This month's Takaful roundup from Mohamed Hairul Borhan reports
Malaysia's Khazanah Nasional gave Takaful operators worldwide something to cheer about when it entered into an agreement with Dubai Banking Group (DBG) and Singapore's Asia Capital Reinsurance (ACR) to establish the world's largest reTakaful company, ACR ReTakaful Holdings.
The new company will have a paid up capital of $300 million and will focus on non-life, non-cyclical, and speciality risks in the infrastructure and transportation industries such as aviation, marine, energy and engineering.
Khazanah will hold a 40 per cent interest in ACR ReTakaful, while DBG and ACR will hold 40 per cent and 20 per cent stakes, respectively. By virtue of Khazanah's 32 per cent stake in ACR, it will have the largest shareholding in the new entity.
Azman Mohktar, Khazanah's managing director, said he expected the investment to increase the retention of reinsurance and reTakaful within Malaysia and to push the development of the country's Takaful industry.
Michael Pilkington, partner of Holman Fenwick & Willan, said, "A company with such a huge paid-up capital is definitely bound to make a positive impact in the reTakaful industry. Although some companies may see it as an added competition, I think that it will still be welcomed in the Middle East as there is a shortage of capacity."
Also in Malaysia, HSBC Amanah Takaful, a 49 per cent-owned subsidiary of HSBC Malaysia, is aiming to double its new business premiums to $109 million this year, backed by a range of new products.
Speaking at the launch of its latest product, Lifeselect Single Investment plan, Muhammed Muqeem, acting deputy chief executive for HSBC Amanah Takaful, said the company is on track to achieve its target and even had plans to unveil an additional four new products this year.
He is aiming to leverage on HSBC's premier customers, which numbers between 50,000 and 60,000, to collect $31 million of premiums for the Lifeselect Single Investment plan by the end of the year.
The two-in-one investment-linked plan covers both investment and protection needs as well as 36 critical illnesses, which is an insurance industry standard, he said. Participants can choose between the fixed income plan and the equity fund, with the flexibility for partial withdrawal or top-up at any time.
The product will initially be marketed solely in the domestic market through HSBC's 40 branches nationwide, but may be extended to other HSBC markets in the future.
Still in Malaysia, Malayan Banking (Maybank) has signed a memorandum of understanding with Saudi Arabia's Islamic Corporation for the Development of the Private Sector (ICD), the commercial arm of the Islamic Development Bank, to study the feasibility of setting up an international Takaful holding company which, in turn, will be tasked to create Takaful companies in both ICD member and non-member countries.
As at the end of April 2008, ICD had operations in 19 countries, with the total net approvals under ICD portfolio amounting to $744.5 million.
Mohamed Basir, Maybank's chairman, said the partnership with ICD would enable the group to expand its global presence in the Takaful business as well as help to meet the growing needs of customers requiring Shari'ah compliant insurance protection in these markets.
Abderrazak Luoati, ICD's director of investment, said there is a huge demand for both general and family Takaful products in Islamic countries but the current penetration rates were extremely low. He said bilateral cooperation between Islamic countries was one of the mandates of the ICD and believed that these kinds of partnerships will eventually benefit all Islamic communities.
Hassan Scott Odierno, an actuary with Mercer Zainal Consulting, said, "It is normal for Malaysian Takaful operators to want to expand overseas to tap on the many opportunities available and leverage off the expertise built up in Malaysia, especially in family Takaful where Malaysia is relatively more advanced than other Takaful markets.
New regulations
"While I am unaware of the type of businesses Maybank would offer in this deal, the Middle East, particularly Saudi Arabia, has a huge middle class Muslim market that is key in targeting both the family and general Takaful businesses. There is also the growing medical business created from new regulations which were adapted there. Keys to success will include understanding and being comfortable with the risks being taken on, and understanding the nuances between Takaful in Malaysia and Saudi Arabia."
In other developments in the Saudi market, Sanad for Cooperative Insurance and Reinsurance, created as a public company last July with a capital of $53.3 million, has sold about three million shares, or 15 per cent of the company, to UAE's Al Khazna Insurance. The insurer has declined to disclose the price of the transaction.
