The Lloyd's insurance market delivered a return on capital exceeding 20% in 2025, sustaining this performance level for a third consecutive year, according to a new report by AM Best.

Market Stability and Performance

AM Best’s Best’s Market Segment Report highlights that while the ranking of the 20 largest syndicates has shifted over the past decade, the changes represent a re-ordering rather than a structural shift. Nine of the top 10 syndicates in 2025 were also among the largest ten in 2015, indicating significant continuity in market leadership.

What the Numbers Show

The strong capital returns in 2025 were supported by favorable reserve dynamics despite deteriorating underlying underwriting metrics. The report notes an increase in both expense and attritional loss ratios during the year. However, these pressures were offset by a lower-than-average large loss experience and continued prior year reserve releases. This divergence suggests that the headline profitability was partially sustained by non-recurring reserve benefits and benign catastrophe experience, rather than pure operational underwriting margin expansion.

Outlook and Cycle Dynamics

Tim Prince, director of analytics at AM Best and the report’s author, identified the attritional loss ratio as a key indicator of the underlying market cycle, noting that peaks typically occur during the softest parts of the cycle.

Looking ahead to 2026, AM Best expects competitive pricing conditions to exert further upward pressure on the attritional loss ratio. When combined with a normalization of large loss experience, these factors could meaningfully increase the overall combined ratio, potentially challenging the sustained high returns seen in recent years.

AM Best has maintained a stable outlook on Malaysia’s non-life insurance segment, citing regulatory initiatives and economic expansion driving robust premium growth. The rating agency highlighted sustained underwriting discipline as a key support for industry profitability.

Market Dynamics and Pricing

Motor and fire insurance anchor the Malaysian market, together accounting for more than 65% of total non-life premiums. Since the phased liberalisation of tariffs for these lines began in July 2016, pricing has progressively shifted toward a more risk-based approach.

AM Best expects de-tariffication to drive product innovation, improve service quality, and align pricing with underlying risks. However, this shift may pressure underwriting margins over the intermediate term despite enhancing overall market efficiency.

Underwriting Performance

Malaysia’s non-life segment reported an improved underwriting profit in 2025. The industry maintained a healthy combined ratio in the low-to-mid-90% range, reflecting sustained underwriting discipline that supported profitability through effective pricing strategies.

Economic and Regulatory Context

The country’s economy continues to be supported by resilient domestic demand, particularly household consumption and investment. Strong demand for electrical and electronics exports and continued investment in data centers provide additional support.

Regulatory measures are also shaping the landscape:

• The RESET Strategy pilot phase, introducing a standardised base medical and health insurance/takaful plan with a co-payment feature, is targeted for the second half of 2026.
• Full rollout of the program is expected by early 2027 to improve affordability and pricing transparency while addressing long-term medical cost pressures.

Risks and Vulnerabilities

The stable outlook remains vulnerable to external developments. Malaysia’s high dependence on trade leaves the economy exposed to weaker global demand, higher tariffs, and disruptions to regional supply chains. Heightened geopolitical tensions could also weigh on exports and business investment.

Climate change presents another persistent tail risk. As climate-linked flooding is Malaysia’s primary catastrophe exposure, increased frequency and severity of extreme weather events could expose the segment’s profitability to greater volatility.

What the Numbers Show

The dominance of motor and fire insurance, comprising over 65% of premiums, indicates a high concentration risk within the non-life segment. While de-tariffication aims to align pricing with risk, the intermediate-term pressure on underwriting margins suggests that insurers must rely heavily on operational efficiency and product innovation to maintain the low-to-mid-90% combined ratio observed in 2025.