The going gets tough for takaful industry

Malaysia’a takaful industry is expected to step up its performance now that an additional four operators have been issued licences to start business next year, said industry players.

“With 12 operators in the country now, we have to work harder to gain market share and profits,” said an executive from a takaful group that has been in operation for more than 10 years.

Although Malaysia’s takaful industry has seen tremendous growth in the last five years, it still lags behind its conventional peers in terms of total insurance market penetration and share.

It is understood that the penetration rate for takaful industry in Malaysia is around 10 per cent, compared with 40 per cent for conventional insurance.

Another existing takaful executive said the entry of four new players is against the spirit of consolidation that the regulator has been propagating.

However, he said the regulator may have decided to add more players since the Islamic banking and takaful industry has yet to command 20 per cent of the banking and insurance market share targeted by 2010.

Takaful fund assets comprise only 8 per cent of the total assets of the Malaysian insurance and takaful industry although it has more than doubled in this same period from RM5.87 billion in 2005 to RM10.5 billion in 2008 and RM12.4 billion in 2009.

Prime Minister Datuk Seri Najib Razak said last year that the liberalisation measures, including new licences, are in line with the provisions and timetable set out in the Financial Sector Master Plan (FSMP) announced in 2001.

The government said then that the measures are aimed at enhancing “inter-linkages to leverage on global developments in Islamic finance and reinforce Malaysia’s position as an international Islamic financial hub.”

Takaful fund assets comprise only 8 per cent of the total assets of the Malaysian insurance and takaful industry although it has more than doubled in this same period from RM5.87 billion in 2005 to RM10.5 billion in 2008 and RM12.4 billion in 2009.

Prime Minister Datuk Seri Najib Razak said last year that the liberalisation measures, including new licences, are in line with the provisions and timetable set out in the Financial Sector Master Plan (FSMP) announced in 2001.

The government said then that the measures are aimed at enhancing “inter-linkages to leverage on global developments in Islamic finance and reinforce Malaysia’s position as an international Islamic financial hub.”

In this context, it will be interesting to see how new takaful players would contribute in areas where there are gaps in the financial system and in which there are new areas of growth in the financial system.

The four new licences issued to joint ventures are between American International Assurance Bhd (70 per cent) and Alliance Bank Malaysia Bhd (30 per cent; AMMB Holdings Bhd (70 per cent) and Friends Provident Group plc, UK (30 per cent); ING Management Holdings (M) Sdn Bhd (60 per cent), Public Bank Bhd (20 per cent) and Public Islamic Bank Bhd (20 per cent); and the joint venture between The Great Eastern Life Assurance Co Ltd (70 per cent) and Koperasi Angkatan Tentera Malaysia Bhd (30 per cent).

Existing takaful operators include CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Hong Leong Tokio Marine Takaful Bhd, HSBC Amanah Takaful (Malaysia) Sdn Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd.

In addition, Malaysia has four Retakaful operators, namely, ACR Retakaful SEA Bhd, MNRB Retakaful Bhd, Munchener Ruckversicherungs-Gesellschaft (Munich Re Retakaful) and Swiss Reinsurance Co Ltd (Swiss Re Retakaful); and one International Takaful Operator in AIA Takaful International Bhd. //

source :

Takaful operators need to ‘up their game’


Existing takaful operators will have to “up their game” and gear up for stiffer competition as the granting of four new licences by Bank Negara on Wednesday will see more players fighting for a share of the profit slice.

Takaful Ikhlas Sdn Bhd president and chief executive officer Datuk Syed Moheeb Syed Kamarulzaman said the company would need to find a niche to stay ahead of the competition.

“We were surprised that four new players were granted licenses rather than two. With more players coming in competition will increase and so will customer expectation,” he said when contacted by StarBiz yesterday

Datuk Syed Moheeb … ‘We were surprised that four new players were granted licenses.’

“The introduction of more (new) players into the industry will increase the takaful penetration rate and take away the businesses of the existing players and we must find our niche,” Syed Moheeb said.

He however added that the local takaful market was huge and offered great growth potential even with new players coming on board.

According to Syed Moheeb, the penetration rate for takaful in Malaysia was around 10%, compared with conventional insurance at 40%.

