KUALA LUMPUR: Underwriting profits for general insurance and takaful operators (ITO) should remain resilient in the second half of the year despite the challenging environment as claims are expected to remain low.

       Notably, with travel restrictions still largely in place, claims for motor insurance are expected to stay low in the near term. Likewise, medical claims should also stay low for the time being as policyholders are unlikely to seek hospital treatments unless necessary.

       Nonetheless, AmInvestment Bank Research noted that the recovery of insurance and takaful operators’ premium growth remains uneven in the second half.

       It opined that recovery may be further delayed with the implementation of stricter measures in selected states, including those in the central region where Covid-19 cases have remained high.

       “We see challenges in premium growth of general insurance and takaful operators in the third quarter due to temporary impacts of the lockdown restrictions which will impact car sales. Also, the softer sentiment of potential home buyers in the near term is likely to affect property sales.

       “Motor and fire are the largest segments of general insurance and takaful operators’ portfolio. Meanwhile, for life insurance and takaful operators, the ongoing pandemic will also see challenges in sales of life insurance products in the near future.

       “The suspension of face-to-face meetings is expected to lead to slower sales from the bancassurance and agency distribution channels,” the research house said in a report yesterday.

       Given that the recovery of insurance and takaful industry’s premium growth and profitability strongly correlates with economic growth, premium growth of insurance and takaful operators is expected to improve only when herd immunity against Covid-19 through vaccinations is achieved.

       As such, AmInvestment expects premiums of insurance and takaful operators to improve in the fourth quarter.

       AmInvestment remains neutral on the insurance sector, given several developments ahead in the industry.

       One of these is the impending implementation of the second phase of the insurance detariffication, which will likely see further competitive pressure on the pricing of motor and fire products for general insurance and takaful operators.

       The second phase is anticipated to commence once the Covid-19 pandemic has been contained with most of the population fully vaccinated.

       Additionally, there may be potentially higher interest rates moving into 2022, which may result in fair value losses on the securities portfolio though this may be partially mitigated by the release in contractual liabilities for life insurance and takaful operators.

       AmInvestment also highlighted the uncertainties surrounding the impact of FRS 17, which is expected to be implemented on Jan 1, 2023. It expects the first-day adjustment of the new accounting standard to impact insurance companies’ retained earnings.

       Consequently, the brokerage advocates a selective stance for investment in insurance-related stocks.

       “We prefer insurance companies with strong market shares that have the scale to withstand competitive pricing pressure that still persists in the general and takaful insurance business.

       “Also, we like insurance and takaful operators with diversified revenue streams and those with potentially higher embedded value for the life insurance business focusing on better margin products,” it said.