of the industry’s premiums and contributions, respectively, to continue to spearhead the non-life and general takaful industry’s growth.
Similar to the life and family takaful sector, weaker investment performance also affected operating results, which declined to RM1bil in the first half of 2022 compared with RM1.7bil in the first half of 2021.
Lee said the continued normalisation of claims experience and increased incidence of physical risk events such as floods amid heightened climate risks would weigh on margins for non-life players in 2022 and 2023.
The resumption of de-tariffication for motor and fire classes since October 2022, which allows for greater pricing flexibility, could also further compress margins next year.
On the whole, she expects the insurance and takaful sector to remain resilient.
Aggregate capital-adequacy ratio for the overall sector remained strong at 224% as at end-June 2022, well above the regulatory minimum of 130%, she noted.