On Wednesday, four joint-venture (JV) companies were issued new family takaful licences by the central bank following the approval from the Finance Ministry.

Those getting the licences are the joint ventures between American International Assurance Bhd (70%) and Alliance Bank Malaysia Bhd (30%); AMMB Holdings Bhd (70%) and Friends Provident Group plc, UK (30%); ING Management Holdings (M) Sdn Bhd (60%), Public Bank Bhd (20%) and Public Islamic Bank Bhd (20%); and the joint venture between The Great Eastern Life Assurance Company Ltd (70%) and Koperasi Angkatan Tentera Malaysia Bhd (30%).

The four new licences, issued under the Takaful Act 1984, were given based on the applicants’ financial soundness and resilience, track record, expertise, business plan and contribution towards local financial sector development.

Previously, there were eight existing takaful operators in Malaysia, namely CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Hong Leong Tokio Marine Takaful Bhd, HSBC Amanah Takaful (M) Sdn Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd.

Syarikat Takaful Malaysia Bhd group managing director Datuk Hassan Kamil also concurred that competition within the local takaful industry would be much stiffer.

“It is only natural that with more competitors coming in everyone has to buck up.”

Hassan said the JV companies comprised well established foreign partners with “good infrastructure.”

“Many of the local takaful players had to start from scratch and build their infrastructure from scratch. Some of the local operators are still building themselves up.

“The four players coming in are allied with established partners that are ready to go,” he said.

Syed Moheeb however noted that the inclusion of foreign partners as new takaful licensees was a boon to the local insurance industry.

“The new (foreign) operators have the international network to promote Malaysian takaful products in other countries,” he said.

source : biz the star

Takaful insurance sector to grow in 2010: Report

The takaful insurance and reinsurance sector is likely to continue to grow in 2010, according to a report by Standard & Poor’s Corp.

S&P said the market for takaful insurance and reinsurance, which complies with Islamic Sharia law, is supported by high levels of growth and an increase in profitability.

In a report, “Takaful Insurance Has Long-Term Viability and Benefits from Expected Growth, but Stiff Competition Exists,” S&P said particularly strong growth is likely in Malaysia and the Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

But the takaful market is becoming highly competitive and is suffering from the impact of global investment markets on returns, factors that “place an ongoing strain on sustainable development,” Neil Gosrani, a credit analyst at S&P in London and one of the report’s authors, said in the report.

One area of concern is the lack of risk-based regulatory supervision of the takaful sector, particularly in the GCC region. This means the sector lacks “the growing sophistication of risk management and capital demand increasingly found in Europe and North America,” according to the report.

source : business insurance

Nigeria: Deposit Insurance Corporation to Develop Insurance for Non-Interest Bank

Nigeria Deposit Insurance Corporation (NDIC) has said that it is developing a deposit insurance framework for the operation of non-interest (Islamic) banking in the country.

Central Bank of Nigeria (CBN) is also developing framework for the regulation of non-interest banking and Islamic financial institutions.

The proposed Islamic banking in Nigeria – Jaiz Bank – will commence operation before the end of this year, its Managing Director/CEO Mohammed Mustapha Bintube has said.

Islamic Finance Working Group of Nigeria visited NDIC, Securities and Exchange Commission (SEC) and Debt Management Office (DMO) yesterday in Abuja to work out modalities for the commencement of non-interest banking in the country.

Acting Managing Director of NDIC Ibrahim Umaru said the Corporation will work with the team for the speedy commencement of Islamic Finance in Nigeria.


“You need to have appropriate legal framework for it. You need to develop compliance. You need to educate consumers who would want to avail themselves on the opportunities of non-interest bank”, Umaru said.

Current operators of non-interest banking in Nigeria include the Standard IBTC, Bank PBH, Diamond bank and the proposed Jaiz Bank.

“All stakeholders are working together to make sure that non-interest bank or Islamic bank takes off successfully in Nigeria. We have challenges in policy framework, on capacity building and on customers orientation”, Jaiz’s MD said.

He said they are visiting regulators so that Islamic and non-interest banking can be strengthen in Nigeria to be able to compete favourably with other countries like Egypt and South Africa.

He said the reason why Jaiz Bank is slow in commencing operation is because there is no compliance instrument for Islamic finance or non-interest banking in Nigeria.

