KUALA LUMPUR (March 29): The profitability of insurance and takaful funds improved in the second half of 2022 (2H2022) amid better investment returns, Bank Negara Malaysia (BNM) said in its Financial Stability Review report for 2H2022.

Life insurance and family takaful funds’ excess income over outgo jumped 116% to RM6.9 billion in 2H2022 compared with RM3.2 billion in 2H2021.

“Life insurance and family takaful funds recorded higher net unrealised gains from investments as bond yields fell and equity markets improved, particularly towards the end of the year, resulting in positive excess income over outgo,” said the central bank.

However, underwriting performance was adversely affected by higher medical payouts to RM4.3 billion in 2H2022, versus RM3.5 billion in 1H2022, mainly driven by higher claims associated with both necessary and elective medical procedures which were postponed during the Covid-19 pandemic, as well as medical inflation.

“The decline in underwriting income has also been on account of new business premiums declining. This was consistent with general seasonal trends with the exception of mortgage reducing term takaful products which continued to trend upwards on the back of improving property market activity.

“Investment-linked new business premiums also grew by 12.5% in 2H2022, reflecting the intensification of campaign rollouts by insurance takaful operators (ITOs) in the latter half [of] the year to achieve year-end sales target,” said BNM.

As for the general insurance and takaful funds, operating profit in 2H2022 rose to RM2 billion, from RM1.3 billion in the same period the prior year, as well as RM1 billion in 1H2021, driven by stronger underwriting and investment performance.

BNM said the higher underwriting profits mainly reflected the absence of large claims recorded in 1H2022 in the aftermath of severe floods at the end of 2021.

“Meanwhile, gross direct premiums continued to be supported by the continued growth in motor premiums amid high vehicle delivery for orders made during the sales tax exemption period.

“The fire segment also recorded a smaller decline in premiums in the second half of 2022 compared to the previous year with the recovery in property market activities.

“Given the significant contribution to underwriting performance from these two major lines of business, the ongoing gradual liberalisation of applicable insurance tariffs will have an important bearing on future performance,” it noted.

Going forward, the insurance and takaful sector is expected to remain resilient, supported by strong capital and liquidity positions, said BNM.

The aggregate industry capital adequacy ratio of 226% remains well above the regulatory minimum of 130%, it said.

“Capital buffers in excess of regulatory requirements stood at RM37.5 billion.

“Macro tests conducted by the bank also affirm that under adverse scenarios, most insurers would remain resilient with sufficient capital buffers,” BNM added.

Don't miss the other highlights of the BNM Annual Report 2022. Read the articles here.