KUALA LUMPUR: CIMB Securities Sdn Bhd maintains an optimistic outlook for the insurance sector, forecasting year-on-year (YoY) earnings growth of 3.0 to 6.0 per cent in calendar year 2025 (CY25), fuelled by increasing demand for motor and life insurance policies.
The growth is attributed to factors such as a growing middle class, heightened awareness of life insurance due to rising healthcare expenses, and a considerable protection gap within the market.
The investment bank anticipates earnings growth of 3.6 per cent YoY for LPI Capital Bhd and 6.2 percent YoY for Syarikat Takaful Malaysia Bhd in CY25.
These projections are underpinned by expected rises in insurance premiums and takaful contributions of 7 per cent and 12 per cent, respectively, alongside stabilising claims and reinsurance costs, particularly during the second half of 2025 (2H25).
"This positive outlook is supported by 5 per cent gross domestic product (GDP) growth and strong vehicle sales in 2024, driving motor insurance/takaful demand in 2025.
"Further reinforcing our outlook is the growing middle class, rising awareness of life insurance due to higher healthcare costs, and a significant protection gap (less than 50 per cent of Malaysians are insured)," it said.
However, CIMB Securities said it remains negative on the credit segment owing to concerns over the rising trend in impairments.
The investment bank forecast RCE Capital Bhd's earnings to grow by 2.1 per cent YoY in CY25F, while Aeon Credit Service (M) Bhd is expected to achieve 5.2 per cent YoY growth, driven by receivable increases of 5 per cent and 12 per cent YoY, respectively.
"Salary increments for civil servants and a higher minimum wage are likely to support receivable growth; however, the recent uptick in impairments remains a key concern.
"We project a 9.5 per cent YoY increase in impairments for Aeon Credit in CY25 while 4.3 per cent YoY for RCE," it added.
CIMB Securities said the implementation of diesel subsidy rationalisation could result in higher consumer prices, potentially exerting pressure on consumers.
"This poses a downside risk to earnings if impairments continue to rise. It is worth noting that over 60 per cent of Aeon Credit's customers are from the bottom 40 (B40) income group.
"In addition, Aeon Credit's 50 per cent owned Aeon Bank is projected to remain loss-making owing to ongoing acquisition and administrative expenses; the bank is expected to break even by Year 4 and turn profitable by Year 5.
"For RCE, there are concerns about impairments if early retirements and transitions to the private sector continue," the investment bank.
CIMB Securities has retained a Neutral rating for the non-bank financial sector, while issuing Buy recommendations for insurance companies such as Syarikat Takaful and LPI Capital.