MIDF Amanah Investment Bank Bhd (MIDF Research) has maintained a POSITIVE recommendation on the Malaysian insurance sector, citing notable progress in tackling healthcare inflation, which had previously weighed on sentiment. The firm has also reiterated BUY calls on Allianz Malaysia Bhd with a target price of RM21.59 and Syarikat Takaful Malaysia Keluarga Bhd (STMB) at RM4.59, highlighting their strong earnings visibility, dividend yields and tactical repositioning.
According to MIDF Research, recent developments suggest that the cost pressure from healthcare inflation could ease significantly in 2025. Drug raw material prices, which spiked during the pandemic, have now begun to normalise. At the same time, insurers are taking a firmer stance against overspending healthcare providers, including removing repeat offenders from their medical panels and enforcing pricing discipline across the board. These measures include increased use of generic medication, tighter charge controls and clinical cost-efficiency protocols, particularly for day-care procedures.
Encouraging uptake of co-pay programmes among policyholders has also been flagged as a positive sign. Allianz reported a conversion rate of approximately 30% within one of its policyholder blocks, alongside a strong persistency ratio of 84.3%, reflecting customers’ understanding of cost-sharing arrangements. While Bank Negara Malaysia (BNM) continues to maintain that co-pay schemes are optional, insurance players have felt considerable pressure to migrate policyholders as part of long-term cost control.
MIDF Research noted that sector valuations remain attractive, especially compared to regional peers. Coupled with a downward trend in Malaysian Government Securities (MGS) yields, the possibility of a windfall in investment income could further enhance sector profitability in the coming quarters. Companies under coverage, including Allianz, STMB and LPI Capital Bhd, are also offering dividend yields of more than 5%, which the house views as a key support for share prices.
On the takaful front, the research house sees potential for mergers and acquisitions (M&A) as a viable pathway for conventional insurers aiming to enter the shariah-compliant insurance market. With BNM unlikely to issue new takaful licences beyond digital insurance operators (DITOs), MIDF Research expects established insurers such as Allianz to seek strategic acquisitions to capture growth in the less saturated takaful segment.
Nonetheless, the house cautioned that risks remain. These include a potential economic downturn that could slow premium growth, persistent structural issues such as hardening reinsurance premiums and the threat of healthcare cost inflation resurging.
Despite these challenges, the research house views the sector’s trajectory favourably, supported by defensive qualities, improving regulatory clarity and ongoing structural reforms. It sees current valuations as compelling, with upside potential should macroeconomic conditions stabilise and healthcare inflation continue to moderate.
