Islamic finance should help takaful firms outperform

The investment firm based at the Dubai International Financial Centre says in a report that takaful firms will benefit from favorable demographics and the growing availability of Islamic financial products. Takaful is similar to conventional insurance but investments are held to Sharia-compliant assets.

A quarter of the world’s population is Muslim but takaful contributions account for only half a per cent of premiums globally.

However, from 2006 to the third quarter of 2009, Islamic insurers registered a compound annual growth rate of 26.5 per cent, compared with 19.2 per cent for conventional insurance.

The bank said it expected the industry to grow faster than local economies. In a report released last Thursday, the World Bank said it expected the GDP of the MENA region to grow by 3.7 per cent this year and 4.4 per cent in 2011.

By comparison, Alpen expects the takaful industry to grow 16.1 per cent a year through 2012, said Tommy Trask, the executive director and head of research at Alpen.

But Mr Trask noted the predicted growth is far from assured. Because they are limited to Sharia-compliant assets, most takaful firms are heavily invested in regional equities and property.

As Islamic finance becomes more mainstream, takaful firms will be able to reduce risk, he said.

The report noted the takaful industry has about 72 per cent exposure to property and equities, compared with 54 per cent for conventional insurance companies in the region.

“Such holdings would normally be capped at 10 to 20 per cent of total assets under more sophisticated regulatory regimes,” it said.

The Bank of Malaysia in Nov 2009,  said the value of Sharia-compliant assets under management could top $1 trillion globally by the end of 2010.

Source : the nation

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