RAM: Stable outlook for insurance sector amidst regulatory reforms

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RAM envisaged general insurance premiums to stay stagnant in view of the progressive impact of tariff liberalisation and as the country’s economic growth moderates.

KUCHING: RAM Ratings (RAM) has maintained a stable outlook on the Malaysian insurance industry for 2019.

RAM envisaged general insurance premiums to stay stagnant in view of the progressive impact of tariff liberalisation and as the country’s economic growth moderates.

“Similarly, life insurance new business premiums are expected to chart a modest one per cent to two per cent rise, given weaker consumer sentiments and rising cost of living concerns,” the ratings firm said.

“General insurance premiums rose 1.8 per cent to RM17.6 billion in 2018 after a mild contraction the year before, supported by growth in the motor as well as medical and personal accident segments.”

“While fire premiums also saw an increase, future growth will be limited as competition intensifies in this high-margin segment. A clearer picture of the impact of Bank Negara Malaysia’s liberalisation of motor and fire tariffs will emerge from 2019, three years after the reforms were first initiated.

“At this juncture, insurers’ pricing autonomy is still limited, although the regulator may consider further easing from 2019 onwards. Motor and fire insurance collectively accounted for 67 per cent of general insurance premiums in 2018.”

According to RAM, the life insurance segment’s new business premiums expanded a slower 1.8 per cent to RM10.3 billion in 2018, compared to an increase of 3.9 per cent in 2017, driven by an increase in group policies.

“New business growth may be constrained in the next few years as the industry adapts to new regulatory requirements for investment-linked (IL) business.

“Among others, the revised guidelines require sustainable premium pricing, sustainability tests of insurance coverage, and more conservative investment return illustrations in sales and marketing materials.

“These changes are likely to impact IL sales, which contributed a substantial 44 per cent of the sector’s new business premiums last year.

“That said, the nation’s favourable demographics and healthcare inflation will still buoy demand for insurance coverage in the medium term.”

The ratings firm added that the Budget 2019 separation of tax relief for Employee Provident Fund contributions and life insurance premiums may boost awareness, alongside government initiatives such as the recent mySalam national health protection scheme.

RAM went on to highlight that the regulatory-driven reforms are arduous but arguably necessary to improve the sector’s competitive dynamics and drive future growth.

“Competition may be a catalyst for mergers and acquisitions in the industry, some of which have already been reported.

“Looking ahead, the industry’s capitalisation is anticipated to stay sturdy.”

It noted that as at end-December 2018, the combined general and life insurance sector’s capital adequacy ratio was 244.1 per cent, compared to 235.7 per cent at end-December 2017.