Takaful Malaysia’s prospects to rise on growing demand, government initiatives

KUCHING: Growing demand for Takaful products, low penetration rates as well as government initiatives augur well for Syarikat Takaful Malaysia Bhd’s (Takaful Malaysia) earnings prospect.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), takaful total fund assets size have grown with a higher quantum of five-year compound annual growth rate (CAGR) of 10 per cent to RM26.8 billion in 2016 compared to the conventional insurance’s total fund assets growth of seven per cent.

“Meanwhile, Takaful net contribution income has also grown faster at five-year CAGR of nine-percentvis-a-vis-conventional five-year CAGR of six per cent,” Kenanga Research said.

Coupled with low penetration rate of 54 per cent as well as growing consumer awareness amid rising medical costs and living expenses, the research arm still saw tremendous potential in the takaful business which will continue to support Takaful Malaysia earnings.

Kenanga Research highlighted that the government has initiated a few important initiatives, i.e. Life Insurance and Family Takaful Framework as well as phased liberalisation of general insurance to improve intake of insurance and takaful products and services with the aim to achieve 75 per cent penetration rate by 2020 under the Economic Transformation Programme.

Given the group’s biggest market share in industry’s group Family Takaful business, at 25 per cent as of financial year 2016 ( FY16), and having the fourth biggest market share in the combined life insurance and family takaful business, the research arm believed the group is well poised to benefit from such initiatives, which support its estimated two-year gross earned premium (GEP) CAGR of 14 per cent.

Kenanga Research noted that Takaful Malaysia offers 15 per cent cash rebate with no claims within the coverage period to all the group’s participants in the General and selected Family Takaful Products.

“Note that the group is the only takaful operator, who also consistently offers no- claim rebate to its customers, thanks to its consistent surplus/profit available in takaful fund every year supported by strong underwriting fundamental, decent claims alongside strong asset management practices,” the research arm said.

“We perceive it as a unique proposition that attracts the right customers with good claim experience as well as a stabiliser in driving low claims experience; which have seen its net earned premium growing at a five-year CAGR of nine per cent.”

“In terms of claims experience, the group’s ratio is well maintained at 53 per cent-58 per cent from FY11- FY16, vis- à- vis other conventional insurers which are hovering at 40 per cent-63 per cent, thanks to its unique proposition as well as well-balanced classes of business.”

The research arm noted that earnings prospects are also decent underpinned by growing demand for takaful products, low penetration rates as well as government initiatives.

“Its unique proposition as the only operator with 15 per cent noclaim rebate should also continue to attract the right customers with good claim experience,” the research arm said.