BLOOMBERG: AIG Lured to Malaysia by Growing Takaful Market

American International Group Inc. is plotting its entry into Malaysia’s Islamic insurance market, lured by the country’s economic expansion and an industry that has grown more than fivefold in less than a decade, reports Bloomberg (18 Feb 2014).

The insurer, the world’s largest before being bailed out by the U.S. government in 2008, will start a Shariah-compliant reinsurance business by June and may eventually offer a fuller range of services, Antony Lee, chief executive officer at AIG’s Malaysian unit, told the newswire in a Feb. 11 interview in Kuala Lumpur. Rising affluence in the Southeast Asian nation will spur increased demand, he said.

Malaysia accounted for 11 percent of the $20 billion of Islamic insurance, or takaful, contributions in 2013, a Feb. 13 report from the Malaysia International Islamic Financial Center shows. New business will increasingly come from outside the Middle East, said Hatim El-Tahir, director of the Islamic finance group at Deloitte & Touche in Bahrain. New York-based AIG follows Munich Re and Swiss Re AG into the retakaful market in Malaysia, whose economy has had only three quarters of economic growth below 5 percent in the last four years.

“In line with the continuing expansion of the takaful business, the demand for retakaful is expected to expand between 15 percent and 20 percent on an annual basis,” Bahrain-based El-Tahir said in a Feb. 15 e-mail interview. “The geographical concentration in terms of global contribution is expected to shift from the Gulf Cooperation Council countries to the Asia- Pacific region by 2015.”

AIG’s Malaysian unit, which was set up in 1953 and has 14 offices, currently offers non-Islamic coverage for property, electronic equipment, medical and personal accidents, according to its website. The company’s venture into retakaful will help it assess the potential of the Shariah-compliant insurance market, according to Lee.

“There’s a whole segment of the market, which is the rural areas, that really is where there’s a much lower penetration rate,” he said. “As you get rural people moving into the cities, the affluence starts coming into it.”

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