RAM Ratings has maintained its stable outlook on the Malaysian insurance and takaful sector, anchored by robust capital buffers against market volatility. This sound footing will help the industry navigate external uncertainties and earnings headwinds from persistent medical cost inflation, particularly for the life and family takaful industry, and price competition for detariffed non-life products.
In its latest commentary, Insurance and Takaful Insight: Reforms in Motion, Sophia Lee, RAM Ratings’ senior vice president of Financial Institution Ratings said: “In light of lingering cost-of-living pressures and affordability concerns, we expect growth to slow in the life/family takaful and non-life sectors in 2025. While earnings downside risks remain, the sector has sufficient capital buffers against potential shocks.” She added that longer-term credit fundamentals will be supported by Bank Negara Malaysia’s (BNM) risk-based capital reforms to be implemented in 2027 or later, which will provide further system resilience, with some players already pre-emptively managing capital needs ahead of enforcement.
Almost all the 10 insurers and takaful operators (ITOs) that RAM rates are on stable outlook, with capital levels generally exceeding industry average. RAM’s rated life and family takaful companies generally outpace industry growth, though peer average earnings returns are dampened by a single entity (already on negative outlook) due to earnings pressure. Meanwhile, rated non-life ITOs’ growth and profitability were on par with industry averages.
For the industry, overall new business (NB) growth for both life/family takaful and non-life insurers are expected to moderate in 2025, with the former’s NB growth slowing to 3%-5% (1H 2025: -2.5%; 2024: +8.3%) and non-life premium growth tapering to 5% in 2025 (1H 2025: +5.9%; 2024: +7.3%). Medical inflation remains the salient challenge, alongside affordability concerns and weak household purchasing power. Family takaful NB growth has lagged conventional life in recent years (1H 2025: -5%; 2024: +1%), partly due to strong demand and rebound in investment-linked products, a niche where conventional players have aggressively pursued. General takaful growth also decelerated to 8% and 10% in 2024 and 1H 2025, respectively (2023: +17%). Near-to-medium term growth momentum for takaful may come from BNM’s recent draft policy to expand the application of ta`awun (mutual assistance), through accelerated product innovation and financial inclusion, as excess surpluses can be distributed to a wider pool of beneficiaries such as charities and the underserved segment.
The performance of life/family takaful ITOs’ investment portfolios will remain the key profitability determinant amid growth pressures. The sector recorded strong investment gains from the 2024 market rally which helped offset the sector’s underwriting losses, though the return on assets fell to 2.5% in 1H 2025 (2024: 8.1%) on equity valuation normalisation. Regulator-imposed interim measures requiring the industry to stagger medical and health insurance/takaful (MHIT) repricing may further weigh on ITOs’ profitability though the impact is anticipated to be manageable for most.
Though non-life sector claims and combined ratios held steady at a respective 58% and 94% in 1H 2025 (2024: 59% and 95%), pricing and underwriting discipline will be key to maintaining earnings quality. We expect both indicators to stay at current levels, though price competition will keep a lid on margins.
Further growth impetus could come from digital entrants, with license applications open until December 2026. These players are expected to narrow protection gap, catalysing digital product innovation and leveraging cost-efficient distribution to address underinsurance without threatening incumbents. Nonetheless, greater protection awareness and financial literacy remain essential to deepen insurance penetration.
The on-going reforms to contain medical inflation are positive for the industry and consumers overall, with the introduction of a base MHIT product and the diagnosis-related group payment model intended to improve the sustainability and affordability of medical coverage. These initiatives, however, may not completely eliminate policy lapse and surrender risks amid affordability concerns
