Published on 18 Mar 2019.
RAM Ratings has a stable outlook on the Malaysian takaful industry for 2019. With the progressive impact of tariff liberalisation and moderating economic growth, general takaful contributions are expected to expand at a slower 6% - 7% pace. Meanwhile, family takaful new business growth is expected to decelerate to 7% – 9% given weaker consumer sentiments and rising cost of living concerns. Despite near-term moderation, the long term growth prospects for the industry remain anchored by Malaysia’s supportive demographics, low penetration rates and awareness initiatives targeted at the Muslim-majority mass market.
General takaful contributions increased 8% to RM2.8 billion in 2018 (2017: +6.3%). All major business lines charted growth with motor taking the lead (+13.4%), followed by medical and personal accident coverage (+7.3%), and fire plans (+1.4%). The lack of significant catalysts for motor sales and property transactions may limit growth going forward. In the previous environment of fixed pricing, the unique ability of general takaful operators to offer cashback incentives to customers from takaful fund surpluses was a source of product differentiation. This competitive advantage has been curtailed with risk-based pricing, as all general insurers and takaful operators can now offer upfront reductions of premium or contributions for “favourable” risks.
Spurred by the growth of ordinary family products, family takaful new business contributions ascended a quicker 13.1% to RM4.9 billion in 2018 (2017: +10%), but the sector’s profitability was affected by soft investment conditions. An anticipated moderation in private consumption growth may tamper with near-term demand, but the recently announced mySalam national health protection scheme which provides takaful coverage to the B40 lower-income group may act as a catalyst for future purchases of individual protection plans. The family takaful penetration rate is currently low, at about 15%.
The takaful sector in Malaysia represents a small 17% of the combined insurance and takaful segment’s total premiums and contributions. Upcoming regulatory changes include enhancements to the existing Takaful Operational Framework. Meanwhile, revisions to investment-linked product guidelines are effective in 2020 for family takaful operators. Amongst others, these aim to ensure high standards of governance and better safeguards for consumers. As at end-June 2018, the combined general and family takaful sector’s capital adequacy ratio stood at 227.5% (end-December 2017: 213.7%), comfortably above the minimum regulatory requirement of 130%.
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