Takaful growth prospects diverge as countries choose different models

The business lines that predominate in these two regions are distinctly different, as are the sources of growth and the investment models. S&P anticipates the rapid rate of growth that the global Takaful market has seen so far will slow, given the stuttering global economy and the relative maturity of some of the larger Takaful markets.

Within this global growth pattern, it expects the GCC to continue to significantly grow faster than local and global conventional insurance, while Southeast Asia is likely to see constrained growth due to tightening regulatory requirements in Malaysia, its largest market.

In S&P’s view, the credit profile of Takaful insurers has improved over the past decade. Capitalization could be hampered in future by volatile investment markets and continued growth.

In a report published today (25 September), Standard & Poor’s Ratings Services expressed its view that the growing need for insurance that complies with Shari’ah law means that the global Takaful sector is becoming an increasingly significant niche within the wider insurance industry. It expects to see generally strong growth in contributions, which act as premium income, and greater use of insurance in Islamic states.

Takaful has developed most in the Gulf Cooperation Council (GCC) region and southeast Asia, but individual countries in each region have taken different routes to develop the sector. Thus, the business lines that predominate in these two regions are distinctly different, as are the sources of growth and the investment models.

S&P remain concerned by widespread use of high-risk investment strategies by Takaful providers, and by the sector’s lack of global standards in areas such as accounting standards and Shari’ah compliance. In its view, it is unclear how many of the companies involved will sustain their profitability over the longer term, particularly in the GCC region.

However, developments in Malaysia–the largest Takaful market in Southeast Asia–appear much more healthy and sustainable. They are supported by more-sophisticated regulatory oversight and the stronger investment profile of the industry, according to S&P.

cpifinancial.net

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Global takaful to reach $12B by yearend

Manila, Philippines -  Global takaful contributions are forecast to reach $12 billion by the end of 2012, after expanding by an annual average growth rate of 19 percent in the past two years.

Takaful is an Islamic insurance concept, which is grounded in Islamic muamalat (Islamic banking), observing the rules and regulations of Islamic law, otherwise known as Shari’ah.

There are an estimated 230 takaful companies and another takaful re-insurer with an estimated $11 billion in volume.

Saudi Arabia is reportedly the largest market for Islamic insurance, with gross contribution amounting to $500 million.

Other key markets are Malaysia, Qatar, Kuwait, United Arab Emirates (UAE), and Pakistan.

According to the prestigious Ernst & Young, Malaysia and UAE achieved growth rates of over 24 percent.

“The challenge was once again, maintaining growth with profitability in the current economic climate. There were positive developments in the Gulf Cooperation Council (GCC) with more operators showing profitability than previous years,” Ernst & Young said, in its World Takaful Report 2012.

The Saudi Cooperatives continued their growth performance yet still struggled in generating shareholder returns, it added.

The members of the GCC are Saudi Arabia, Kuwait, Bahrain, Qatar, UAE, and the Sultanate of Oman.

It was founded on May 1981, with the aim of collectively promoting coordination between member states in all fields in order to achieve unity.

The report said however that the return on equity for the takaful industry was lower than conventional counterparts, both in the GCC as well as in Malaysia.

A significant contributing factor to the lower ROE was the lower investment returns for the industry relative to returns yielded by conventional insurers.

“The industry has now obtained significant market share versus conventional insurance in most GCC countries as well as Southeast Asian markets. There are a number of drivers behind this growth but one that is becoming increasingly important is regulatory support through appropriate amendments in legislature to provide a level playing field with conventional insurance companies,” the annual report said.

In Southeast Asia, the key players are found in Malaysia, Brunei and Indonesia. The three nations account fro gross written contributions (GWC) worth roughly $2 billion of the total contributions.

In fact, the subregion is expected to expand dramatically as the Saudi regulators disallowed the pure takaful model.

“The primary hub for takaful may well shift from GCC to Southeast Asia,” the report stated.

The key business lines in the major markets are family and medical, marine and aviation, property and accident, and motor.

On the average, family and medical accounted for 48 percent of total, followed by motor, property and accident, and marine and aviation.

The Indian sub-continent registered the largest family and medical market share with 76 percent of total business lines.

In the case of Iran, majority of takaful insurance coverage were motor while family and medical accounted for just a quarter of the total.

