Friday December 14, 2012

Fitch: Challenges ahead for insurance, takaful sector

PETALING JAYA: The Malaysian insurance and takaful sector might see its earnings stability challenged by regulatory initiatives and the ongoing capital market volatility, said Fitch Ratings in a report.

The global rating agency said yesterday that regulators’ intention to eliminate both life insurers’ cap on acquisition costs and the fire tariff pricing structure could undermine the stability of their operating margins.

“Generally, insurers have been able to maintain satisfactory operating margins due to favourable claim experiences from non-motor lines, sound investment returns and steady surrender rates, as well as a stable expense ratio,” said Fitch insurance director Terrence Wong.

The report further stated that the equity market volatility was unlikely to hold back the growth of life insurance products, as indicated by the solid demand for investment-linked insurance policies in the first half of this year.

“Low market penetration and wider distribution coverage with the entry of more takaful players could accelerate the growth of the general and family takaful market,” the rating agency said.

Meanwhile, Fitch views positively Bank Negara’s introduction of a risk-based capital framework for the takaful sector.

It said the move would align the capital requirement of takaful operators with that of conventional insurers.

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