“The second reason why we have not started is that the share size of the capital was increased from N2 billion to N25 billion and therefore the level of risk has increased significantly and people did not want to take bigger risk on something that is new”, he said.

“All these obstacles are been taken care off and before the end of the year you would hear good news from CBN on the JAIZ operation”, Bintube said.

source : allafrica

How Can Insurance Be Islamic?

In the world of Islamic economics and finance, conventional financial instruments such as credit cards, mortgages and insurance are generally considered impermissible.  Like Judaism and Christianity, Islam prohibits usury and financial interest.  Considering credit cards and mortgages depend on financial interest to remain viable for conventional banks, both are generally considered impermissible.

In an effort to provide Muslims with the convenience and flexibility of credit cards and mortgages, Islamic banks have developed shari’ah compliant financial products that eliminate interest.  Instead, these Islamized credit cards and mortgages incorporate a profit-and-loss approach, where the lender assumes ownership risk in the goods and services financed.

However, what of insurance?  Why does insurance need to be Islamized?  Conventional insurance serves a very important function in the global economy by mitigating risk.  Insurance policies effectively transfer risk from the insured to the insurer for a monetary amount.  In the event of an insurance claim event, the insured is guaranteed a monetary payment from the insurer to make the insured whole.

The unequivocal guarantee that an insurer provides is especially problematic for family insurance products such as life insurance.  Because a life insurance policy guarantees payment in the event of death, most Muslim jurists consider this a bet against God.  In Islam, only God knows when a person will die.  Any wager or hedge against this date is theologically insoluble.

In Islam, God is considered omniscient and omnipotent.  Therefore, God’s knowledge is perfect.  More specifically, what God knows to happen must happen.  If what God knows to happen does not happen, then God is either not omniscient or not omnipotent.  However, denouncing God’s omniscience or omnipotence is anathema to Islamic theology and doctrine.

Moreover, conventional insurance typically invests the policy premiums in a variety of financial instruments that include interest.  Therefore, most Muslim jurists consider insurance and more specifically life insurance impermissible.

Instead of conventional insurance products, Islamic insurers offer mutual protection through a takaful fund.  The word “takaful” is a derivative of “kafalah” which means “surety,” “guarantee,” or “mutual care.”

Indeed, this type of a mutual care has been in use throughout Islamic history.  In addition to the myriad proscriptions mentioned above, Islam also demands that each Muslim care for members of the community.  The Qur’an says that one should “spend of your substance, out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves” (2:177).

Accordingly, takaful embodies the spirit of social solidarity and mutual care.  Instead of insurance policy premiums, a voluntary donation is made to a communal takaful fund.  Using the law of large numbers, the takaful fund operator uses statistical data and mathematical calculations–similar to conventional actuarial sciences–to ensure that the fund is sufficiently capitalized to fund any insurance claim events.

All takaful funds are invested in shari’ah compliant investments that are free from interest and impermissible investments (e.g., equities engaged in the manufacture, distribution, or sale of porcine food products, alcoholic beverages, pornography, gambling, etc.).

Unlike a conventional insurance policy, because the tabarru payment is a donation, policy “premiums” do not accumulate any cash value for the insured.  According to proponents of takaful, this prevents an insured party from profiting from an insurance policy.

While critics of takaful–and Islamic banking and finance in general–may argue that takaful is simply another example of an Islamic financial product being superficially Islamized, takaful does appear to promote social solidarity and mutual care.

 Source : thexaminar

Sharia insurance market is mounting

Sharia insurance market is mounting of the insurance industry with the more interests expressed by investors to have investment in that the sector.

Bapepam-LK considered the sharia insurance up to quarter III/2009 showed good performance. Life insurance market shares are 4.16 percent and loss insurance and reinsurance are 2.8 percent.

When combined, the total sharia insurance industry market shares are 3.79 percent of the total national insurance industry.

“This is satisfying noting that last year it remained at the level of 2 percent. So there is quite rapid increase,” said Insurance bureau chief of Bapepam-LK Isa Rachmatarwata in Jakarta recently.

In terms of asset, loss insurance has reached 2.09 percent but life insurance is 1.38 percent as the asset accumulation of life insurance industry had happened long before.

