on December 30, 2012 by admin in Insurance Industry, Comments (0)

Insurance sector to see high growth

Posted on December 30, 2012, Sunday

Chart shows Insurance Penetration Rate, SOURCE: Bank Negara Malaysia)

KUCHING: The local insurance industry is expected to see high single-digit growth in premium income Malaysia, supported by growing affluence among the middle-income population and healthy consumer spending pow­er, an underpenetrated market and innovative products through channels like bancassurance and agencies that have enhanced the profits from life insurance.

“We believe the industry’s growth will continue to outpace gross domestic product (GDP) growth as the Government has pledged to increase insurance protection of the low-income household segments, which bodes well as the Asian region as countries are facing pres­sure to elevate their respective minimum wage,” outlined the research team at OSK Research Sdn Bhd (OSK Research).

The research group added that should Malaysia follow on with this trend, it should be able to channel more disposable income to purchases of insurance policies.

“The government also rec­ognises the need to safeguard savings, retirement funds and provide health protection for the people. As such, it aims to increase life insurance penetra­tion from 2.8 per cent currently to at least four per cent of GDP, or 75 per cent in terms of number of policies over population, by 2020.”

Meanwhile, OSK Research believed that the takaful segment was expected to continue regis­tering high double-digit growth of around 20 per cent through 2014 as insurers increasingly identi­fied takaful as a high-growth, profitable segment.

The penetration rate of about 13 per cent for family takaful (meas­ured by number of life policies over population) was a strong indication of the latent potential for takaful versus conventional life insurance’s 55 per cent.

“That said, the takaful in­dustry is still at an early stage of development, with growth expected to outpace the growth of conventional insurance, sup­ported by increasing awareness to diversify takaful from being a niche segment catering to Muslim communities,” added the team.

“Also, enhanced regulatory reforms to support takaful infra­structure as well as identifying common grounds or workable solutions for issues faced by syariah committees and industry leaders will continue to fuel the growth of takaful.

Chart shows Takaful Penetration Rate, SOURCE: Bank Negara Malaysia)

This was on the back of strong­er participation and liquidity in sukuks and syariah-compliant instruments to support invest­ment income, and strengthening takaful and retakaful capacity.”

Additionally, the risk-based capital (RBC) framework for Islamic banking and takaful, expected to be finalised soon, was not expected to significantly dif­fer from the framework applied to conventional insurers.

“This will nonetheless enhance valuations in the takaful sector,” outlined OSK Research.

On another note, the surge in merger and acquisition (MA) activities as a result of the indus­try’s liberalisation has re-rated industry valuations, believed the research team. To note, the weighted average price by volume (PBVs) arising from the transaction values were recorded at above 2.2 times, with the latest deals being the acquisition of ING’s business by AIA, CIMB Avi­va’s stake sale, PO’s divestment to Sanlam and UMW’s divestment of its insurance unit.

“We believe the industry con­solidation will progress as play­ers are still aligning their opera­tional efficiency to adapt to an increasingly competitive and free market.

“Any changes in the rules of the game, like BNM’s decision to take the cap off acquisition costs and commission rates, may further spur the industry’s consolidation as the smaller insurance players may lack the capital and size to compete in a free market.

“Therefore, we view the RBC framework for takaful and the Competition Act as key determi­nants of the direction of MAs in the insurance industry.”

OSK Research noted that the industry capital adequacy ratio (CAR) of 222.5 per cent in 2011 was above the comfortable in­ternal target capital level (ITCL) and supervisory CAR of 130 per cent each insurer is required to comply with.

“Thus, we maintain our neutral call on the insurance sector given that it has been substantially re-rated due to MA activities,” it concluded.

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Article source: http://www.theborneopost.com/2012/12/30/insurance-sector-to-see-high-growth/

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