THE Malaysian insurance and takaful sectors are expected to experience modest growth in demand for coverage in the first half of 2024 (1H24) due to uncertainties of interest rate movements and inflationary pressures in developed economies, a local research house said. 

In the same period, claims stayed elevated due to inflation and weaker ringgit, according to AmInvestment Bank Bhd. 

“Gross written premiums/contributions growth are expected to be modest in 2024 amid elevated household debt and pressures on the cost of living with the potential upside risk to inflation from the extension of subsidy rationalisation to RON95,” it said in sector research released last week. 

Its economist expected inflation in 2024 to fall within the range of 2.5% to 3.5%, taking into account the effects of subsidy rationalisation and the impact of the services tax increase. “Nevertheless, we see upside risk to this projection in the event the scope of subsidy rationalisation is extended to RON95 fuel,” it said. 

The combined general insurance/takaful gross written premiums/contributions registered a 9.7% year-on-year growth in the first nine months of 2023 (9M23), driven mainly by growth in fire, motor, marine, aviation and transit (MAT), contractor’s all-risk engineering, liabilities, medical and health class of business. 

“We expect gross written premiums/contributions of general insurance/takaful players to register a high single-to-low double-digit growth in 2024,” it added. 

In 2024, AmInvestment Bank said it expected growth in motor premiums/contributions to be lower in line with the lower total industry volume anticipated after the end of the Sales and Services Tax (SST) exemption. 

At the same time, it anticipated gross life/family takaful premium/contribution to grow by mid-single to 10% in 2024. 

“We continue to see challenges from macro headwinds and inflationary pressures resulting in consumers remaining cautious in committing to the purchase of longer-term life insurance plans,” it said. 

On claims, it noted that for 9M23, net claims incurred ratio (combined general insurance and takaful) rose to 59.3% versus 55.6% in 9M22, attributing the increase to higher net claims incurred ratios of fire/motor/medical and health segments to 33.9%/69.7%/65.6% in 9M23 from 26%/67%/63.2% in 9M22. 

“We continue to expect medical claims to trend higher amid inflationary pressures. This should continue to see life insurance/takaful companies pricing up premiums/contributions to mitigate pressures from rising medical claims. 

“As for general insurance/takaful, we anticipate motor claims to stay elevated due to the weaker domestic currency which will cause prices for parts replacement to increase,” it said. 

Meanwhile, it expected adverse weather conditions to impact fire claims resulting in the net claims incurred ratio for this segment being higher than the pre-pandemic level of 25%. 

The research note has a ‘Buy’ call on Syarikat Takaful Malaysia Keluarga Bhd, with a target price of RM4.80 per share. The company’s stock closed at RM3.90 last friday. — TMR

• This article first appeared in The Malaysian Reserve weekly print edition