MBSB Research has maintained its POSITIVE stance on Malaysia’s insurance sector, expecting strong premium growth and healthy dividends to support the industry despite rising claims costs and potential investment income volatility in the second half of 2026.
The research house said the sector continues to benefit from Malaysia’s strong macroeconomic backdrop, which should support growth across both life and general insurance. A recovery in total industry volume (TIV) is particularly encouraging for general insurers given the importance of motor premiums.
However, MBSB cautioned investors to expect stronger topline growth than bottom-line growth, forecasting revenue expansion of around 7% to 9% year-on-year, while earnings are expected to remain broadly flat as higher claims and reinsurance costs weigh on margins.
“The sector remains chronically undervalued despite excellent growth prospects and solid dividend yields,” MBSB said, maintaining its positive sector call.
Strong Economy Supports Premium Growth
MBSB expects the favourable economic environment to continue driving general gross written premium (GWP) growth.
After a weaker start to the year, the sharp rebound in June TIV has improved the outlook for motor insurance, with pent-up vehicle demand potentially supporting premium growth during the remainder of 2026.
Industry general insurance premiums grew 4.6% year-on-year in 2Q26, while the takaful industry’s general premiums increased 5.4%.
Among the companies covered by MBSB, LPI Capital’s general premiums rose 6.9% year-on-year in 2Q26, Allianz’s general business grew 4.4%, while Syarikat Takaful Malaysia Keluarga’s (STMB) general premiums increased 3.1%.
Life insurance has meanwhile staged a stronger recovery, helped by employee benefits and bancassurance products.
Allianz’s life GWP increased 13.4% year-on-year to RM1.14 billion in 2Q26, bringing its 1H26 GWP to RM2.36 billion, up 16%.
STMB’s Family business recorded RM722 million of GWP during the quarter, an increase of 18.8% year-on-year. For 1H26, however, Family GWP was up a more modest 1.2% at RM1.56 billion following weakness in 1Q26.
MBSB said growth in STMB’s Family business is increasingly being driven by non-credit-linked products such as group medical, term and retail products, reducing its historical dependence on single-premium and credit-linked products.
Claims Inflation Remains Main Risk
The biggest near-term challenge remains claims inflation, particularly in the motor and medical insurance segments.
Motor insurers remain vulnerable to higher prices for overseas-manufactured replacement parts amid logistical disruptions, while medical insurers face higher drug raw material and medical equipment costs.
MBSB also expects medical claims to become more pronounced in 2H26 following an increase in acute disease cases.
The impact has varied among insurers. LPI has been more significantly affected by higher motor claims, while Allianz and STMB have so far been relatively less affected.
MBSB attributed part of the difference to underwriting standards, noting that Allianz’s general insurance arm has been able to mitigate motor claims inflation through more selective underwriting.
The research house nevertheless sees some relief ahead for medical insurers. Bank Negara Malaysia’s premium inflation cap is scheduled to end in 2026, potentially giving insurers greater ability to pass higher costs on to customers from next year.
Growing adoption of co-payment insurance products has also helped reduce industry health loss ratios, suggesting efforts to tackle medical inflation are beginning to produce results.
Dividend Outlook Remains Attractive
Dividends are another key attraction for the sector.
MBSB said dividend yields are generally in the mid-single-digit range, apart from LPI’s special dividend situation, with potential for higher payout ratios in 2026.
STMB intends to introduce an interim dividend and increase its payout ratio to above 40%, although MBSB cautioned that strong GWP growth and the shift towards more capital-intensive regular-premium products could limit the extent of the increase.
For Allianz, the reported FY25 payout ratio was 32%. However, MBSB said an interim dividend eventually approved in 1Q26 had originally been intended for the FY25 cycle. Including that payment would have lifted the effective FY25 payout to around 45%, corresponding to a dividend yield of roughly 5%.
MBSB also believes the implementation of the Risk-Based Capital Framework 2.0, or RBC 2.0, is unlikely to significantly constrain near-term dividends, as it does not expect the framework to come into effect before 2029.
STMB And Allianz Are Top Picks
MBSB named STMB and Allianz Malaysia as its top sector picks, maintaining BUY recommendations on both counters.
For STMB, it maintained a target price of RM4.51, compared with its Sept 2 closing price of RM3.12, implying potential upside of about 45%. MBSB expects the company’s general business to maintain strong premium growth, while diversification of its Family portfolio and potential for higher dividends provide further support.
Allianz remains a BUY with a target price of RM26.77, against RM21.36 as at Sept 2, implying upside of about 25%. MBSB highlighted Allianz General Insurance Company’s scale and market leadership, as well as improving growth at Allianz Life Insurance Malaysia.
LPI Capital, meanwhile, is rated NEUTRAL with a RM14.54 target price. MBSB views it as a defensive insurance exposure, supported by its fire insurance mix and special dividends, although higher motor claims and investment income volatility remain concerns.
Overall, MBSB believes Malaysian insurers remain undervalued relative to regional peers despite healthy profitability, strong growth prospects and attractive dividends.
While claims inflation, geopolitical risks, natural disasters and investment-market volatility could restrain earnings in 2H26, the research house expects the industry’s outlook to improve further in 2027, supported by sustained premium growth and better cost pass-through.
