Insurers’ long-term growth prospects intact

PETALING JAYA: Insurance companies may see operating conditions become more challenging in the second half of financial year 2025 (2H25) as economic activity slows.

Listed insurers face headwinds in the form of the sales and service tax (SST) implementation that will impact earnings, while the monsoon season could trigger higher reinsurance and claim costs.

MBSB Research added general insurers meanwhile are guiding for extremely intense competition in 2H25 while healthcare inflation issues remain an overhang.

“The insurance sector faces its fair share of headwinds. We think some players will face a challenging 2H25, but we remain positive on longer-term prospects.

“Investment windfall should provide some offset to weaker growth and tighter margins.

“The sector still has cheap valuations and solid dividend yields,” the research house stated in a sector report.

It added all the three companies under its coverage offer a dividend yield of above 5%.

While the healthcare inflation issue is a concern, MBSB Research noted some insurers appear to be managing health loss ratios better than others.

“In 1H25, Allianz Malaysia Bhd was able to keep its health loss ratios noticeably low: far lower than the sector average.

“Management retains its stance that healthcare inflation figures will likely come in much lower this year – 1H25’s figures have already shown promising signs,” the research house said.

The SST issue is anticipated to hit life/family insurers harder than general peers.

While under normalised circumstances, the additional SST can be easily passed on to customers via a premium price hike, MBSB Research said Bank Negara Malaysia’s interim measures are complicating the issue.

“Expect a negative earnings impact for at least the next two years.

“Syarikat Takaful Malaysia Keluarga Bhd’s (STMB) family segment expects a RM20mil per year impact – Allianz’s life segment expects a limited impact, given its lower reliance on bancassurance.

“In contrast, general insurers shrug off any potential impact, as they are eligible for business-to-business exemption,” the research house explained.

MBSB Research has maintained its positive call on the sector due to its healthy long-term prospects with its top picks being Allianz with a “buy” call and target price (TP) of RM23.21 a share and STMB, a “buy” with a TP of RM3.70 a share.