Earnings growth in the insurance sector to be uninterrupted

KUCHING: Earnings growth in the insurance and takaful sector is expected to stay uninterrupted for the rest of the year with conventional insurance registering a single-digit growth and takaful demand continued to be supported by the strong fundamentals of takaful insurance operators.

The predictions made by MIDF Amanah Investment Bank Bhd ( MIDF Research) said it was premised on the positive performance and growth witnessed in earlier in the year and expectations that it will spill over to the remainder of the year.

So far under MIDF Research’s coverage, the takaful and insurance companies have performed well so far in FY18 with the average top line growth at eight per cent year over year (y-o-y) in 1HFY18.

“The strong growth was underpinned by continuous demand for insurance and takaful policies in the domestic market. Growth was largely contributed by the increase in gross earned contributions of STMB, which advanced by 12.5 per cent y-o-y.

“On the conventional insurance segment, average growth was about six per cent y-o-y. Overall, we believe the performance of insurance and takaful companies have been healthy and will spill over into 4QCY18,” said the research arm.

For the SST which started in September, MIDF Research is still uncertain what the impact will be but they are expecting no substantial change to the previous GST tax regime.

“The government’s move to re-introduce SST is expected to improve the consumers’ spending power, stemming from the potential increase in the disposable income of households. In the long term, we opine that it will be a factor to drive the demand for insurance or takaful policy.

“In addition, we believe demand will still be intact given the requirement for motor insurance ,” said the research arm.

The new integrated system between AES and KEJARA (AWAS) is also a potential that will curb claims in motor insurance as the new system is expected to penalise offenders and reward good drivers through a demerit point system.

“While the mechanism is still new, we are likely to see some positive outcomes to surface for the motor insurance industry. We believe more collaboration is expected to be formed between the government and motor insurers, putting together a solution to curb the excessive amounts of claims in the segment.

“We noted that the Transport Ministry is engaging with the Persatuan Insurans Am Malaysia) to initiate further discussions on these matters.

“This is overall positive for the industry, as it could lead to lower claims. However, we do not expect it to be a significant factor in insurance companies’ earnings in 4QCY18. Recall, PIAM has set a target of reducing national road accidents by 20 per cent for 2018 and 50 per cent from 2020 onwards,” said the research arm.