Regulatory measures to strengthen the takaful system, macroeconomic stability, digitalisation and increased awareness of takaful products will support sustained growth of Malaysia's takaful sector in 2025, Fitch Ratings said in a new report.
Several regulatory enhancements from the country’s central bank are set to strengthen Malaysia's insurance industry. Bank Negara Malaysia’s RBC2 framework aims to align with global capital standards and will become effective in January 2027. Changes include adjustments to the ringgit yield curve, reserve requirements and changes to capital risk charges, including the introduction of a catastrophe risk.
The central bank’s Hajah and Darurah policy, implemented in January 2025, clarifies when takaful operators can use conventional reinsurance. The policy emphasises situations such as insufficient retakaful capacity or when risks threaten fund stability. In addition, refined entry requirements for digital insurers and takaful operators in March 2025 aim to enhance initial viability and promote innovation.
Medical inflation is raising health takaful claim costs, prompting gradual repricing strategies in the sector. The central bank has mandated co-payment options since September 2024 to manage medical inflation and maintain affordability. Even so, strong investment returns helped family takaful net income rise by 60% in 1H24. General takaful profitability improved, with net income reaching MYR73.1 million, driven by reduced flood-related claims and stable investment income.
Malaysia's general takaful sector experienced robust contribution growth of 10.5% in 1H24, year-on-year, against 10.2% growth in non-life insurance. The growth was primarily fuelled by motor contributions, attributed to rising motor vehicle sales, although the increase was a slower rate compared with 1H23, year-on-year. Family takaful contributions experienced a modest recovery, with a 0.1% increase. However, its overall life market share fell to 40% (2023: 44%) because of slower growth than conventional life insurance, which rose by 18%.