KUALA LUMPUR: Analysts expect single digit expansion in the premium income of the life and non-life insurance sectors in Malaysia over the next few years.
Therefore, CIMB Research analysts urged investors to focus on insurance companies that have exposure to overseas markets and the takaful business, given the cautious outlook for growth in the conventional insurance sector.
It has kept an “overweight” rating on Malaysia’s insurance sector, naming Tune Ins Holdings Bhd and Syarikat Takaful Malaysia Bhd as its top picks.
The research house said growth in the insurance sector’s premiums was weak in 2009-14, at compounded annual growth rates of only 7.7% for general insurance and 3.5% for life insurance (new premiums).
“We are projecting single digit growth rates for the industry’s premiums in 2015-16, at 5%-6% for general insurance and 7%-8% for life insurance.
“For life insurance premiums, we expect growth to be relatively faster as the segment is under-penetrated,” it noted.
General insurance gross premium growth over gross domestic product (GDP) growth was 1.05 times in 2010 but consistently rose in the following three years – to 1.32 times in 2011, 1.6 times in 2012 and 1.71 times in 2013.
“We think that this was lifted by the boom in the property market and robust property sales, leading to a strong expansion in fire insurance.
However, pegging an assumed ratio of 1.1 times to projected GDP growth of 5% in 2015 and 5.3% in 2016, CIMB expects gross premium growth rates of 5.5% in 2015 and 5.8% in 2016.
These estimates are considered weak and conservative.
However, CIMB is forecasting double digit expansion of takaful’s contributions in 2015-16, at 10%-12% for general takaful (GT) and 12%-15% for family takaful (FT), considerably higher than the growth of insurance premiums.
Family takaful should expand at a faster pace than general takaful as family takaful’s penetration is even lower, at only 13%.
It said FT new business contributions jumped by 28.9% in 2012 but growth moderated to 2.6% in 2013, with a decline of 2.9%in 2014.
“We think that the slowdown in 2013-14 FT contribution growth stemmed from the weaker expansion in personal loans extended to government staff.
“The borrowers of these loans are mostly insured by family takaful coverage,” it noted.
Meanwhile, another source of revenue for insurance companies is investment income.
It grew 4%-6% in 2010-14, except for a 13.4% rise in 2011.
“We think that 4% to 6% is the sustainable growth rate for general insurance companies’ investment income.
“But this, to a large extent, depends on the performance of the capital markets as well as the level of interest rates.
“The aggregate investment income for general insurance companies was relatively high at RM1bil in 2014.
“This accounted for 63.6% of their underwriting profit,” it noted.