KUALA LUMPUR, March 24 (Bernama) -- The overall profitability of life insurance and family takaful funds declined in the second half of 2024 (2H 2024) to RM4.1 billion compared to 1H 2024’s RM8.4 billion due to weaker investment performance and larger net underwriting losses.
In its Financial Stability Review for the 2H 2024 report, Bank Negara Malaysia (BNM) reported that the overall profitability of these funds, as measured by excess income over outgo (EIOO) for 2024, improved to RM12.4 billion from 2023’s RM9.4 billion, supported by the stronger performance of the equity market for the year.
The report also added that the life insurers and family takaful operators (life and family ITOs) recorded higher net underwriting losses in the 2H 2024, which was weighed down by higher medical payouts of RM6.2 billion, compared to RM5.3 billion in 1H 2024 and RM5.3 billion in 2H 2023.
BNM attributed the higher medical payouts to increased overall average cost and utilisation rate for medical treatment, particularly from chronic and acute cases.
It said this resulted in the upward adjustment of premiums for medical and health insurance/takaful (MHIT) policies/certificates to ensure the sustainability of long-term coverage.
Meanwhile, the central bank reported that new business premium growth for life and family ITOs expanded by 6.4 per cent in 2H 2024, mainly sustained by the growth in new business premium for investment-linked products, said the report.
This is compared with the 6.8 per cent growth reported in 2H 2023 and the 9.1 per cent half-yearly average from 2019 to 2023.
In the general insurance and takaful sector, BNM said operating profits increased to RM1.9 billion in 2H 2024, supported by underwriting profit, compared with RM1.7 billion in 1H 2024 and RM1.8 billion in 2H 2023.
Meanwhile, the net claims incurred ratio for the motor line of business stabilised in the 2H 2024 at 69 per cent after normalising from low levels during the pandemic and is slightly below the pre-pandemic average of 71 per cent.
“The insurance and takaful sector remained resilient, further supported by strong capital and liquidity positions. The aggregate capital adequacy ratio (CAR) for the industry remained healthy at 224 per cent in the 2H 2024, well above the regulatory minimum of 130 per cent.
“In addition, aggregate capital buffers in excess of regulatory requirements also remained ample at RM41.1 billion (June 2024: RM37.4 billion),” BNM said.
Moving forward, BNM said the investment performance of life and family ITOs continues to be susceptible to financial market conditions given the sizeable investment holdings of ITOs in bonds and equities, as well as climate-related risks, as increased physical and transition risks could translate into financial risks.
“ITOs are required to assess their exposure to climate-related risks in the inaugural Climate Risk Stress Testing exercise in 2025. ITOs could also face constraints in growing new MHIT businesses due to concerns on medical cost pressures, making the current pricing structures unsustainable.
“The measures taken by ITOs to provide short-term relief to policyholders or participants from the repricing of MHIT premiums are also expected to weigh on the financial performance of the industry,” it said.
-- BERNAMA
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