BNM: Insurance and takaful funds’ profit dropped in 2H2023 as payments of medical claims increased

The profitability of insurance and takaful funds declined in the second half of 2023 (2H2023) due to larger net underwriting losses of life insurance and family takaful funds as a result of an increase in medical claims payments, said Bank Negara Malaysia (BNM).

Life insurance and family takaful funds’ excess income over outgo declined 48.3% to RM3.1 billion in 2H2023, compared with RM6 billion in 1H2023, according to the central bank’s Financial Stability Review for 2H2023.

Underwriting income of life insurance and family takaful funds continued to be weighed down by higher medical benefit payouts to RM5.3 billion in 2H2023, versus RM4.7 billion in 1H2023, due to higher average cost and incidence rates for medical treatment compared to the pre-pandemic period.

“While insurers and takaful operators have commenced repricing exercises, the effect of these changes on underwriting margins will take time to materialise, as price adjustments are applied only at policy anniversaries,” it stated.

Underwriting income was also weighed down by the longer-term decline of participating insurance businesses, where payouts related to participating insurance policies have surpassed net premium income.

“This reflects the continued shift in new business premiums from participating insurance policies to investment-linked policies over time,” said BNM.

The share of net premiums for participating businesses has correspondingly declined sharply to 16% of total net premium income, from 17% in 2H2022. As a comparison, the half-yearly average from 2015 to 2019 was relatively higher at 35%.

Meanwhile, new business premiums improved by 6.8% in 2H2023 compared to 2H2022, mainly supported by the investment-linked and non-participating segments.

The growth in these segments was mainly driven by higher sales through the bancassurance channel and the continued roll-out of new insurance and takaful products launched during the period, the central bank said.

For general insurance and takaful funds, operating profits rose to RM1.9 billion in 2H2023 from RM1.3 billion in 1H2023, thanks to higher net underwriting profit.

The higher net underwriting profit was driven by higher premium growth in the motor segment, corresponding to the higher car sales due to promotional campaigns and new model launches, including electric vehicles during the period.

BNM added that the higher underwriting profits were also supported by the absence of large claims from flood and fire events during the period, compared to 1H2023.

Overall, the industry aggregate capital adequacy ratio remained healthy at 222.2% and above the regulatory minimum of 130%, albeit lower than 226.4% in June 2023.

Capital buffers in excess of regulatory requirements remained sound at RM38.6 billion, as compared to RM38.9 billion in June 2023.

Looking ahead to 2024, BNM said volatile financial market conditions will remain a key downside risk to the insurance and takaful operators, given their sizable bond and equity investments.

It added that the 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.

“BNM will continue to monitor closely, the ongoing phased liberalisation of tariffs in the motor and fire segments,” it stated.

Previous post Insurance companies and Takaful operators need to ensure fair services to all claims
Next post General Insurance Premium grow by 7.8%, but claims payout RM21mil per day