Friday, Sep 26, 2008

By Elffie Chew

Of DOW JONES NEWSWIRES

KUALA LUMPUR (Dow Jones)-- American International Assurance Bhd., the Malaysian unit of American International Group Inc. (AIG), aims to start offering Islamic insurance in South East Asia in 2010, a top executive said. The insurer, which received Malaysia's first international takaful operator license from the central bank on Sept. 15, aims to earn premiums of MYR70 million premium (US$20.4 million) from the sale of U.S. dollar-denominated takaful in its first year of operations in Malaysia.

Takaful mimics conventional insurance but is structured to comply with Islamic law which bars, for example, anyone from benefiting from another's misfortunes and stresses mutual support. Retakaful is much like traditional reinsurance.

Under the license awarded by Bank Negara Malaysia, AIA Takaful International Bhd., the Islamic subsidiary of AIA, is only allowed to offer family and general takaful and retakaful insurance business in international currencies and not the ringgit. Malaysia already has a number of takaful operators offering ringgit-denominated insurance-style products.

"We have started selling dollar-denominated life takaful by leveraging on our existing agency force of 9,000," AIA Chief Executive Khor Seng Hock told Dow Jones Newswires in an interview late Thursday. "It will be 2010 before we will be ready to move into the Asean market".

The Association of South East Asian Nations groups together Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Khor declined to say which countries the company would first target.

According to industry figures, global premiums in Islamic insurance total about $2 billion-$3 billion and are expected to reach $7.4 billion by 2015.

Khor said AIA Takakul is targeting selling dollar-denominated takaful to some 50,000 middle- and high-income Malaysians and non-Malaysians living in the Southeast Asian nation.

"We expect an average annual 20% premium growth in the first five years in Malaysia," Khor said, adding "the growth will be higher if you include expansion in the Asean region."

He said the company is still looking at the best way to enter the Asean market. "It could be on a hub-and-spoke or silo (single operations basis)," he said.

AIA Malaysia expects takaful to account for 10% of its overall premiums five years from now although he declined to detail the company's total premium income now.

Khor sees strong potential in non-ringgit Islamic insurance because no one else in Malaysia is yet offering such products and said AIA Takaful will launch a myriad of such products. To that end, AIA aims to launch its Euro-denominated takaful in six months, he said.

"Our non-ringgit takaful is investment-linked and Deutsche Asset Management manages our funds," Khor said.

Khor also said AIA will tap the experience of its counterparts in the Middle East to manage its takakul business. "We have no intention of tying up with anyone at this point in time," he said. AIG has takaful operations in the Gulf region.

He said AIA Takaful has a paid-up capital of MYR10 million and won't be requiring any funding from its parent American International Group Inc., which is being rescued by the US government in an $85 billion bailout plan.

Under Islamic insurance, members contribute to a pool of funds which is used to protect individuals suffering from a loss. The funds are invested according to Islamic law which avoids interest-bearing loans, gambling, pork and alcohol-related activities. Profits made are shared among members.

-By Elffie Chew, Dow Jones Newswires; (603) 2692 5254; elffie.chew@dowjones.com

(END) Dow Jones Newswires

26-09-08 0502GMT