“The total sharia insurance assets in quarter III/2009 was at 1.54 percent of the total assets of the industry in quarter I/2009 of 1.32 percent,” said Isa.

Sharia insurance industry, particularly life insurance, is more lucrative with the incoming giant player like AIA Financial and Manulife. Formerly Prudential has entered the market and booked significant returns.

In quarter III/2009, Prudential has booked IDR254.6 billion premium income or rose 22.1 percent as from quarter II/2009.

But President Director of PT Asuransi Bintang Tbk Zafar Dinesh Idham said the government has relaxed the regulation of sharia unit capital fulfillment at least it is the same as the conventional capital gradual fulfillment as stipulated by Government Regulation (PP) No. 81/2009. “For us, the regulation is burdensome,” he said.

On the other side, regulator called for stern measures from old player to take necessary measure to opt whether to continue its business by complying with the minimum capital regulation or to return the license.

“Sharia insurance in quarter III/2009 has showed good performance. Those with less capital should improve themselves and have time to think fast and make rapid decision to stay in the industry, while the new one is not reluctant to join,” he said.

PP No. 39/2008 on insurance business requires insurance company minimum capital with sharia unit is IDR5 billion in 2008, IDR12.5 billion in 2009, and IDR25 billion next year.

Up to quarter III/2009 there are companies with under IDR5 billion fund. One of them, life insurance firm, has returned its sharia business license.

source : bisnis

Takaful firms search for suitable long term assets

The Islamic insurance industry, or takaful, is struggling to find suitable long term investment opportunities, executives at the Reuters Islamic Banking and Finance Summit said.

The takaful – or sharia compliant – insurance industry has grown at double or three digit growth rates so far as the Gulf Arab region is underpenetrated with insurance products in general, and has also attracted business from conventional peers.

But issues like the absence of long term sukuk, or Islamic bonds, to compliment some of the products are hampering the process of asset deployment.

Speaking at the summit in Bahrain, Abdul Rahman Tolefat, chief executive, Allianz Takaful, said: “As an insurer, if I want to offer annuity products I need to have long term assets to match my liabilities which are still not available.”

Tolefat said the firm was in talks with a regional financial institution, urging them to issue a bond earmarked for the industry.

Islamic insurance works like mutual insurance, but there is a clear segregation of the assets owned by members and those owned by the insurer.

Unlike conventional insurance, investments made using the pool of funds have to adhere to sharia law and shun sectors such as alcohol and gambling.

Islamic insurers also keep away from investments in risky assets and prefer fixed income products for parking their funds.

Global takaful premiums total about $2 billion to $3 billion and are expected to reach more than $7 billion by 2015, industry figures show.

While medium term sukuk are available in the market, takaful firms in this space have to compete with big banks who absorb a major chunk of issues, leaving little for takaful firms.

Tolefat said: “The credit rating of corporates who issue sukuk is just not there. I prefer an issue which has an ‘A’ rating and above. Even if they provide low yields, we don’t mind.”

 source : INN

Takaful market poised for growth but lacks Shariah compliant investments, talent

SINGAPORE: The Islamic insurance or takaful market is expected to see strong growth this year.

Still, challenges remain including low market penetration and a lack of Shariah-compliant investment opportunities for takaful players.

Industry executives said they want to see more Islamic bond, or sukuk, issuances in order to help them balance their portfolios away from equities and reduce risk.

The multi-billion dollar purchase of AIA last week was a massive vote of confidence in Asia’s insurance sector and Prudential is not alone in being bullish about the outlook.

At a conference on Islamic insurance or takaful, industry executives said they were optimistic about growth prospects.

Total takaful contributions only account for just one percent of the global insurance market.

But this is expected to increase significantly, thanks to growing interest among Muslims and non-Muslims alike in shariah-compliant investment and insurance products.

Daud Vicary Abdullah, global leader, Global Islamic Finance Group, Deloitte, said: “We’ll see more growth in the Gulf. I think it’s occurring here in Singapore, Malaysia and Indoneisa. I think the growth is positive. But to put a figure on it on a global basis, the numbers of 10 to 15 per cent in terms of growth of market are not unrealistic.”

