General insurance sector premiums fell by 0.9% yoy for 1H17, while life insurance performed better with 5.9% yoy growth as consumers prioritised protection over consumption. We remain positive on the long-term outlook in the insurance sector given Malaysia’s favourable demographic patterns, but note that more effort and measures are likely needed to boost the stagnating penetration rate. We maintain our OVERWEIGHT sector view with Allianz Malaysia as our top pick.

General Segment Continue to Decline

For 1H17, the general insurance sector premiums fell by 1.8% yoy while general takaful sector contribution rose 5.9% yoy. Nonetheless, the general sector gross direct premiums and contribution fell by a combined 0.9% yoy. This represents the second half-yearly period yoy fall since 2H16, mainly driven by a drop in the marine, aviation and transit segments and continued weakness seen in motor and fire insurance segment growth.

Life and Family Segment Grew on Demand for Protection

For 1H17, the life insurance sector and family takaful sector’s annualised new premium/contribution (ANP) grew yoy by 5.5% and 7.3%, respectively. Combined, they rose by 5.9% yoy. The life segment has been witnessing a relatively stronger ANP growth, vs. the general segment since 2015, possibly due to a shift in consumer focus from consumption to protection.

Universe Continues Outperforming Industry; Consolidation Inevitable

Companies within our coverage continue to outpace industry growth. We believe that such industry outperformance is due to the respective companies’ established distribution network, well-planned strategy and/or niche offerings. We believe that industry consolidation is inevitable in the long-run as an insurer’s size remains crucial for long-term competitiveness, in terms of economies of scale for costs and investments, meeting capital requirements, branding and even risk management.

Regulatory Reforms Progressing Smoothly

Our market research with the insurance companies reveal that regulatory reforms, be it de-tariffication for general insurance or the LIFE framework for life insurance, are progressing smoothly without any significant disruptions observed thus far. News of potential listings of insurers such as Etiqa, Great Eastern etc. could also generate more interest and awareness in the sector, in our view.

Stock Picks

We continue to like Allianz Malaysia (ALLZ MK, RM14.52, BUY) as our top sector pick for its meaningful exposure to the general and life-insurance segments, as well as its attractive valuation where we believe its life insurance business remains undervalued and misunderstood by investors.

Source: Affin Hwang Research - 6 Sept 2017