Takaful markets in Malaysia, Saudi Arabia thrive

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TakafulThe Malaysian and Saudi Arabian cooperative and Islamic insurance (takaful) markets are the only two that are seeing growth especially in new policies and profitability, the Saudi Gazette reported.

In a report, Global Takaful Insights 2013, international accounting and advisory firm Ernst & Young has warned that apart from Saudi Arabia and Malaysia, “most other takaful markets and smaller takaful operators appear to be struggling.

“Our discussions with industry executives suggests that too many operators are pursuing an insufficient number of risks to increase their gross written contributions (GWC),” the firm said.

The report added that not all takaful operators would gain market share at the right price to be profitable — and those that do will struggle to satisfy what have been very patient shareholders.

The compound annual growth of GWC, according to Ernst & Young, decreased to an alarming 16 per cent in 2012 from 22 percent year-on-year from 2007 to 2011.Saudi Arabia uniquely operates a cooperative insurance model, which is Shariah-compliant.

Malaysia and Saudi Arabia had an average gross contribution per cooperative insurance/takaful of $145 million in 2012. Saudi Arabia by far has the most insurance operators – 34 cooperative insurance operators compared to Malaysia’s 11 takaful operators. Saudi Arabia’s cooperative insurance contributions is forecast at $5.645 billion for 2012 and projected to increase to $6.352 billion in 2013 and $7.149 billion in 2014.

This compared to a forecast of $2.721 billion for ASEAN in 2012, $3.296 billion in 2013 and $3.993 billion in 2014. This makes the Kingdom the single largest Islamic insurance market in the world.

Malaysia has emerged as the world’s largest family (life) takaful market. With a proven model and regulatory clarity, the country is set to further build on this leadership position, added Ernst & Young. Malaysia is the most developed Islamic finance industry including the development of the sukuk market, and successive governments have proactively supported the growth of its takaful sector.

Malaysia currently holds a 71 percent share of ASEAN takaful contributions. In 2012, Malaysia’s takaful industry grew strongly by 21 per cent.Malaysia earlier in 2013 brought into law the Islamic Financial Services Act (IFSA) 2013, which requires takaful operators to separate their life and general (motor and fire insurance) business and to have a minimum capital of 100 million ringgit ($30.1 million). Moreover, new laws governing Malaysia’s Islamic finance sector, added the Report, will boost protection for depositors by making religious advisers legally accountable for financial products, and liable to steep fines and imprisonment.

According to the report, family and medical insurance dominate the business lines, with this segment accounting for 50 per cent of the market in the ASEAN and 47 per cent of the market in the MENA region. Motor insurance accounted for 27 per cent and 25 per cent, respectively. The remainder of the market was made up of property and marine and aviation insurance.

The takaful industry is largely concentrated in specific markets and in limited segments and business lines. This suggests future opportunities to explore latent new markets.

In the near to medium term, traditional growth markets, including Saudi Arabia, UAE and Malaysia, continue to ride on favorable market conditions and a young demographics structure.

In terms of the financial performance of Saudi and Malaysian operators, the latter have the highest return on equity of 13 per cent in 2012 compared with 4 per cent for Saudi Arabia. The claims ratio was also bigger in the Kingdom at 69 percent compared to 62 per cent for Malaysia.

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Reading Time: 2 minutes

The Malaysian and Saudi Arabian cooperative and Islamic insurance (takaful) markets are the only two that are seeing growth especially in new policies and profitability, the Saudi Gazette reported.

Reading Time: 2 minutes

TakafulThe Malaysian and Saudi Arabian cooperative and Islamic insurance (takaful) markets are the only two that are seeing growth especially in new policies and profitability, the Saudi Gazette reported.

In a report, Global Takaful Insights 2013, international accounting and advisory firm Ernst & Young has warned that apart from Saudi Arabia and Malaysia, “most other takaful markets and smaller takaful operators appear to be struggling.

“Our discussions with industry executives suggests that too many operators are pursuing an insufficient number of risks to increase their gross written contributions (GWC),” the firm said.

The report added that not all takaful operators would gain market share at the right price to be profitable — and those that do will struggle to satisfy what have been very patient shareholders.

The compound annual growth of GWC, according to Ernst & Young, decreased to an alarming 16 per cent in 2012 from 22 percent year-on-year from 2007 to 2011.Saudi Arabia uniquely operates a cooperative insurance model, which is Shariah-compliant.

Malaysia and Saudi Arabia had an average gross contribution per cooperative insurance/takaful of $145 million in 2012. Saudi Arabia by far has the most insurance operators – 34 cooperative insurance operators compared to Malaysia’s 11 takaful operators. Saudi Arabia’s cooperative insurance contributions is forecast at $5.645 billion for 2012 and projected to increase to $6.352 billion in 2013 and $7.149 billion in 2014.

This compared to a forecast of $2.721 billion for ASEAN in 2012, $3.296 billion in 2013 and $3.993 billion in 2014. This makes the Kingdom the single largest Islamic insurance market in the world.

Malaysia has emerged as the world’s largest family (life) takaful market. With a proven model and regulatory clarity, the country is set to further build on this leadership position, added Ernst & Young. Malaysia is the most developed Islamic finance industry including the development of the sukuk market, and successive governments have proactively supported the growth of its takaful sector.

Malaysia currently holds a 71 percent share of ASEAN takaful contributions. In 2012, Malaysia’s takaful industry grew strongly by 21 per cent.Malaysia earlier in 2013 brought into law the Islamic Financial Services Act (IFSA) 2013, which requires takaful operators to separate their life and general (motor and fire insurance) business and to have a minimum capital of 100 million ringgit ($30.1 million). Moreover, new laws governing Malaysia’s Islamic finance sector, added the Report, will boost protection for depositors by making religious advisers legally accountable for financial products, and liable to steep fines and imprisonment.

According to the report, family and medical insurance dominate the business lines, with this segment accounting for 50 per cent of the market in the ASEAN and 47 per cent of the market in the MENA region. Motor insurance accounted for 27 per cent and 25 per cent, respectively. The remainder of the market was made up of property and marine and aviation insurance.

The takaful industry is largely concentrated in specific markets and in limited segments and business lines. This suggests future opportunities to explore latent new markets.

In the near to medium term, traditional growth markets, including Saudi Arabia, UAE and Malaysia, continue to ride on favorable market conditions and a young demographics structure.

In terms of the financial performance of Saudi and Malaysian operators, the latter have the highest return on equity of 13 per cent in 2012 compared with 4 per cent for Saudi Arabia. The claims ratio was also bigger in the Kingdom at 69 percent compared to 62 per cent for Malaysia.

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