Reinsurance News
30th December 2024 – Author: Taylor Mixides
AM Best, a globally recognised credit rating agency specialising in the insurance sector, has maintained a Stable outlook for Malaysia’s non-life insurance market.
This assessment is based on key factors such as anticipated premium growth driven by economic recovery, regulatory reforms aimed at increasing insurance penetration, and rate adjustments.
However, the segment faces challenges from the rising frequency of severe weather events, which continue to affect underwriting performance.
According to AM Best’s Market Segment Report, premium growth in Malaysia’s non-life insurance sector continued in 2023, although at a slower pace compared to the double-digit increases seen in 2022.
The moderation reflects the impact of slower economic expansion, with Malaysia’s GDP growth falling to 3.7% in 2023 from 8.7% in 2022. Despite this, the market remains well-positioned for future growth, supported by a recovering economy, increasing demand for digital insurance and takaful products, and regulatory measures designed to enhance market access and address protection gaps.
Bank Negara Malaysia (BNM), the nation’s central bank and financial regulator, has implemented several initiatives to improve insurance penetration rates, which remain relatively low in the non-life sector. In its Financial Sector Blueprint 2022–2026 and Financial Inclusion Framework 2023–2026, BNM outlined plans to increase insurance and takaful coverage.
By 2026, the regulator aims to achieve penetration rates of 4.8–5.0% while doubling the number of individuals covered by microinsurance and microtakaful. Licensing digital insurance and takaful operators under the DITO framework, introduced in July 2024, marks a significant step toward closing protection gaps and promoting financial inclusion.
The phased liberalisation of motor and fire insurance tariffs, which began in 2016, also continues to shape the market landscape.
AM Best notes that this gradual move toward risk-based pricing has introduced greater flexibility in pricing while encouraging innovation and improving service quality. Although the transition may result in volatility for underwriting margins in the near term, disciplined underwriting is expected to ensure sustainable profitability over the medium term.
Rising climate-related risks remain a critical concern for Malaysia’s non-life insurers. More frequent severe weather events, such as the extreme flooding of December 2021, have adversely affected profitability in the fire insurance segment.
Inflationary pressures and competitive market conditions have further compounded these challenges. To address climate risks, BNM introduced the Climate Risk Management and Scenario Analysis (CRMSA) framework in November 2022, which requires insurers to adopt comprehensive risk mitigation strategies.
AM Best expects insurers to continue adjusting premiums for flood-related products and refining underwriting strategies to manage these risks effectively over the long term.
Overall, AM Best’s analysis highlights both the opportunities and challenges facing Malaysia’s non-life insurance market. While growth is supported by regulatory reforms, economic recovery, and increased insurance penetration, the sector must navigate the complexities of climate-related risks and evolving market dynamics.
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