KUALA LUMPUR: Malaysia's takaful industry is likely to continue its steady growth in 2021 amid government initiatives and a supportive Islamic finance ecosystem, further propped up strong economic growth, increased digitalisation, higher awareness and a low life-insurance penetration rate, Fitch Ratings said.
For 2021, Fitch forecasts Malaysia's gross domestic product (GDP) to grow at 6.7 per cent.
In a statement today, the rating agency said Malaysia's vibrant Islamic finance ecosystem includes Islamic banks, shariah-compliant corporates, Islamic fund managers and halal industries that seek takaful products.
It said bancasssurance is one of the main distribution channels of takaful products.
"Takaful demand also 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.
"Fitch expects 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.
"Malaysian takaful continued to gain ground in the insurance market during the 2020 pandemic; it accounted for 38 per cent of the domestic life insurance market in the first half (1H) of 2020 (2019: 34 per cent)," it said.
Fitch said general takaful accounts were stable at 16 per cent of the overall general insurance market.
It said the takaful industry faced low top-line growth in 2020 due to a fall in new contributions under pandemic-related movement restrictions.
Consequently, contribution of family takaful to overall growth dwindled to two per cent in 1H 2020, 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.
Meanwhile, Fitch said family takaful funds recorded a 28 per cent drop in profitability in 1H of 2020 due to unrealised losses from equity investments and lower new contributions.
However, this was a smaller fall than for life insurance funds, whose profitability declined by 79 per cent.
Takaful sector's capital adequacy ratio reached 240 per cent, above the insurance sector's 226 per cent, Fitch noted.
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