Tariff liberalisation for motor and fireplace segments additionally miserable the business’s underwriting margin
By NUR HAZIQAH A MALEK / Pic By ARIF KARTONO
THE financial fallout from Covid-19 is predicted to cripple insurance coverage premium progress this yr, earlier than any rebound could possibly be anticipated in 2021.
“Based mostly on historic information, new enterprise for the life insurance coverage sector contracted 4.6% through the international monetary disaster in 2008 and 10.2% amid the Asian monetary disaster in 1998,” RAM Ranking Providers Bhd (RAM Rankings) mentioned in a latest observe.
In 2019, the life insurance coverage business’s new enterprise premiums expanded 14.2% to RM11.Eight billion (2018: 1.8%), pushed by stronger gross sales of investment-linked (IL) merchandise and endowment insurance policies, it mentioned.
“The contraction of normal insurance coverage premiums is predicted to be extra pronounced in 2020, taking into consideration the difficult financial circumstances and gradual results of tariff liberalisation for the motor and fireplace segments,” the rankings agency added.
Final yr, the overall insurance coverage business’s premiums declined 0.8% to RM17.Four billion in opposition to a progress of 1.8% the yr earlier than.
Tariff liberalisation for the motor and fireplace segments, coupled with a excessive stage of motor claims, has additionally been miserable the business’s underwriting margin which narrowed to 7.1% final yr in opposition to the beforehand recorded 8%.
But, RAM Rankings expects the home insurance coverage sector to stay steady all year long regardless of repercussions arising from the financial influence of Covid-19.
Insurance coverage gamers’ sturdy capitalisation is anticipated to cushion the influence of heightened monetary markets volatility and better capital prices amid low-interest charges and mounting credit score stress.
“Nonetheless, we warning that draw back dangers stay as there’s a excessive diploma of uncertainty over the momentum of the coronavirus’ unfold and its final international peak,” it mentioned.
As at end-December 2019, the life insurance coverage and household takaful sec- tor’s preliminary capital adequacy ratio (CAR) stood at 207% — equal to 1.6 occasions the minimal requirement, whereas the overall insurance coverage and takaful sector additionally had a robust CAR at 283%.
Below the federal government’s financial stimulus package deal to mitigate the results of Covid-19 and the Motion Management Order, life insurance coverage policyholders and household takaful contributors have the choice of deferring common premium funds for 3 months with out affecting their protection.
The monetary influence from this initiative is out there from April 1 to Dec 31, 2020, which must be manageable for business gamers, RAM Rankings mentioned.
A protracted low interest-rate surroundings may also place strain on life insurers’ capital adequacy.
“Notably, most life insurers lately have been promoting extra IL merchandise, which cross on funding dangers to policyholders and appeal to decrease capital necessities.
“IL merchandise constituted about 56% of life gamers’ in-force enterprise in 2019,” the rankings agency mentioned.
Its monetary establishment rankings co-head Sophia Lee mentioned the mounting dangers arising from extra risky monetary markets and heightened credit score stress amid the financial downturn will have an effect on the insurance coverage business.
Nonetheless, most insurers have conservative funding methods, with the majority of those property constituting extremely rated bonds.
“The fairness portfolios of the highest 10 life and normal insurers, which account for over 90% and 70% of their respective industries by property, stood at simply 15% and three% of their respective total invested asset portfolios as at end-June 2019 (2018: 16% and 4%),” Lee mentioned.