Summer tends to be a quiet time on the Takaful scene as everyone heads off on vacation. But this summer could be different. Mike Gallagher takes a look at what has been happening in the Takaful industry
The summer is here, but that does not mean that Takaful companies are taking it easy. Many are busy finalising plans ahead of the autumn when many will launch new products onto the market.
Most of the action on the Takaful scene has been taking place in Malaysia over the past month; although the Middle East has also seen some movement during what is traditionally a slow time of year for Takaful companies. Malaysian companies have begun looking for opportunities in the Middle East, while GCC insurance companies have been looking at the kinds of products Malaysian Takaful companies are creating and wondering whether some of them might sell at home.
MNRB Holdings, which owns Malaysian Re, made its intentions clear that it was keen to make its presence felt in the Middle East when it announced that it had opened an office in Dubai to sell both Takaful and conventional insurance products.
Fortitude Capital, a Malaysia-based fund manager, is also moving into the Middle East, joining forces with Kuwait's Al-Aqeelah to create a Takaful company in Syria. The joint venture is expected to spring into life in early 2008 and it will be Al-Aqeelah's first venture into the Takaful business. Al-Aqeelah, Noor Takaful Insurance and The Syrian-Qatari Company, which is also a Takaful provider, received licences to operate in Syria in August of 2006.
AmIslamic Bank has joined forces with Takaful Ikhlas and Munich-based FWU to increase the Takaful range in Malaysia. Ahmad Zaini Othman, the chief executive of AmIslamic said that Takaful investment products would initially be rolled out at the bank's Klang Valley branches, which are believed to number around 50. AmIslamic will manage the Takaful plan, while Takaful Ikhlas will be the trustee. AmIslamic has forecast that introducing new products and services will help the banks' assets grow by between 5 and 10 per cent this year.
Also in Malaysia, Commerce Takaful rolled out its Takaful Global Giants product. Commerce seems to be confident that the product will see it reaping total gross contributions over $145 million by the end of the year and probably not without reason. CIMB, which recently entered into a joint venture with Aviva, which is the world's fifth biggest insurance group, to create Commerce, hopes to be the fifth biggest player in Malaysia's Takaful industry within the next five years. The joint venture between CIMB and Aviva means that Aviva will take a 49 per cent stake, with the rest remaining with CIMB.
Aviva and CIMB will soon embark on an aggressive plan to launch up to 30 products by the end of the year, with most of them being distributed from CIMB's 383 bank branches and made available to its customer-base of 4.5 million. The Takaful Global Giants investment-linked product, which is a Takaful product that has investment features, combines 100 per cent capital protection if held to maturity, together with returns linked to the performance of 20 Shari'ah-compliant global blue-chips.
Lloyds of London continued to make noises about moving into the Takaful markets, both in Malaysia and the Middle East. Lloyd's said it plans to continue to expand into the Malaysian insurance market after launching a new subsidiary there called Lloyd's on the Malaysian island of Labuan. It also upgraded its reinsurance licence. Until now, Lloyd's has operated in the region as a third tier reinsurer, usually by receiving reinsurance business only if it was not absorbed by Malaysian reinsurers or Labuan-based reinsurers, who together share of about 85 per cent of the reinsurance market. Lloyds claims the new subsidiary will enable them to work more closely with local insurers to provide advice on specialist contracts.
Peter Levene, Lloyd's chairman, said that, "there are some potentially strong business opportunities in the re-Takaful sector. This concept, which is in the early stages of development, now requires extensive analysis of its legal, tax and regulatory implications to take it to the next stage" adding that "Malaysia is a key economy at the heart of the region."
Standard & Poor's released a report titled 'Takaful: A new and viable insurance business model or just a marketing opportunity?' Standard & Poor's credit analyst Jelena Bjelanovic said, "The opportunities for increased uptake of Takaful in the GCC are positive because the considerable economic growth in the region, coupled with a sizable, underinsured population, means that there are substantial prospects for further development of personal lines cover." Bjelanovic continued, "The ability of the industry to demonstrate the need for and benefits of insurance, as well as to successfully meet customer demands, remains unproven."
The report said that over time, if the world average insurance premium of $550 per capita is achieved and applied to the Gulf States, the GCC insurance market has the potential to grow to $20 billion, from its current $4.6 billion. Taking as an example Malaysia, where the Takaful market is expected to contribute 20 per cent to the overall insurance market in the medium term, the GCC Takaful market has the potential to reach $4 billion at the current level of development from its current $170 million. The GCC Takaful market is currently growing at about 40 per cent per year, which is impressive, relative to the world's conventional insurance markets, which experienced average premium growth of 2.5 per cent in 2005.How much actual premium the Takaful sector generates and how quickly it will do so remains to be seen, and will depend on the industry's ability to deliver on policyholder expectations, according to S&P.
Doha Insurance has decided to part company with Solidarity and set up its own Takaful division called Doha Takaful. The company is expected to begin operations in the final months of this year. Bassem Hussein, Doha Insurance's general manager said that Doha Takaful would shortly begin exclusively designing and marketing Takaful products and that they were already recruiting a team for this purpose.
In the UK, British Islamic Insurance Holdings (BIIH) said it will soon start offering Takaful products to UK consumers, making it the first, stand-alone Takaful company in the UK. The board of BIIH also decided to increase its current level of paid up capital from around $40 million to $100 million through a private placement with an unknown number of high net worth individuals and corporate and institutional investors in the UK and the GCC. BIIH says the private placement is expected to take place after it has completed the relevant regulatory notification requirements for placements in the GCC countries. The UK is being seen as a potential goldmine for Takaful companies as Britain has the third largest insurance industry in the world after the US and Japan.
Takaful companies will be readying their product arsenals for another assault on the market in the early autumn and will likely spend the summer fine-tuning their strategies and closely watching the competition to see what kinds of surprises they might be offering. It might be a long hot summer, but that will be nothing compared to what the rest of the year promises to be.
© Banker Middle East 2007