Meanwhile, the annual report mentioned Muslim population centers worldwide with huge potentials for both Islamic finance and takaful.

These include Egypt, Pakistan, India, Indonesia, Bangladesh, Nigeria, Algeria, Morocco, Turkey, CIS Region, China, and Russia.

According to Ernst & Young, conventional insurance accepts premiums from the insured at a level, which it anticipates will cover claims and result in a profit.

Takaful is based on the concept of social solidarity, cooperation and mutual indemnification.

It is a pact among a group that agrees to donate contributions to a fund that is used to jointly indemnify covered losses incurred by the members.

While the concept of takaful revolves around mutuality and is founded on non-commercial basis, a takaful operator runs the operations and the fund on a commercial basis.

The five key elements of takaful are mutual guarantee, ownership of the fund, elimination of uncertainty, management of the takaful fund, and investment conditions.

philstar.com

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Takaful untapped potential ‘immense’

The Takaful industry is currently concentrated in limited markets, segments and business lines. However, there is immense unrealized potential that can be achieved.Ernst & Young’s World Takaful Report 2011 forecast that the current takaful growth trends would suggest $12 billion in gross contributions by 2012.

Excluding Saudi cooperative contributions, total takaful contributions are expected to reach $7 billion by 2012 from $9.1 billion last year. Continue reading

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Insurers get three-year reprieve on solvency rule

Companies welcome decision to delay law directing them to synchronise operations

Dubai The UAE’s insurance companies have won respite from the fast approaching deadline of August 28 to bring their operations in line with the tougher solvency requirements.

They now have another three years to do so, effective from the same date.

In 2007, under Federal Law No 6, the local authorities issued a directive granting five years for insurers to synchronise their operations with solvency guidelines.

August 28, 2012, was supposed to be the deadline.

It meant insurers, for instance, couldn’t mix life insurance and fund investment services with their core operations of underwriting risks in various categories.

Leading insurance firms are uniformly in favour of the extension.

“While we were fully committed to the earlier August 28 deadline, the three-year extension would be in the best interests of the entire industry, which has gone through its share of problems brought on by the global downturn,” said a senior official with a Dubai-based insurer.

According to Mustafa Vazayil of Gargash Insurance, “There is a gap in the solvency margins within the local insurance sector and that which is in place at some of the mature insurance jurisdictions in the world.

“Implementing the solvency guidelines would have brought this in sync with worldwide practices.

Gulf News

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MAJOR TAKAFUL REPORT ON WAY

The World Takaful Report 2012, developed in collaboration with international advisory firm Ernst and Young, will be officially launched on April 16 at the seventh Annual World Takaful Conference (WTC 2012) in Dubai.

The Ernst and Young World Takaful Report, a ground-breaking initiative designed to not only identify but also to raise the bar of competitive excellence, strategic leadership and performance improvement in the global Islamic insurance industry, now in its fifth edition, will analyse key strategies that leading takaful institutions must deploy to ensure continued growth as the global Islamic insurance industry enters its next phase of market development.

“The takaful industry has witnessed significant internationalisation in the last decade, with the industry rapidly expanding its footprint beyond the traditional high-growth markets of the GCC and Malaysia,” said World Takaful Conference chief executive David McLean.

“A number of new jurisdictions have modified their legal and regulatory frameworks and issued new guidelines to support the growing demand for takaful products in their domestic markets.

“Though the overall outlook for the global takaful industry remains positive, it is essential that the mounting challenges posed by increasing competition not only among Takaful operators but also from conventional players entering the takaful market space, declining underwriting profits and investment portfolios need to be immediately tackled so that the industry can maintain its current growth levels and hit the projected $25 billion mark by 2015.”

The report will be launched at a special plenary session of WTC 2012. The Report ‘Industry Growth and Preparing for Regulatory Change’ will be presented by Ernst and Young Islamic financial services leader Ashar Nazim and banking and takaful leader Abid Shakeel.

The conference will see more than 350 industry leaders and key decision-makers in the international Islamic insurance industry engage in critical discussions that will seek to capitalise on new opportunities and chart the future direction of the global Sharia-compliant insurance market.

gulf-daily-news.com

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Global Takaful market may hit $25 billion mark

Dubai will  host more than 350 international Islamic insurance leaders at the 7 Annual World Takaful Conference which will be held at the Dusit Thani  hotel  from April 16to 17. The conference will set the stage for discussions that will seek to improve the competitive performance of Takaful players and map new growth horizons in an increasingly competitive global Takaful landscape

Speaking to the media ahead of the event, David McLean, chief executive of the World Takaful Conference, noted that “the global Takaful industry has witnessed tremendous growth and strong performance over the last several years with recent reports indicating that the industry could hit the $25 billion mark provided that the current growth trajectory is maintained.

