KUALA LUMPUR (March 27): Bank Negara Malaysia (BNM) has classified 2018 as a year that insurance and takaful players proving their resiliency, with profitability for the sector going down in the year.

The central bank detailed in its 2018 Financial Stability and Payment Systems Report that the industry’s aggregate capital adequacy ratio (CAR) stood well above the minimum regulatory level of 245%, as insurance and takaful risk — which accounted for half of total capital required — remained largely stable, in line with the overall business mix which was broadly unchanged. 

"Market risk exposures declined on lower equity valuations, amid the weaker performance of the domestic equity market. Insurers and takaful operators also sold down equity as part of risk management strategies and this had an impact on profitability levels," it said. 

Credit risk exposures, meanwhile, also stood at stable levels, with 90% of corporate bonds held being rated AA- and above, or having government guarantees. "Counterparty risks from reinsurance arrangements, including external reinsurance exposures, remained limited on the back of sustained credit ratings of (re)insurers," it noted.

Nevertheless, profitability for insurance and takaful providers slowed down last year, largely because its life and family businesses experienced net unrealised investment losses from equity and bond holdings. Investment yields were also substantially lower at 2%, versus 2017's 8.3%. 

"Despite the weaker investment outturn, profitability continued to be supported by higher growth in total net premiums, particularly from existing policies, an improvement in overall expenses, and a slower increase in net policy benefits paid out," BNM added.