According to an estimate by Ernst & Young, total takaful contributions can reach US$7.7 billion by 2012.

That’s compared with just US$1.4 billion in 2004.

Despite the growth prospects, there appears to be a lack of shariah-compliant bonds or sukuks.

And some central bankers say they are working to address the shortage.

Azleena Idris, Deputy Director, Islamic Banking & Takaful Dept, Bank Negara Malaysia, said: “Malaysia regularly issues shariah-compliant money market instruments so that it will facilitate the liquidity aspect of things. Now when it comes to the takaful space, the longer term instruments are something we’re aggressively promoting under the MIFC banner.”

Industry players also said they’re severely lacking in talent and the industry will likely see more consolidation as the smaller takaful players strive to become more competitive.

source : channel news asia

Tunisia – Finance: Zaytuna Takaful, insurance can also be Islamic

Radio Zitouna Zaytuna Bank and Takaful Zaytuna some time, the appellation is the same, activities vary, but come together in a single path: that of communication in different forms. The Zaytuna label is becoming more and more in the Tunisian economic landscape.

Zaytuna Takaful will be an insurance company governed by the laws of the insurance sector in force in Tunisia and is subject to 100% with all legal requirements and regulations governing the insurance industry in our country.  It will market all products under the legal texts, provided they conform with the principles of Islamic finance, especially for this product “Life”.  Life insurance capitalization is not allowed in Islamic insurance.

The official start of Zaytuna Takaful is not for tomorrow, we are still in consultations, study the information system should be adopted by the company, the choice of teams, installation and implementation of insurance products.

The term Takaful means mutual guarantee or indemnity between group members.  In addition to the cooperative sharing of risk, there is a clear distinction between participant and operator.  There is a clear separation between capital invested by shareholders and the funds deposited by applicants.  Shareholders commit funds and charge a commission usually set to 25%.

In Takaful, said Lawrence Zaatar, an expert in Islamic finance, there is no mutuality without community, and therefore no insurance possible outside of it.  The contracts are designed as a donation on behalf of policyholders.  The surplus is redistributed to subscribe to participants so that the Shareholders have no control on underwriting profits.  The investment Takaful Insurance must also be placed in interest-free funds and approved by the Shari’a.  Operators must submit more as managers than insurers in the conventional sense.

According to Catherine Stagg-Macey, senior analyst and author of a study published by the U.S. firm Celent, a research and consulting, the Takaful system’s potential is enormous because the penetration of insurance does not exceed 1% Gross domestic product in Muslim countries.  The skills and resources can be borrowed from the markets of traditional insurance.

Projections of the Institute of Banking and Islamic Insurance, the rate of growth of Takaful insurance is estimated between 15% and 20% and the market should reach 7.4 billion USD in premiums in 2015.

Our Ministry of Finance apparently initiated studies on the form of Takaful insurance.  To be continued.

• About Takaful

The Takaful, which is based on principle I’entraide Ie was born in Malaysia in the early eighties.  The client of a Takaful operator may have a similar function of the member in mutual companies. To better organize this new insurance business, regulators are hard at work, including I’Islamic Financial Services Board, based in Kuala Lumpur (capital of Malaysia). It must be said that Takaful products continue to grow with the leader among the Retakaful, Islamic reinsurance.  One hundred and ten companies already offer such services and only six are of Retakaful for Takaful companies are forced to sell their business primarily to companies Retakaful. Now, the Islamic countries and major international insurance groups work together to consolidation system.  For Takaful insurers are well advised to learn from the experience of conventional insurance.  As such, the insurer Prudential is cooperating with Saudi Arabia and Malaysia to distribute Islamic insurance products.              

Source : wmc translated

Amana Takaful Sri Lanka gets General Insurance licence in Maldives

The Maldives Monetary Authority has granted the license for Amana Takaful (Maldives) Pvt. Limited, the Maldivian subsidiary of Amana Takaful Plc, to begin general insurance with effect from 4 March.

The company launched its operations in 1998 in collaboration with Takaful Malaysia, one of the largest Takaful operators in the world. It offers life and general insurance policies.

The consolidated loss of Amana Takaful Plc for the year ended 31 December 2009 was Rs. 8.547 million and accumulated group losses stood at Rs. 300.959 million.

source :