KUALA LUMPUR, March 10 — Malaysia’s takaful industry is likely to continue its steady growth this year thanks to government initiatives and a supportive Islamic finance ecosystem, Fitch Ratings said.
Other factors include strong economic growth, which the credit rating agency forecasts at 6.7 per cent in 2021, increased digitalisation, higher awareness and a low life-insurance penetration rate.
Correspondingly, Fitch expected takaful penetration to keep rising, supported by government initiatives to provide financial assistance for the bottom 40 per cent of income earners to purchase insurance and takaful coverage under the ‘Perlindungan Tenang’ scheme.
Fitch said Malaysia’s vibrant Islamic finance ecosystem includes Islamic banks, shariah-compliant corporates, Islamic fund managers and halal industries that also seek takaful products, where bancassurance is one of the main distribution channels.
“Takaful demand arises from sukuk issuance, which makes up more than 60 per cent of outstanding domestic issues and is often linked to projects and insuring the underlying assets.
“Takaful firms can also invest their liquidity in diverse sukuk and other Islamic options,” it said in a commentary note today.
According to Fitch, Malaysian takaful continued to gain ground in the insurance market during the 2020 pandemic.
The industry accounted for 38 per cent of the domestic life insurance market in the first half of 2020 (1H20) versus 34 per cent in 2019, while general takaful accounts were stable at 16 per cent of the overall general insurance market.
It faced low top-line growth last year due to a fall in new contributions under pandemic-related movement restrictions, the credit rating agency said.
Consequently, the contribution of family takaful to overall growth dwindled to two per cent in 1H20, against 25 per cent in 2019, while general takaful contributions rose by only 0.6 per cent, from 20 per cent.
Nonetheless, takaful growth remained steady compared with general and life insurance contributions, which shrank by 3.6 per cent and 12.6 per cent respectively, Fitch said. — Bernama
