Tuesday, January 8, 2013

Strong growth predicted for Malaysia’s takaful sector

by Azli Jamil

The Malaysian takaful sector is expected to grow by 20% per year for the next two years as consumer acceptance grow and regulatory changes provide infrastructure for Shariah-compliant insurance. According to an industry report by OSK Investment Bhd, more people and companies will buy into takaful products, providing liquidity in sukuk and Shariah-compliant instruments even as the industry is able to increase capacity to cater to the demand.

This increased capacity is in part due to the expected finalisation of the government framework for risk-based capital for Islamic banking and takaful. The industry expects the Shariah-compliant framework to be essentially similar to the framework that is currently applied to conventional insurance but will add to the valuation of the takaful sector.

OSK Research Sdn Bhd said the new framework for Islamic banking and takaful, coupled with the requirements of the Malaysian Competition Act may trigger mergers and acquisitions among takaful players as they attempt to pool capital and size in order to compete in the market. OSK Research said with just 13% penetration rate for family takaful, there is a healthy latent growth potential for the Shariah-compliant product. In comparison, the penetration rate for conventional life insurance is 55% as measured by the number of life policies over population.

A recent report by Fitch Ratings said the introduction of the new framework, as well as market volatility, may affect the earnings stability of insurance and takaful players but also that this can be a good thing.

The rating agency said the combination of low market penetration and the entry of more players could accelerate the growth of the market for general and family takaful. Fitch Ratings took a positive view of Bank Negara Malaysia’s Risk Based Capital framework for the takaful sector, which would align the capital requirement of takaful operators with that of conventional insurers. This also means capitalisation would be more reflective of takaful operators’ risk exposure.

In a recent interview with Etiqa Insurance and Takaful chief executive officer Hans De Cuyper, he sees penetration as a percentage of the gross domestic product (GDP) where takaful’s share is slightly less than 1% adding that in more mature market the figure would reach between 7% and 8% penetration. According to the Malaysian Rating Corp Bhd in its report published in June 2012, the new business family contributions grew to RM2.18 billion in 2011, up from RM503 million in 2003.

The rating agency said that in general insurance, takaful’s gross direct contributions grew to RM1.6 billion in 2011, up from RM551 million in 2005. There are 12 takaful operators licensed under the Takaful Act 1984 to conduct family and/or general takaful business in Malaysia. The companies are AIA AFG Takaful Bhd, AmFamily Takaful Bhd, CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Great Eastern Takaful Sdn Bhd, Hong Leong MSIG Takaful Bhd, HSBC Amanah Takaful (M) Sdn Bhd, ING PUBLIC Takaful Ehsan Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd.

[The Malaysian Reserve, 7 Jan 2013]