Declining Profitability in Life Insurance and Takaful Funds Reported by BNM
KUALA LUMPUR, March 24 (Bernama) — Bank Negara Malaysia (BNM) has announced a decline in the overall profitability of life insurance and family takaful funds during the second half of 2024 (2H 2024). The central bank’s Financial Stability Review for 2H 2024 revealed that profits decreased to RM4.1 billion compared to RM8.4 billion in the first half of the year. This downturn is attributed to weaker investment performance and increased net underwriting losses.
The report, however, also noted an overall improvement in the industry’s profitability for the entire year. The excess income over outgo (EIOO) for 2024 reached RM12.4 billion, up from RM9.4 billion in 2023. This positive trend was largely supported by the strong performance of the equity market throughout the year.
Rising Medical Payouts Weigh on Underwriting Results
BNM’s review highlighted that life insurers and family takaful operators (life and family ITOs) experienced higher net underwriting losses in 2H 2024. This was largely impacted by a rise in medical payouts, which totaled RM6.2 billion, surpassing the RM5.3 billion recorded in 1H 2024 and the same period in 2023.
BNM attributed higher medical expenditures to an overall increase in both the average cost and utilization rates for medical treatments, particularly for chronic and acute cases. Consequently, premiums for medical and health insurance/takaful (MHIT) policies and certificates have been adjusted upward to ensure the long-term sustainability of coverage.
New Business Premium Growth Remains Positive
Despite the challenges, new business premium growth for life and family ITOs continued to expand, increasing by 6.4 percent in 2H 2024. This growth was primarily driven by investment-linked products, according to the report. Although a positive trend, this growth rate is slightly below the 6.8 percent recorded in 2H 2023 and the half-yearly average of 9.1 percent between 2019 and 2023.
General Insurance and Takaful Sector Shows Improvement
In the general insurance and takaful sector, operating profits saw an increase, reaching RM1.9 billion in 2H 2024. This was supported by underwriting profits, compared to RM1.7 billion in 1H 2024 and RM1.8 billion in the second half of the previous year.
Sector Resilience and Capital Adequacy
The net claims incurred ratio for the motor line of business stabilized at 69 percent in 2H 2024, after a period of low levels during the pandemic. This is slightly below the pre-pandemic average of 71 percent.
BNM emphasized the insurance and takaful sector’s resilience, citing strong capital and liquidity positions. The aggregate capital adequacy ratio (CAR) for the industry remained healthy at 224 percent, significantly exceeding the regulatory minimum of 130 percent. Additionally, the aggregate capital buffers in excess of regulatory requirements stood at RM41.1 billion as of June 2024, up from RM37.4 billion in June 2024.
Future Outlook and Challenges
Looking ahead, BNM stated that the investment performance of life and family ITOs continues to be vulnerable to financial market conditions, particularly given the substantial investments of these institutions in bonds and equities. Climate-related risks also pose a potential threat, as physical and transition risks could translate into financial risks.
ITOs are required to assess their exposure to climate-related risks in the inaugural Climate Risk Stress Testing exercise scheduled for 2025. Furthermore, growth in new MHIT businesses may face constraints due to rising medical costs, which could render current pricing structures unsustainable. Additionally, the measures taken by ITOs to provide short-term relief to policyholders or participants from the repricing of MHIT premiums are expected to impact the industry’s financial performance.
— BERNAMA
