by TMR / pic by TMR FILE

THE impact of weak investment returns will continue to drag on Malaysian takaful industry’ profitability, albeit less acutely, says Fitch Ratings in a report today.

Family takaful funds recorded a 6% drop in profitability in 1H21 on unrealised losses from sukuk investment amid weaker equity market performance.

However, this was a smaller fall than the previous period, which suffered a 28% fall in profitability.

The takaful sector remained well-capitalised, with the capital adequacy ratio reaching 230%, above the insurance sector’s 220%.

Family takaful, rose by 46.7% in 1H21 (2020: 7.08%).

General takaful grew by 13.5% in the same period (2020: 4.61%).

The sharp growth in contributions was propelled by a boost in public awareness of takaful products, supportive government initiatives, easing of Covid-19 movement restrictions and a recovering economy.

“Fitch expects the Takaful sector to continue its sound growth in 2022 on improved penetration rates, business models and technology capabilities amid higher takaful awareness, digitalisation innovation and government initiatives,” the research outfit said.

Malaysia is the third-largest takaful market globally, according to Islamic Financial Services Board, with a vibrant Islamic finance ecosystem that includes Islamic banks, sharia-compliant corporates, Islamic fund managers, and halal industries that seek takaful products.

Fitch sees IFRS 17 implementation remaining a challenge for Malaysian takaful.

“The takaful industry continues to face uncertainty over the interpretation and application of IFRS 17 as the January 2023 implementation deadline draws nearer. Still, the selection of measurement models and treatment of various funds will be resolved,” said Fitch Ratings.