With the purchase, Al Khazna has gained two positions on Sanad's board of directors, and will be represented by Ahmad Mohammad al Rumaithi and Hamad Jassem Darwish. In addition, Mohammad Jassem, Al Khazna's director general, will serve as a member in Sanad's executive administration.
Al Rumaithi said the purchase will clear the way for Al Khazna to enter the "very promising" Saudi's insurance market."
Over in the UAE, First Gulf Bank (FGB) has partnered with Salama Islamic Arab Insurance Co, to provide the bank's high net worth customers with a range of individual family Takaful solutions from across the region.
FGB said its 'First Wealth' range of products was set up primarily to target high net worth individuals and mass affluent segments from the UAE and the region. It provides a comprehensive range of investment products and services tailored to the financial planning needs of local and expatriate clientele.
Mufazzai Kajiji, head of wealth management for FGB, said that by partnering with Salama, the bank is able to provide First Wealth customers the access to quality and affordable family Takaful solutions.
Salama is also getting a thumbs up from Kathy Fear, an insurance analyst for Morgan Stanley. With operations in the Far East, Middle East, Africa, Central Asia and Turkey, she said Salama's geographic footprint will enable it to benefit from the growing opportunities throughout these markets and is one of the few plays available to investors who wish to gain exposure to these regions
Potential
She had suggested a potential upside of 32 per cent as she believed that Salama is ideally placed to capitalise on the double-digit growth forecast for both the Takaful and reTakaful markets.
She believed that the youthful demography of the global Muslim population, with 60 per cent of the total population under 25 years old, coupled with increasing awareness, a greater desire for Shari'ah compliant offerings, and increasing asset-based Shari'ah compliant financing, will drive the growth in the Takaful market.
Over in Pakistan, Pak-Qatar General Takaful (PQGTL) and Pak-Qatar Family Takaful (PQFTL) have signed an agreement with Dubai Islamic Bank of Pakistan (DIBP) to offer a wide range of insurance cover for their clients.
As part of the agreement, PQFTL will provide life and health Takaful cover to DIBP's employees while PQGTL will provide Takaful cover to the bank's car Ijarah, which include cover for riots, acts of terrorism, and natural disasters. PQGTl will also cover DIBP's home financing assets, which includes cover for natural disasters, fire and allied perils.
In the UK, Principle Insurance, formerly known as British Islamic Insurance Holdings, has become Britain's first independent Takaful provider after receiving regulatory approval from the Financial Services Authority. It will offer Shari'ah complaint home and car insurance later this year.
With around $120 million in capital from institutional and private investors in the Gulf and Asia, Principle aims to focus first on the UK market and its two million Muslims, before looking at entering other European countries and the GCC. Saudi Arabian investors account for 45.7 per cent of the capital.
Perception
Abdulaziz Hamad Aljomaih, Principle's chairman, said he believed that Principle will help change the perception of Islamic finance in the UK by showing that progressive, sensible and profitable businesses can be set up according to Shari'ah.
He added that the FSA authorisation is a clear vindication that Shari'ah compliant financial products are not only equitable and profitable, but also conform to the modern day principles of international finance, especially from a regulatory standpoint.
All of Principle's products will be approved by the company's Shari'ah supervisory committee, which comprises Shaikh Nizam Yaquby of Bahrain, Dr Mohammad Elgari of Saudi Arabia, and Britain's Mufti Abdul Kader Barkatulla.
Odierno said, "I think Principle Insurance started off with general Takaful business as it is more straight forward compared to family Takaful business. In family Takaful, there is a need for long-term Islamic assets, which might be difficult to obtain at first in a non-Muslim country. General Takaful is less dependent on investments as the nature of the liabilities is more short term.
"Regardless, I do believe that there is a huge potential for Takaful in Europe as there is a large middle class Muslim population there which is relatively well aware of the need for insurance. I also think that there will be other Takaful companies looking to follow in Principle Insurance's footsteps in the near future."
"Principle aims to focus first on the UK market and its two million Muslims, before looking at entering other European countries and the GCC."
© Banker Middle East 2008
