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Malaysian takaful industry outlook stable in 2019: RAM Ratings

 Publish date: Mon, 18 Mar 2019, 4:39 PM

KUALA LUMPUR: RAM Rating Services Bhd (RAM Ratings) is maintaining a stable outlook on Malaysia’s takaful industry for 2019, on the back of resilient growth amid an evolving operating landscape.
 
RAM Ratings said with the progressive impact of tariff liberalisation and moderating economic growth, general takaful contributions were expected to expand at a slower 6.0-7.0 per cent pace.
 
It said family takaful’s new business growth was expected to decelerate to 7.0-9.0 per cent given weaker consumer sentiment and rising cost of living.
 
“Despite near-term moderation, the long-term growth prospects for the industry remain anchored by Malaysia’s supportive demographics, low penetration rates and awareness initiatives targeted at the Muslim-majority mass market,” it said.
 
RAM Ratings said general takaful contributions increased eight per cent to RM2.8 billion in 2018.
 
“All major business lines charted growth with motor taking the lead, followed by medical and personal accident coverage, and fire plans.
 
“However, the lack of significant catalysts for motor sales and property transactions might limit growth going forward,” it said.
 
RAM Ratings said in the previous fixed-price environment, the unique ability of general takaful operators to offer cashback incentives to customers from takaful fund surpluses was a source of product differentiation.
 
However, it said this competitive advantage has been curtailed with risk-based pricing, as all general insurers and takaful operators could now offer upfront reductions of premium or contributions for “favourable” risks.
 
As for family takaful, RAM Ratings said the segment was spurred by the growth of ordinary family products where new business contributions grew at a quicker rate of 13.1 per cent to RM4.9 billion in 2018, but its profitability was affected by soft investment conditions.
 
“The family takaful penetration rate is currently low at about 15 per cent and an anticipated moderation in private consumption growth may tamper with near-term demand.
 
“The recently announced mySalam national health protection scheme which provides takaful coverage to the B40 lower-income group may act as a catalyst for future purchases of individual protection plans,” it said.
 
RAM Ratings said takaful only represented a small 17 per cent of Malaysia’s insurance and takaful sectors’ total premiums and contributions.
 
Going forward, it said upcoming regulatory changes included enhancements to the existing Takaful Operational Framework, while revisions to investment-linked product guidelines would be effective in 2020 for family takaful operators.
 
“The aim is to ensure high standards of governance and better safeguards for consumers.
 
“As at end-June 2018, the combined general and family takaful sector’s capital adequacy ratio stood at 227.5 per cent, comfortably above the minimum regulatory requirement of 130 per cent,” it added.
 
 - Bernama
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