PETALING JAYA: RHB Research continues to be upbeat about insurance companies, naming the sector as a top pick among non-bank financial institutions (NBFIs).
The positive outlook is underpinned by sturdy growth in general insurance results, along with improving investment returns, which could help insurers weather challenging market conditions.
The research house said the adoption of Malaysia Financial Reporting Standards 17 (MFRS17) has had varying effects on two insurers, Allianz Malaysia Bhd
and Syarikat Takaful Malaysia Bhd (STMB).
For Allianz, MFRS 17 led to an increase in retained earnings and had its net profits restated upwards, while STMB experienced a downward revision in its figures.
“We believe the difference lies in the types of insurance/takaful contracts that make up their respective in-force books, along with the accounting processes undertaken pre-transition.
“Post-transition, profits from insurance/takaful contracts are to be recognised over time, across the lifespan of the contracts. This would have a greater impact on the profit recognition timing of the longer-tailed life insurance contracts,” RHB Research said in a note to clients yesterday.
“Our new MFRS17 for financial years 2022 to 2025 (FY22-FY25) forecasts for Allianz reflect at least a 20% increase from our previous MFRS4 estimates, mainly premised on Allianz’s enlarged restatement of its historical numbers post-transition,” it added.
However, its forecasts for STMB remained flattish post-transition, as the downward revisions from the adoption of MFRS 17 were mitigated by the group’s strong year-to-date performance and positive outlook.
Keeping its “buy” calls on both insurers, the research house said STMB is looking to revise product prices to better reflect the medical inflation experienced by hospitals and clinics.
“On the bright side, claims on the general takaful side appear to have stabilised to pre-pandemic levels.
“Moving forward, general takaful will still be the key topline driver, as the family takaful side continues to be burdened by weaker contributions from the Public Sector Home Financing Board,” it noted.
It said STMB is committed to maintaining its dividend payout at least at the same level as FY22, which was 13.5 sen per share, reflecting an approximate 4% yield.
On Allianz, RHB Research said the insurer will continue to focus on repricing activities and close monitoring of claims cases to contain elevated medical claims.
Concurrently, the company will prioritise new business growth in its life insurance division, focusing on the investment-linked protection segment.
Meanwhile, Allianz’s general insurance division will continue to explore new opportunities – particularly in the motor insurance sector – including partnerships with new electric vehicle market entrants and coverage for second-hand cars.
RHB Research set target prices of RM4.30 for STMB and RM18.70 for Allianz.
