Takaful thrives as investors gain confidence

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Dato’ Hassan Kamil, Group Managing Director of Syarikat Takaful Malaysia Berhad

Consumers are steadily gaining more confidence in Islamic investments with the takaful sector, in particular because it is exceeding expectations in terms of performance compared with conventional insurance instruments.

Dato’ Hassan Kamil, Group Managing Director of Syarikat Takaful Malaysia Berhad, said yield on the company’s investments has hovered at about 6.5 per cent while rivals from the non-Islamic sector deliver less than three per cent.

“In the past, I had this perception that Islamic investments could not outperform conventional insurance,” said Dato’ Hassan, whose company is worth RM5.5 billion with a growth rate of 15 to 30 per cent annually. “But that belief is slowly eroding. It is proven that we are outperforming others in terms of investments.

“I think the team we have on board to manage funds is quite outstanding. For us to give about 6.5 per cent is a phenomenal achievement.”

Globally, the Islamic finance market is growing at about 15 to 20 per cent a year with equity fund assets expected to be worth $1.6 trillion in 2012 from $15 billion in 2008. According to Best’s Special Report in July, 2011, general takaful increased at a compound annual growth rate (CAGR) of 27 per cent from 2004 to 2009 while family takaful rose 22 per cent. Conventional insurance in the same markets grew by five per cent.

According to a study by Insurance Services Malaysia (ISM) and Life Insurance Association of Malaysia (LIAM), by 2015, family takaful contributions would represent almost half of total insurance premiums in Malaysia. ISA and LIAM estimate that family takaful would be valued at RM9.2 billion while conventional premiums would be worth RM10.1 billion by 2015.

Malaysia is arguably the world’s most developed country for takaful products and Islamic finance in general. However, because premium payments are similar, Dato’ Hassan says his company targets those without policies, mostly the young population, rather than the organic market – or existing conventional insurance holders who want to expand their policies.

“I cannot go to customers and tell them that prices are the same, we’re not cheaper,” he said. “Why would somebody want to switch? You lose so much when you switch because any life policy takes seven years to break even and if you had a policy for ten years why on earth would you want to cancel it?

“We have to look for new business, meaning people who don’t have cover; people who have new family members, new companies, new employees. These are the sources of our growth.”

Dato’ Hassan said the best way of reaching target market for takaful was by using aggressive sales agents who work on a commission basis.

“For the retail market, the only way to grow the business is through retail agents,” he said. “Having salaried employees on the street selling insurance will never work. The only way is through commission.

“There is also a battle to get quality agents. It’s not easy. You get somebody off the street, maybe they will sell. They will sell to you, you, you and you … that’s it. That’s all the people they know. That’s the end of their career.”

Takaful has a diverse portfolio of investments, all compliant with Shariah (Islamic) Law and involving underlying assets. Dato’ Hassan said up to 45 per cent of investments are in sukuk (similar to conventional bonds) and fixed income while ten per cent is in the equity market. The property market represents up to eight per cent while the rest is put into short-term investments.

Sukuk are certificates that bestow partial ownership of an underlying asset to the investor and returns are based on net profits. On maturity, the amount paid to the investor represents the value of the underlying asset at the time. Sovereign sukuk involves a country borrowing from the capital markets and returns are based on state-owned assets supporting the sukuk.

The first sovereign sukuk was issued by Malaysia in 1983 and the instrument has grown significantly ever since. Many European countries have changed their regulatory and tax laws to accommodate the concept of sukuk and in 2010, more than $20 billion worth of sovereign sukuk was issued.

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Reading Time: 3 minutes

Dato’ Hassan Kamil, Group Managing Director of Syarikat Takaful Malaysia Berhad

Consumers are steadily gaining more confidence in Islamic investments with the takaful sector, in particular because it is exceeding expectations in terms of performance compared with conventional insurance instruments.

Reading Time: 3 minutes

Dato’ Hassan Kamil, Group Managing Director of Syarikat Takaful Malaysia Berhad

Consumers are steadily gaining more confidence in Islamic investments with the takaful sector, in particular because it is exceeding expectations in terms of performance compared with conventional insurance instruments.

Dato’ Hassan Kamil, Group Managing Director of Syarikat Takaful Malaysia Berhad, said yield on the company’s investments has hovered at about 6.5 per cent while rivals from the non-Islamic sector deliver less than three per cent.

“In the past, I had this perception that Islamic investments could not outperform conventional insurance,” said Dato’ Hassan, whose company is worth RM5.5 billion with a growth rate of 15 to 30 per cent annually. “But that belief is slowly eroding. It is proven that we are outperforming others in terms of investments.

“I think the team we have on board to manage funds is quite outstanding. For us to give about 6.5 per cent is a phenomenal achievement.”

Globally, the Islamic finance market is growing at about 15 to 20 per cent a year with equity fund assets expected to be worth $1.6 trillion in 2012 from $15 billion in 2008. According to Best’s Special Report in July, 2011, general takaful increased at a compound annual growth rate (CAGR) of 27 per cent from 2004 to 2009 while family takaful rose 22 per cent. Conventional insurance in the same markets grew by five per cent.

According to a study by Insurance Services Malaysia (ISM) and Life Insurance Association of Malaysia (LIAM), by 2015, family takaful contributions would represent almost half of total insurance premiums in Malaysia. ISA and LIAM estimate that family takaful would be valued at RM9.2 billion while conventional premiums would be worth RM10.1 billion by 2015.

Malaysia is arguably the world’s most developed country for takaful products and Islamic finance in general. However, because premium payments are similar, Dato’ Hassan says his company targets those without policies, mostly the young population, rather than the organic market – or existing conventional insurance holders who want to expand their policies.

“I cannot go to customers and tell them that prices are the same, we’re not cheaper,” he said. “Why would somebody want to switch? You lose so much when you switch because any life policy takes seven years to break even and if you had a policy for ten years why on earth would you want to cancel it?

“We have to look for new business, meaning people who don’t have cover; people who have new family members, new companies, new employees. These are the sources of our growth.”

Dato’ Hassan said the best way of reaching target market for takaful was by using aggressive sales agents who work on a commission basis.

“For the retail market, the only way to grow the business is through retail agents,” he said. “Having salaried employees on the street selling insurance will never work. The only way is through commission.

“There is also a battle to get quality agents. It’s not easy. You get somebody off the street, maybe they will sell. They will sell to you, you, you and you … that’s it. That’s all the people they know. That’s the end of their career.”

Takaful has a diverse portfolio of investments, all compliant with Shariah (Islamic) Law and involving underlying assets. Dato’ Hassan said up to 45 per cent of investments are in sukuk (similar to conventional bonds) and fixed income while ten per cent is in the equity market. The property market represents up to eight per cent while the rest is put into short-term investments.

Sukuk are certificates that bestow partial ownership of an underlying asset to the investor and returns are based on net profits. On maturity, the amount paid to the investor represents the value of the underlying asset at the time. Sovereign sukuk involves a country borrowing from the capital markets and returns are based on state-owned assets supporting the sukuk.

The first sovereign sukuk was issued by Malaysia in 1983 and the instrument has grown significantly ever since. Many European countries have changed their regulatory and tax laws to accommodate the concept of sukuk and in 2010, more than $20 billion worth of sovereign sukuk was issued.

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