However, the increasing number of players entering the Takaful market, together with over-concentration in certain business lines, has resulted in the current state of Takaful operators achieving a lower return-on-equity than conventional insurers.”

“Comparatively poor profitability and over-reliance on investment income were highlighted as key challenges for Takaful operators in the Ernst & Young World Takaful Report 2011, which was launched at the World Takaful Conference last year”, McLean added.

The event will be inaugurated by a special address by Abdulla Mohammed Al-Awar, chief executive officer of the Dubai International Financial Centre Authority (DIFC). The inaugural session will be immediately followed by a keynote plenary session featuring Saleh Malaikah, chairman, Rusd International Holding Group and vice chairman and chief executive officer, Salama Group; Hussein Al-Meeza, managing director and chief executive officer, Dubai Islamic Insurance and Reinsurance Company (AMAN); and Hans De Cuyper, executive director and chief executive officer, Mayban Ageas. The session, which focuses on improving competitive performance, will assess how leading Takaful players are successfully shifting emphasis to sound underwriting profitability and operational efficiency.

arabnews.com

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Brokers appeal against new insurance premium rules in UAE

The brokerage community has approached the Emirates Insurance Authority (EIA) for a reappraisal of its recent decision on how premium payments are collected.

Last month the insurance regulator mandated that all premium payments on policies sold or renewed by brokers should be issued directly in favour of the insurers.

The directive came into effect from March 1. For the 70-odd active insurance brokers this represents a sharp U-turn from the way they have conducted their business for decades.

Sensitive

“It can be confirmed that representatives of the broker community have approached the EIA for a re-look at the directive,” said an industry representative. “We are hopeful that the practical aspects of what we have proposed will be taken on board.

“This is an issue of extreme sensitivity for the wider insurance industry and not confined to the brokerage firms.”

Industry sources, however, declined to comment on what these proposals were. They also did not say whether any alternate arrangements had been proposed.

In the past, the premium collected was used by brokers for their own short-term working capital needs as per arrangements with the insurers.

They would make the payments to the insurers at the end of a specified period, usually averaging 60 days.

Regulatory regime

The Emirates Insurance Authority brought in the new requirements after a brokerage firm in Dubai was found to have mishandled premium payments collected from its clients. This happened last year, and since then the regulator brought in changes that ensured such repeats would not occur.

It was also part of a broader move by the EIA to bring in an updated regulatory regime for the insurance industry as a whole to function.

Earlier, the EIA issued a circular requiring brokers to maintain separate bank accounts for premium collected from customers.

“While brokers have welcomed all the recent initiatives from the EIA, we feel there is a need for an extended discussion on the premium payment issue,” the industry source said.

Supportive

According to Siddarth Razdan, chief operating officer at the brokerage firm Insighters, “The new regulation will lead to changes in operational procedures, both at the insurance companies and the insurance brokers’ end.

“Personally speaking, I do not see a reason why the new regulation should lead to a shake-up in the insurance broker community.”

Insurers, with few exceptions if any, are fully supportive of the change in status quo from March 1. Obviously, the fact that payments will be made directly to them from the day a policy is sold or renewed and premiums collected represents a big plus for them.

No longer will they have to wait the 60 days or so that was the norm earlier. Based on market feedback, local insurers are implementing the March 1 directive without any leeway given to their broker partners on staggering the payments.

Now that the brokers have made an approach to the EIA, the ball is now in the latter’s court.

Helpful for clients

That all clients pay up the full premiums at the time of buying a policy or renewing it is a fallacy, according to broker sources.

“This is certainly not the case, especially where the premium amounts are large,” said Siddarth Razdan at Insighters. “In fact, under the old system, there could be cases where the client did not pay the insurance broker in full within the credit period enjoyed by the broker from the insurance company. But the broker, in turn, paid the insurance company the full premium on the due dates.” These are the grey areas that will need to be cleared with the March 1 deadline coming into effect.

gulfnews.com

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