The insurance and takaful industry saw a boost
in profitability in 2012, spurred by improving premiums growth and healthier
combined ratios in the general insurance/takaful sectors. Despite notable
increases in equity exposure and concerns on interest rate risk, insurers’ risk
exposure remains reasonable. BNM intends to tighten scrutiny of the insurance/takaful
industry, as recommended by the IMF Country Report. We remain NEUTRAL on the
sector.
Better 2012. The life insurance and family takaful sector
reported a 38.2% increase in net income or excess income over outgo, backed by premiums/contributions
growth of 11.2%. Meanwhile, the general insurance and takaful segment’s
operating profits surged by 72.6% to RM2.9bn on the back of
premiums/contributions growth of 11.1%. The general insurance and takaful
industry also benefited from a low combined ratio of 96.9% (vs 104.7% in 2011).
Regulations tighten their grip. The industry’s capital adequacy
ratios (CAR) leveled at 222.3% (vs 222.5% in 2011), well above Bank Negara
Malaysia (BNM)'s supervisory target capital level (STCL) requirement of 130%.
The IMF Country Report acknowledges the strength and comprehensiveness of the
local insurance regulatory measures versus the international framework.
Meanwhile, the country’s cross-border operations are still small relative to
the industry, which we believe may have prompted BNM to relax cross-border
financial activities for resident insurers and takaful operators. The central
bank intends to enhance the existing prudential requirements with the Financial
Services Act (FSA), as well as other measures which may include containment of
systemic risks and cross-border risks. This should boost the sustainability of
the industry, which being liberalised.
NEUTRAL. We retain NEUTRAL on the sector, with our Top
Picks being Syarikat Takaful for its exposure to the takaful industry, and LPI
Capital for its robust business model and solid underwriting strength.
Source: RHB