The Takaful industry is mainly concentrated in the Middle East, North Africa and South East Asia, with Saudi Arabia (contributions totaling $3.86 billion in 2009), Malaysia with $1.15 billion and the UAE ($640 million) being the top Takaful markets.
Sudan, with contributions of $340 million, is the most significant market outside these regions. In addition, Egypt, Bangladesh and Pakistan are growing at a rapid pace.
Although 2009 was a comparatively slow year for the Takaful industry, growth estimates remain on course to touch $12 billion by 2011. Takaful’s potential remains an important feature of Muslim emerging markets for many indigenous and global insurance players," said Ashar Nazim, executive director & Islamic financial services leader at Ernst & Young.
He added that "the (Gulf Arab region) is a more competitive market with a larger number of players and will drive growth for the industry."
"Key Takaful markets are characterized by low insurance penetration rates and comparatively high rates of economic growth."
The main risks the sector faces are a shortage of expertise and the socio-political uncertainty, the report said. Other challenges include evolving regulations, misaligned cost base and achieving an underwriting profit, E&Y said.
Egypt is also seen growing at a rapid pace as the country could stand to benefit from regional unrest.
"The takaful industry and its core markets have experienced another challenging year, where positive signs of economic recovery and improved business sentiment were shaken by the socio-political uncertainty witnessed across the Middle East and North Africa (Mena) region in the first quarter of 2011," Nazim said.
UAE-based Salama Islamic Arab Insurance’s chief executive said turmoil in markets such as Egypt have resulted in more claims but also raised awareness of Islamic insurance, creating more opportunity for the market.
Still, the industry faces challenges from intensified competition, shortage of expertise and lower return-on-equity in relation to conventional insurance companies, the report said.
The report noted that most GCC markets have experienced a slowdown in Takaful growth, with only the Saudi Takaful market remaining strong due to the continued rollout of compulsory medical insurance.
"The industry is not without risks, but its potential remains an important feature of Muslim emerging markets for many indigenous and global insurance players," Nazim said.
In terms of regions, Takaful contributions in the Indian subcontinent grew by 85 percent, making it the world’s fastest growing Takaful market. It was followed by the Levant (40 percent), GCC (31 percent), Southeast Asia (29 percent) and Africa (26 percent).
"The Mena takaful market is much younger than the Malaysian market and, therefore, has not yet achieved the same level of scale. This affects the operating performance of the Takaful players. Within the Mena region, the GCC is a more competitive market with a larger number of players and will drive growth for the industry. Key Takaful markets are characterized by low insurance penetration rates and comparatively high rates of economic growth, leading to a positive outlook for the sector as a whole," Nazim further said.
In terms of individual countries, Indonesia topped the Takaful market with a growth rate of 67 percent, followed by Bangladesh (58 percent) and Saudi Arabia (34 percent).
The Takaful industry in general is facing a lower return on equity (RoE) due to intensified competition that small local firms face from established conventional players. In the GCC, average RoE of conventional insurers was 11 per cent while the Takaful sector posted 10 percent in 2010.
In Malaysia, the average RoE was 16 percent for conventional insurers and 6 percent for Takaful operators.
Malaysia boasts significantly lower claims ratios than the GCC, largely due to the difference in dominant business lines.
The GCC is dominated by general Takaful whereas in Malaysia it is mostly family Takaful.
Most industry CEOs interviewed by Ernst & Young agreed that it is no longer business as usual.
More than 70 per cent of respondents identified competition as a key risk going forward.
Ernst & Young said in the report that family Takaful market remains underpenetrated and is estimated to contribute only 5 percent of gross contributions in the Mena region. By comparison, conventional life in 2009 contributed 58 percent of gross global insurance premiums.
Family Takaful in Malaysia is highly penetrated and is estimated to contribute 77 percent of net Takaful contributions in 2010.
– Saudi Gazette
Source : http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2011041298094 - April 12, 2011
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