PETALING JAYA: Malaysia’s insurance sector is expected to remain resilient, underpinned by expectations of stable premiums and controlled claim costs.
Analysts said they are watching closely how insurers manage medical inflation and capital adequacy while navigating an increasingly complex regulatory environment.
MBSB Research, in a recent note, said while short-term headwinds exist, it is optimistic about the sector’s growth.
“From a fundamental perspective, the insurance sector’s tailwinds outweigh the headwinds.
“We remain optimistic on recovering growth for both general and life/family segments, improving control over medical claims inflation, and improved dividend outlook as insurers assuage our fears on capital,” the research house said.
“This should offset moderating investment returns, margin pressure from reinsurance and claim-cost creep, as well as sales and services tax implementation charges.
“Unfortunately, the sector’s vulnerability to regulatory issues and negative news flows could also provide a fair amount of overhang,” it added.
The research house maintained a “positive” sector call, identifying Allianz Malaysia Bhd
and Syarikat Takaful Malaysia Bhd (STMB) as top picks with “buy” ratings and target prices of RM23.34 and RM3.70, respectively.
MBSB Research also pointed to downside risks, including weaker economic growth affecting premium generation, extreme weather inflating reinsurance costs, and potential inadequacies in healthcare inflation measures forcing further intervention by Bank Negara Malaysia.
The research house noted that valuations within the sector remain compelling relative to regional peers, while dividend yields remain solid, hovering in the mid-single-digit range.
“Fears surrounding the implementation of Risk-Based Capital Framework 2 requirements and its impact on capital have been assuaged by insurers,” MBSB Research stated, though it warned that regulatory skittishness, especially concerning healthcare performance, may restrict upside potential.
The research house said growth in general insurance gross written premiums (GWP) is expected to stay healthy, supported by Malaysia’s solid gross domestic product (GDP) expansion for this year.
Conversely, insurers with significant exposure to new vehicles may face headwinds due to a currently lower total insured value.
Life insurance, particularly investment-linked products, is also expected to benefit from a market recovery.
MBSB Research highlighted that medical and health insurance/takaful-related overhang has softened as multiple insurers make headway in alleviating claims inflation, with ongoing reforms including a base medical/health insurance product and the diagnosis-related group payment model improving the long-term outlook.
It said general insurance, particularly fire insurance used as a proxy for flood coverage, may see pressure from rising catastrophe events.
It said LPI Capital Bhd could be the hardest hit, given its 100% general coverage and its high fire premium exposure at 40% of total GWP.
STMB is moderately affected, given its decent fire-premium exposure of 24%, while Allianz is the least affected, as its fire-premium exposure is around 12%.
Meanwhile, TA Research reiterated its “overweight” stance on the insurance sector, supported by its resilient earnings and attractive dividend yields of approximately 5.5% for this year.
“The three key indicators that could potentially influence sector earnings and share price performance this year are resilient general business, health loss ratio and medical inflation, and growing travel segment,” the research house said.
It noted that the general insurance segment is poised for sustained expansion, in line with the country’s GDP growth.
“Barring any unforeseen circumstances or exceptional events, industry underwriting profits are expected to remain resilient, underpinned by stronger cost discipline and steady investment income,” it said.
TA Research is also positive about the life segment’s outlook, supported by the industry’s relatively low penetration rate, with only two in five Malaysians currently holding life protection.
On the travel segment, it said: “We anticipate stronger demand for travel insurance as the Visit Malaysia 2026 campaign is expected to indirectly drive higher uptake of travel protection products.
“The air-travel outlook also remains robust, with Asia’s air-travel market projected to grow at a five-year compounded annual growth rate of 8% to 11%.”
