KUALA LUMPUR: Consumers are cutting back on spending in the wake of weaker economic growth and cost pressure arising from the implementation of the consumption tax on April 1, 2015, and one of the things they are foregoing is insurance.

According to Allianz Malaysia Bhd chief executive officer Zakri Mohd Khir, insurers are finding it difficult to sell high-end policies amid the softer consumer spending both in the general and life insurance markets.

Allianz Malaysia, which is part of Germany's Allianz Group, has seen a dip in sales of its expensive policies as consumers tighten their belts.

“There is still money in the [financial] system, but people dare not spend. People are afraid, and are waiting for some kind of direction. We have economic uncertainty. We have political uncertainty. That is why people are hesitant on wanting to spend,” Zakri told The Edge Financial Daily in an interview.

To offset a further decline in sales of its high-end policies and to maintain the same kind of profit seen last year, the insurer is focusing on marketing insurance products that have substantially lower premiums than current plans generally offered.

“We hope to sell more of these small-ticket insurance products, thus allowing us to continue to achieve growth in gross written premiums even though they give lower margins,” he said.

Small-ticket insurance includes all types of insurance where the premium and the insured amount are significantly smaller than conventional insurance. It extends across property and casualty, life and accident, and health insurance.

Zakri said Allianz Malaysia is expecting to match the net profit of RM295.9 million achieved in the financial year ended Dec 31, 2014 (FY14) this year.

“Last year was a bumper year [for Allianz Malaysia]. So, if we can repeat what we did in FY14 amid the current challenging economic climate, I think it is very good,” said Zakri.

Nevertheless, the company is expecting an increase in gross written premiums this year, even though the expected growth has been revised down to “high single digits” from double digits set earlier.

Allianz Malaysia's net profit jumped 24.37% to RM295.9 million in FY14 from RM237.92 million the previous year on higher net earned premiums of RM3.25 billion.

For the first quarter ended March 31, 2015 (1QFY15), however, the company saw its net profit fall 14.6% to RM73.64 million from RM86.22 million a year ago due mainly to lower underwriting profit in its general insurance operations. Revenue rose 8.21% to RM1.1 billion from RM1.02 billion in 1QFY14.

Zakri said 2QFY15 results will be much better than 1QFY15, but he declined to provide any guidance due to regulatory constraints.

Meanwhile, Zakri is of the view that the recent weak capital market would also weigh on Allianz’s investment income this year, although he doesn't expect the impact to be significant.

“Yes, we do make equity investments under Allianz Life Insurance Malaysia Bhd, but they are at a very controlled amount, and we will never put all our eggs in one basket,” he said.

“Insurance company is about predictability. It’s not about shock. We much prefer to be very mundane and boring. Smooth growth is good,” said Zakri.

Allianz Malaysia (fundamental: 1.45; valuation: 1.95) shares closed unchanged at RM11.40 last Friday, with a market capitalisation of RM1.93 billion.

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This article first appeared in The Edge Financial Daily, on July 13, 2015.