KUALA LUMPUR (March 31): The growth momentum of 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% for life insurance, 2%–3% for general insurance and 4%–5% for takaful contributions.

The rating agency said the slower pace is on the back of a challenging landscape and uncertainties in the financial markets that are anticipated to persist this year. RAM is 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 given the low insurance penetration rate, rising consumer awareness and greater efforts in product innovation and distribution," said RAM in a statement today.

"Insurers' and takaful operators' capitalisation levels and reserves remain robust and the industry is supported by a sound and prudent regulatory framework. Against this backdrop, we have maintained a stable outlook on the credit profiles of our rated insurers and takaful operators," it added.

The agency is of the view that over the next few years, the operating landscape will evolve with regulatory-driven liberalisation.

"The detariffication of motor and fire insurance — to be implemented in phases beginning this year — bodes well for the sector as premiums will gradually commensurate with underwriting," it said.

Meanwhile, RAM expects reforms in the Life Insurance and Family Takaful Framework to result in some short-term uncertainty for insurers and takaful operators during the initial adjustment period.

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

RAM noted that insurers and takaful operators were not spared the fallout from slower economic growth and subdued consumer sentiment in 2015.

"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," said RAM.

"Overall, the sector's profit ebbed 13.8% as benefits and claims as well as commissions and management expenses outpaced the increase in premiums/contributions and investment returns fell amid a volatile market," it added.