• Neutral impact seen on STMK from BNM's announced interim measures on ITOs to spread out the upward repricing of premiums/contributions over a minimum of 3 years. With higher cost of healthcare, BNM announced interim measures requiring ITOs to spread out the repricing increase of premiums/contributions for MHIT products over a minimum of 3 years as opposed to a 1 one-time adjustment. The annual increase must not exceed 10%. Locally, medical cost locally has continued to rise yearly. Hence, medical claims are likely to remain elevated in the near term until mechanisms to control medical charges at hospitals are rolled out by the medical health authority. Capping the increase in premiums/contributions is likely to see some impact on the profitability of life/family takaful ITOs as the yearly repricing may not be sufficient to catch up with the high medical claims, particularly for certain policies where policyholders have not opted to switch to a plan with co-payments or one with lesser coverage. This is particularly on ITOs focusing largely on longer term life/family takaful policies which includes the IL. In contrast, the impact on STMK is seen as neutral. Medical products sold are significantly shorter in term and are renewable yearly. This accounts for <5% of its total family takaful gross contributions. The interim measure will not have any impact on yearly renewable medical products.
• Strong focus on credit related products averts risk of potential policy lapses from premium/contribution repricing for MHIT products and higher inflation in 2H25. Contributions from credit related products (mortgage & personal financing) account for 78.3% of STMK's total gross contributions for family takaful. With expectation of higher inflation in 2H25 from RON95 rationalisation, increase in electricity tariff and the premium repricing for longer term MHIT products, STMK's strong focus on single contribution credit related products which are paid upfront averts risk of any lapses faced by regular premium/contribution life/family takaful policies.
• Motor business under general takaful remains profitable with a combined ratio of less than 100%. Moving ahead, STMK plans to grow more contributions from fire segment. This will balance the mix of fire/motor contributions for general takaful.

Source: AmInvest Research - 9 Jan 2025