Malaysia’s insurers strongly capitalised, says Fitch

Expanding: Takaful Ikhlas aims for a better balance of its overseas and domestic contributions in the next three years from the current 40% and 60% respectively.

KUALA LUMPUR : Malaysia’s insurance and takaful sector is set to remain stable in 2016 as their strong capitalisation will support premium growth and cope with potential underwriting volatility as economic growth decelerates, says Fitch Ratings.

In a new outlook report for the sector next year issued on Thursday, it said the strong capital position for Malaysia’s insurers was built on a robust regulatory framework ahead of the full liberalisation and economic integration with other Southeast Asian economies.

This was evidenced by the industry’s robust consolidated risk based capital ratio of 239% in the first half of this year (1H15), which was well beyond the regulatory minimum of 130%, according to Fitch.

The ratings house believed that stable domestic demand and low insurance penetration would continue to support the general insurance and takaful industries despite a slower premium growth in 1H15 associated with lower automobile sales and lower consumption spending.

“The growth in investment-linked policies is likely to stay strong given the low interest rates, but we expect life insurers to increasingly tap on health-related and retirement products as the population ages and medical costs rise,” it says.

As for the auto industry, Fitch said that the deregulation of tariffs in 2016 will have a mixed impact.

Motor insurers were likely to benefit from greater flexibility in pricing their risks adequately, but it could trigger competitive pricing among fire insurers and erode bottom-line profitability, it explained.