Malaysia’s Insurance and Takaful Sector Holds Steady Despite Rising Costs

 Stable Outlook Backed by Strong Capital Buffers

RAM Ratings has reaffirmed its stable outlook on Malaysia’s insurance and takaful industry, citing robust capital positions that provide resilience against market volatility. While persistent medical cost inflation and competitive pricing pressures weigh on earnings, the sector’s solid buffers are expected to help players withstand external uncertainties.

“Growth in life/family takaful and non-life segments will likely slow in 2025 amid affordability concerns and lingering cost-of-living pressures. Still, capital buffers are sufficient to absorb potential shocks,” said Sophia Lee, Senior Vice President of Financial Institution Ratings at RAM.

Longer-term fundamentals are expected to strengthen as Bank Negara Malaysia’s risk-based capital reforms, slated for 2027 or later, enhance system resilience. Several insurers have already begun managing capital needs ahead of the reforms.

Growth Moderation Across Life and Non-Life

New business growth in life and family takaful is projected to ease to 3%–5% in 2025 (1H 2025: -2.5%; 2024: +8.3%), reflecting affordability concerns and intense competition from conventional life insurers. Family takaful, in particular, has lagged conventional peers as investment-linked products gained traction.

Non-life premium growth is also set to moderate to around 5% in 2025 (1H 2025: +5.9%; 2024: +7.3%). General takaful expansion slowed to 8% in 2024 and 10% in 1H 2025, from 17% in 2023. Still, near-term growth may benefit from Bank Negara’s draft policy expanding ta`awun (mutual assistance), enabling more inclusive product innovation and surplus distribution to underserved groups.

Profitability Pressures Remain

Investment performance will be a key profitability driver as underwriting challenges persist. Strong investment gains from the 2024 rally helped offset underwriting losses, but returns on assets fell to 2.5% in 1H 2025, compared to 8.1% in 2024, as equity valuations normalized.

The regulator’s interim rules requiring staggered repricing of medical and health insurance/takaful (MHIT) could further squeeze earnings, though RAM believes most players can manage the impact.

In the non-life segment, claims and combined ratios remained stable at 58% and 94%, respectively, in 1H 2025 (2024: 59% and 95%). Sustained pricing discipline will be critical to preserving margins as competition intensifies.

Digitalisation and Reform to Drive Future Growth

RAM sees potential long-term catalysts from digital entrants, with licensing open until December 2026. These new players are expected to spur product innovation, narrow the protection gap, and leverage cost-efficient channels without disrupting incumbents.

Meanwhile, ongoing reforms to curb medical inflation — including a base MHIT product and a diagnosis-related group (DRG) payment model — aim to improve affordability and sustainability of coverage. However, risks of policy lapses and surrenders remain given household affordability constraints.

Bottom Line

Malaysia’s insurance and takaful industry remains well-capitalized and fundamentally stable, but profitability will hinge on managing medical inflation, pricing competition, and investment performance. Digitalisation and regulatory reforms are poised to shape the next phase of growth, though execution risks and affordability challenges remain in focus.