KUALA LUMPUR(March 15): RAM Ratings has maintained a stable outlook on the Malaysian insurance industry for 2019.
In a statement today, RAM analyst Ann Kimberly Lee stated that the firm envisages general insurance premiums to stay stagnant in view of the progressive impact of tariff liberalisation and as the country’s economic growth moderates.
“Similarly, life insurance new business premiums are expected to chart a modest 1%-2% rise, given weaker consumer sentiments and rising cost of living concerns.RAM Ratings maintains a stable outlook on the Malaysian insurance industry for 2019.”
Lee stated the company’s general insurance premiums rose 1.8% to RM17.6 billion in 2018 after a mild contraction the year before.
She noted that with fire premiums increasing, future growth will be limited as competition ensues in this high-margin segment.
“A clearer picture of the impact of Bank Negara Malaysia’s liberalisation of motor and fire tariffs will emerge from 2019, three years after the reforms were first initiated.
"At this juncture, insurers’ pricing autonomy is still limited, although the regulator may consider further easing from 2019 onwards. Motor and fire insurance collectively accounted for 67% of general insurance premiums in 2018," said Lee.
Notably, the life insurance segment’s new business premiums expanded a slower 1.8% to RM10.3 billion in 2018 (2017: 3.9%), driven by an increase in group policies.
New business growth may be constrained in the next few years as the industry adapts to new regulatory requirements for investment-linked (IL) business.
Among others, the revised guidelines require sustainable premium pricing, sustainability tests of insurance coverage and more conservative investment return illustrations in sales and marketing materials.
Lee said this is likely to impact IL sales, which contributed a substantial 44% of the sector’s new business premiums last year with the nation’s favourable demographics and healthcare inflation will still buoy demand for insurance coverage in the medium term.
Additionally, the Budget 2019 separation of tax relief for Employee Provident Fund(EPF) contributions and life insurance premiums may boost awareness, alongside government initiatives such as the recent mySalam national health protection scheme.
The regulatory-driven reforms are arduous but arguably necessary to improve the sector’s competitive dynamics and drive future growth.
In addition,competition may be a catalyst for mergers and acquisitions in the industry, some of which have already been reported.
She also noted that the industry’s capitalisation is anticipated to stay sturdy end-December 2018,adding the combined general and life insurance sector’s capital adequacy ratio was 244.1% (end-December 2017: 235.7%).