Decline in investment performance weighed on profitability of insurance and takaful funds, says BNM

KUALA LUMPUR (March 30): Malaysia’s insurance and takaful funds saw lower overall profitability in the second half of 2021 (2H2021) due to weaker investment performance, according to Bank Negara Malaysia (BNM).

The excess of income from life insurance and family takaful funds over expenditure fell to RM8.7 billion in 2H2021 from RM17.3 billion in the same period a year ago, BNM said. in its 2021 Financial Stability Report.

This was largely due to valuation losses in equity and bond investments, he said, in line with the relatively weaker domestic stock market performance and rising bond yields during 2H2021.

This despite net underwriting income from life insurance and family takaful funds climbing to RM4 billion in 2H2021 from RM2.9 billion in 2H2020, driven by sustained net premium income and lower benefit payments. .

“Fewer buybacks and the continued postponement of non-critical medical treatment have contributed to the overall decline in benefit payments from pre-pandemic levels,” the central bank said.

However, BNM said benefit payments are expected to normalize as economic and social activities fully resume as well as amid better economic prospects that would support higher premium payments to policyholders of participating insurance schemes.

“The share of premium deferrals and premium holidays remained low at 9.2% of total premiums in force. Similarly, the impact of Covid-19 claims on profitability remained manageable,” he added.

Similarly, general insurance and takaful funds recorded lower operating profit of RM1.3 billion in 2H2021 compared to RM1.7 billion in 2H2020, due to stronger investment performance. low and lower underwriting income over the six-month period.

BNM said the underwriting performance of general insurance and takaful funds was weaker due to increased claims incurred in the motor and fire segments following the ease of movement restrictions and flooding in December 2021.

“Estimated net flood losses amounted to RM958 million, or 16% of total estimated economic losses, reflecting relatively low levels of coverage, particularly among households and small businesses.

“The overall impact of the floods on the profitability of general insurance and takaful funds should remain manageable despite additional claims expected in 1Q2022,” he said.

Additionally, the central bank noted that car premiums grew more slowly in 2H2021 due to rate cuts across all general insurance and takaful (ITO) operators, which was further compounded as some consumers postponed premiums. car purchases given the extension of the sales tax exemption to June. 2022 as well as the anticipation of new vehicle models.

With this in mind, the BNM said it would continue to liberalize motor and fire tariffs to better align price and risk while preserving access to cover.

Overall, BNM said the resumption of insurance and takaful business growth remains resilient, but depends on the economic outlook, adding that the financial performance of ITOs also remains highly sensitive to financial market volatility due to of their large investments in bonds and equities.

“Higher revaluation losses on these investments could potentially materialize, given expectations of further yield increases in 2022. Nonetheless, ITOs should remain resilient, supported by pre-existing financial reserves.

“Bank-led macro stress tests (BNM) also affirm that insurers remain resilient, with sufficient capital buffers to withstand potential shocks even in adverse scenarios,” he said.

Read more stories from the BNM Annual Report 2021 here.