Insurance, takaful funds’ profitability lower in H2’23

Bank Negara cites larger net underwriting losses amid sustained increase in medical claims payments

The overall profitability of insurance and takaful funds was lower in the second half of 2023 (H2’23) compared with H1’23 due to larger net underwriting losses of life insurance and family takaful funds amid a sustained increase in medical claims payments.

In its Financial Stability Review for H2’23, Bank Negara Malaysia (BNM) said consequently, the profitability of life insurance and family takaful funds, as measured by excess income over outgo, declined to RM3.1 billion from RM6 billion in H1’23.

“Underwriting income of life insurance and family takaful funds continued to be weighed down by higher medical benefit payouts (H2’23: RM5.3 billion; H1’23: RM4.7 billion)

“Underwriting income was also weighed down by the longer-term decline of participating insurance business, where payouts related to participating insurance policies have surpassed net premium income,” the central bank said.

It added that the share of net premiums for participating businesses correspondingly declined sharply to 16% of total net premium income (H2’22: 17%).

Nonetheless, sustained growth in total new business premiums continued to provide support to overall earnings.

After accounting for seasonality effects, new business premiums in H2’23 improved by 6.8% year-on-year, supported mainly by the investment-linked and non-participating segments.

Overall, excess income over outgo rose to RM9.1 billion in 2023 compared with RM2.6 billion in 2022.

Meanwhile, operating profit for general insurance and takaful funds improved to RM1.9 billion in H2’23 from RM1.3 billion in H1’23, contributed by higher net underwriting profit, largely attributable to higher premium growth in the motor segment amid continued improvements in risk-based pricing.

“Sustained investment income lent further support to the operating profits of general insurance and takaful funds for 2023. This resulted in a slight increase in the annual operating profits relative to that of the previous year (2023: RM3.2 billion; 2022: RM3.1 billion),” it added.

On the industry aggregate capital adequacy ratio, BNM said it remains healthy at 222.2% (June 2023: 226.4%), while aggregate capital buffers in excess of regulatory requirements also remained sound at RM38.6 billion (June 2023: RM38.9 billion).

Moving forward, BNM said volatile financial market conditions would remain a key downside risk to insurers and takaful operators (ITOs) in 2024, given their sizeable bond and equity investments.

“Sustained cost pressures stemming from inflation in motor and medical claims are also likely to persist amid a more gradual pace of premium rate adjustments to preserve insurance affordability,” it said.

The central bank said it will continue to monitor closely the ongoing phased liberalisation of tariffs in the motor and fire segments to ensure that the pricing flexibility is aligned with the expanded phased liberalisation limits.

“This is to ensure that the pricing flexibility is aligned with the expanded phased liberalisation limits, and to prevent market dislocations that could hinder access to coverage or disproportionately impact segments of the insured population,” it said. – Bernama