KUALA LUMPUR (March 31): The underwriting performance of insurance and takaful operators (ITOs) may be affected by higher claims costs amid the recent conflict in the Middle East, said Bank Negara Malaysia (BNM).
According to the central bank’s Financial Stability Review for the Second Half of 2025 (2H2025), ITOs’ investment performance will remain sensitive to financial market conditions amid global economic and policy uncertainties, including those arising from the conflict.
BNM noted that while the expansion of data centre infrastructure is driving demand for insurance coverage, this growth is taking place against a backdrop of rising climate risks.
“More frequent and unpredictable climate events could heighten claims volatility and necessitate more robust risk management and underwriting practices,” it said in the report released on Tuesday.
Meanwhile, growth in new business premiums — referring to both insurance premiums and takaful contributions — is expected to be affected by ongoing public concerns surrounding medical and health insurance/takaful (MHIT) products.
Against these pressures, BNM said ITOs “are actively pursuing the RESET Strategy to place MHIT on a more sustainable footing, while developing new product offerings targeted at niche market segments”.
The MHIT implementation is expected to commence with a pilot phase in the second half of this year, with full market rollout targeted for early 2027, the central bank reiterated.
Looking ahead, BNM said it will implement the Malaysian Financial Reporting Standard 17 within its regulatory reporting framework beginning 2026, with insights from the standard to be progressively incorporated into prudential assessments for ITOs.
The move is expected to strengthen alignment with prevailing accounting standards and enhance the supervisory framework in support of financial stability.
“Throughout the implementation period, BNM will continue to engage closely with industry participants and other key stakeholders to ensure the smooth and effective incorporation of new complementary information and indicators into its supervisory review,” it added.
Spike in underwriting losses drags 2H profit lower
Overall profitability of insurance and takaful funds — measured by excess income over outgo — eased to RM4.6 billion in 2H2025 from RM4.8 billion in 1H2025, as gains from the equity market recovery were more than offset by a sharp rise in net underwriting losses.
Net underwriting losses surged to RM3.6 billion from RM900 million in 1H2025 due to seasonal factors such as lower premiums following group policy renewals in the first half of the year, as well as higher medical payouts driven by increased hospital admissions amid a spike in respiratory illnesses and more serious medical conditions.
New business premiums in 2H2025 grew 1.6% year-on-year, slowing from 4.6% in 2H2024, due to weaker growth in investment-linked products.
BNM said sales of investment-linked products with MHIT riders continued to be weighed down by negative sentiment resulting from medical cost inflation while overall interest in investment-linked products softened amid financial market uncertainties and competition from alternative savings instruments.
Operating profit for ITOs in the general insurance and takaful segment remained stable at RM1.9 billion, as softer bond investment performance was offset by steady net underwriting income, primarily driven by the release of claims reserves and higher third-party bodily injury claims settlements.
“The industry also recorded growth in motor premiums on the back of higher vehicle sales during the second half of the year partly supported by front-loaded demand for completely built-up electric vehicles ahead of the tax holiday expiry in December 2025.
“General ITOs continued to demonstrate strong commitment in delivering their obligations under the digital roadside assistance initiative as BNM began accepting applications for Phase 2B11 of the phased liberalisation of motor and fire tariff. This enhancement aims to further improve the motor claims experience and outcomes for consumers over time,” said the central bank.
Overall, BNM said the insurance and takaful sector remained resilient, underpinned by strong capital and liquidity positions.
The industry’s aggregate capital adequacy ratio stood at a healthy 225% in 2H2025 — well above the regulatory minimum of 130% — and slightly higher than 223% in 1H2025.
Accordingly, aggregate capital buffers in excess of regulatory requirements remained robust at RM43.8 billion, compared with RM41.8 billion in 1H2025.