RAM Ratings: Insurance sector to stand firm against Covid-19 repercussions

KUALA LUMPUR, April 14 ― RAM Rating Services Bhd (RAM Ratings) has maintained a stable outlook on the Malaysian insurance sector for 2020 in conjunction with the release of its commentary ― Insurance Insight.

In a statement here today, the credit rating agency said the sector is expected to stay resilient despite the considerable economic impact of the Covid-19 pandemic.

The strong capitalisation of insurance players is anticipated to sufficiently cushion the impact of heightened financial markets volatility as well as higher capital charges amid low interest rates and mounting credit stress, it added.

“However, we caution that downside risks remain as there is a high degree of uncertainty over the momentum of the coronavirus’ spread and its ultimate global peak. Our industry outlook may be revised if the extent of the economic impact exceeds our current expectations.” said RAM Ratings.

As at end-December 2019, the life insurance and family takaful sectors’ preliminary capital adequacy ratio (CAR) stood at a strong 207 per cent ― equivalent to 1.6 times the minimum requirement.

Similarly, the general insurance and takaful sectors boasted robust CAR of 283 per cent.

As part of the government’s economic stimulus package to soften the repercussions of the crisis, life insurance policyholders and family takaful participants will have the option of deferring regular premium payments for three months without affecting their coverage.

The financial impact from this relief measure, available from April 1 to December 31, 2020,  should be manageable for industry players.

“The mounting risks arising from more volatile financial markets and heightened credit stress amid the economic downturn will affect the insurance industry,” quoted  RAM’s co-head of Financial Institution Ratings, Sophia Lee in the statement.

“However, most insurers have been conservative in their investment strategies, with the bulk of these asset constituting highly rated bonds. The equity portfolios of the top 10 life and general insurers, which account for over 90 per cent and 70 per cent of their respective industries by assets, stood at just 15 per cent and three per cent of their respective overall invested asset portfolios as at end-June 2019 (2018: 16 per cent and four per cent),” Lee added.

Meanwhile, RAM’s Insurance Insight is available for download at www.ram.com.my. ― Bernama

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