KUALA LUMPUR: The impending goods and services tax (GST) will have a neutral impact on the Malaysian insurance industry, according to RAM Rating Services Bhd.
“The GST impact will be neutral, although life insurers and family takaful operators will need to absorb slightly higher costs for exempted life or family premiums,” said RAM in a report.
The ratings agency added that premiums or contributions may post marginal growth and traction this year, given the recent headwinds that could dent domestic growth and curb consumer spending.
“The investment climate is also expected to become more volatile in the coming quarters, affecting insurers’ investment returns, although this must be considered against offsetting insurance liabilities,” said RAM.
The ratings agency maintained a stable outlook for the insurance sector in 2015. For the current year, RAM forecasts a 6% (2014 estimate: 5.8%) growth for life premiums and 7.5% (2014 estimate: 7%) for the general segment.
RAM said takaful gross contributions are expected to expand at least 10%, partly due to a small-base effect.
“The key financial metrics of our rated portfolio including Etiqa Insurance Bhd (AAA/stable/P1) as well as Hong Leong Assurance Bhd (AA2/stable/P1) and those of the leading insurers or takaful operators should remain strong given their established market positions,” said RAM.
It said the local insurance and takaful landscape has evolved significantly in the last five years with the liberalisation of the Malaysian financial sector in 2009, which allowed higher foreign equity in insurance/takaful companies that had sparked a wave of mergers and acquisitions (M&As) in the industry.
“At present, there are 18 general insurers (down from 24 in 2010), nine life and five composite insurers, and there are 11 takaful operators. Regulatory developments have kept pace with liberalisation — these include the introduction of risk-based capital frameworks for insurers and takaful operators, the amalgamation of various acts into a single legislative framework and other changes,” said RAM.
It said these developments are positive for the industry’s financial soundness, with some measures providing an impetus to increase operational flexibility.
“The evolving landscape is changing the way insurance or takaful businesses are managed. The right business strategy, product innovation and distribution will set market leaders apart, and against this backdrop is an industry that holds good mid- to long-term prospects, underpinned by Malaysia’s moderate economic growth, a low 54% penetration rate, a growing insurable population, as well as greater consumer awareness amid rising medical and living expenses,” said RAM.
This article first appeared in The Edge Financial Daily, on February 16, 2015.