Fitch Ratings, Dubai: Malaysia’s takaful sector continues to enjoy higher growth than the conventional sector, driven by a low base, stable domestic consumption and increasing consumer awareness, says Fitch Ratings.
Family takaful grew by 9.8% in 1H16 while general takaful grew by 5.8%. This compared to 8.2% growth in conventional life and 2.6% in general insurance. Family takaful represents almost two-thirds of the country’s takaful segment and represented 30% of the overall life market based on new business premiums in 1H16. General takaful accounts for 12% of the overall general insurance market.
Fitch expects attractive growth prospects and regulatory pressure will drive sector consolidation in the short term. Smaller scale operators who cannot justify the additional regulatory-related costs are the most likely to engage in M&A activities. In addition, government-driven initiatives to improve the regulatory framework and boost the sector’s attractiveness will continue to cement Malaysia’s position as one of the leading global centres for Islamic finance and takaful.
As takaful operators realign their strategic focus and gradually retain more risks, we expect some bottom-line volatility in the short term. They will also have to digest new regulatory guidelines and optimise their approach towards delivering operating results on a risk-adjusted basis.