This article first appeared in The Edge Financial Daily, on April 1, 2016.

KUALA LUMPUR: Growth in the Malaysian insurance and takaful sectors is likely to moderate this year, RAM Rating Services Bhd said, with gross premiums projected to expand about 5% (life insurance), 2% to 3% (general insurance) and 4% to 5% (takaful).

RAM said the slower pace is due to a challenging landscape and financial market uncertainties this year, projecting a gross domestic product growth of 4.4% for 2016.

“Despite the likelihood of slower momentum in the near term, the industry’s mid- to long-term outlook remains favourable on the low insurance penetration rate, rising consumer awareness, and greater efforts in product innovation and distribution,” said RAM in a statement yesterday.

“Insurers’ and takaful operators’ capitalisation levels and reserves remain robust, and the industry is supported by a sound and prudent regulatory framework. We maintain a stable outlook on the credit profiles of our rated insurers and takaful operators,” it said, adding that over the next few years, the operating landscape will evolve with regulatory-driven liberalisation.

“The detariffication of motor and fire insurance bodes well for the sector as premiums will gradually commensurate with underwriting,” it said. 

However, it expects reforms in the Life Insurance and Family Takaful Framework to result in some short-term uncertainty in the initial adjustment period.

“But they are positive for the long-term growth and efficiency of the life and family takaful sectors as they will see greater operational flexibility,” it said.

Last year, insurers and takaful operators were not spared the fallout from slower economic growth.

“Gross premiums in the general insurance segment only edged up 1.7% year-on-year (y-o-y) to RM15 billion from 6.5% in 2014, while life insurance premiums fared slightly better, advancing 5.4% y-o-y to RM37.4 billion from 7.7% in 2014.

“Although family takaful continued to expand at 8% (2014: 4.4%), growth in the general takaful segment eased to 6% (2014: 13.3%), ending the year with RM7 billion and RM2.3 billion of gross contributions respectively. Overall, the sector’s profit ebbed 13.8%.” RAM added.