takaful-msia november 2006

7/27/2019 Takaful-Msia November 2006

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www.meinsurancereview.com November 200644

MIR Takaful Country Profile

Malaysias takaful industry turns 22 this year it has proven to be viable, progressive

and resilient. While much has happened in the last two decades, it is the last 24months that have been particularly exciting for the industry. Mr Nisar Keshvani

ofMiddleEast Insurance Reviewunfolds how strengthened infrastructure, corporate

governance and risk management as well as improved consumer awareness have paved

the way for the industry in Malaysia to continue to thrive.

Population* 26,700,000

GDP per capita* (2005) RM18,106

BNM: Minimum capital requirement* RM100 million

Lofsa: Minumim capital requirement** US$1 million

Sources: * BNM ; ** Lofsa

In the last 20 years, Malaysias takaful industry hasregistered steady growth. It has proven to be resilientdespite intense competition from the more developed

conventional insurance sector. It has recorded an an-

nual average growth of 57.9% and 44% in assets and netcontributions, respectively. Market penetration of thetakaful business, as measured by the number of certificatesin force to total population, was higher at 5.6% (2004:5.1%), reflecting the growing importance of takaful inpromoting the financial security and economic well-beingof the nation.

In two decades, the strength of the takaful industryin terms of total assets of takaful funds increased fromRM1.4 million (US$380,000) at the outset to RM5.9billion (US$1.6 billion) as at end-2005. During the Asianfinancial crisis, the takaful industry proved its resilienceby maintaining a consistent annual asset growth of 61.9%

from 1997 to 2000.Combined family and general takaful net contributions

grew at a very quick pace of 18.8% to RM1.3 billion,thereby increasing their share to 5.4% of the combinednet contributions in the insurance sector.

This strong growth is attributed to the three maindistribution channels bancatakaful, agency and brokersand direct marketing. Product marketing via bancatakafulcaptured 20.4% (2004: 6.5%) of the market share.

Agents and brokers continued to generate higher con-tributions of RM428.7 million (2004: RM345.3 million).

Direct marketing remained as the distribution channel ofchoice, despite a drop in contribution from 61% in 2004to 44.3% in 2005. This result clearly indicates a mountingpreference for alternative means of distr ibution.

Family Takaful

Favourable economic conditions and expanding disposableincomes in the country bid well for family takaful business.Malaysias family takaful business recorded an impressivegrowth of 20.2% (2004: 18.1%) in new business contribu-tions reaching RM725.5 million, continuing to strengthenits position as the predominant sector of the takaful in-dustry at 73.3% share of total net contributions.

This surge was instigated by the rising demand for en-dowment education and investment-linked takaful plans.The growth of investment-linked plans, introduced in2003, has been mainly due to flexible product design. Thesignificant growth of 57.2% in new business contributions

Malaysia Takaful: An International Leader at 22

Malaysia: At a Glance

Source: BNM

Malaysia: Net Contributions

Source: BNM

Contributions by Channels of Distribution

Bancatakaful20.4%

Agents19.3%

Brokers14.2%

Others 1.8%

Direct

marketing44.3%


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Takaful Operators

Commerce Takaful Bhd

Mayban Takaful Bhd HSBC Amanah Takaful (M) Sdn Bhd

Prudential BSN Takaful Berhad Syarikat Takaful Malaysia Bhd

Takaful Ikhlas Sdn Bhd Takaful Nasional Sdn Bhd

Hong Leong Tokio Marine Takaful Bhd MAA Takaful Bhd

Retakaful Companies

MNRB Holdings Bhd Munich Reinsurance

to endowment education plans resulted from the introduc-tion of several such new plans as well as from increasedpublic awareness of the future costs of higher education,particularly at private colleges and universities.

The industry generated RM45.7 million of new con-

tributions from endowment education plans. The marketshare of new contributions to annuity takaful plansremained relatively small, mainly due to lack of new orenhanced annuity products during the year.

Consistent with the growing contribution income, thefamily takaful sector experienced a positive growth of46.1% in 2005 against a contraction of 27.4% in 2004.The stronger performance was also boosted by betterinvestment returns which grew significantly by 22.8%(2004: -5.3%).

The improved investment returns were triggered byrising dividend yields in the domestic equity market andincreased investments in Islamic bonds following robust

expansion in the use of Shariah-compliant bonds by cor-porate bodies during the year.The rate of terminations increased from 13.2% (2004)

to 19%. The largest factor for termination of group andindividual ordinary family plans was expiry and othercauses, which accounted for 69.6% or RM62.9 millionof total annual contributions.

The terminations arising from surrender were largelydue to encashment of takaful plans for personal needs,especially during the festive season, switching to otherplans and early settlement of mortgage plans.

General Takaful

The general takaful sector continued to register double-digit growth in 2005 with gross contributions increasedby 12.4% (2004: 22.2%) to RM553.8 million. This strongperformance was supported by motor business, contractorsall risk and engineering business and personal accidentsbusiness.

Retakaful

Ensuring that there will be sufficient support for theburgeoning takaful industry, BNM is approving applica-tions for retakaful operations. Early this year, Labuan Reestablished a retakaful division. Hot on its pace, MunichRe and MNRB Holdings received their retakaful licencesfrom the Malaysian authorities. At the same time, Con-verium was given the green light by the Labuan OffshoreFinancial Services Authority (Lofsa) to write internationalretakaful business through its Labuan office. Munich Reis the worlds second largest reinsurance company witha global presence in more than 60 countries. MNRBHoldings is the holding company of Malaysian Reinsur-ance, a national reinsurance company. Converium is anindependent international multi-line reinsurer.

Regulators Role in Strengthening the Industry

In 2005 - 2006, Malaysias takaful regulator, Bank NegaraMalaysia (BNM), focused on several key strategies to posi-tion Malaysia as a strong international centre for takaful

and retakaful.Efforts and resources are being directed to achieve

two broad objectives. First, for Malaysia to become aninternational leader in the origination, issuance and trad-

ing of Islamic-capital market and treasury instruments,fund and wealth management services, offshore Islamicfinancial services, and takaful and retakaful.

Second, to position Malaysia as a centre of excel lencefor Islamic banking and finance education, training,consultancy and research. This will not only provide anextensive pool of highly trained and capable expertise tospearhead future development but will also promote great-

er innovation in Islamic financial products and services,said Dr Zeti Akhtar Aziz, Governor of the Central Bank ofMalaysia, during her keynote address at a dialogue session

with insurers and takaful operators in August 2006.

Admitting More Players

A core initiative was the approval for four consortiumsand joint ventures between domestic and foreign financialinstitutions to conduct takaful business in Malaysia, whichis expected to further strengthen the overall industry interms of having more strong and qualified market par-ticipants.

This move was supported by the issuance of 25 taka-

ful broker and 32 adjuster licences to qualified insurancebrokers and adjusters licensed under the Insurance Act1996, in addition to four new licences specialising solelyin takaful broking business.

Malaysia: Takaful & Retakaful Players

Full-Fledged Retakaful Company Asean Retakaful International (L)

Conventional Reinsurers with Retakaful Divisions

B.E.S.T Reinsurance - Far East Regional Office (Tunisia)

Converium Ltd, Regional Reinsurance Branch Office Labuan Reinsurance (L)

Trust International Insurance B.S.C.(c ) Labuan Branch(Bahrain)

Conventional Insurance Brokers

with Takaful Window

BMS Asia Intermediaries Limited Arthur J Gallagher Asia (L) Bhd

JCC Reinsurance Ltd

Miller Insurance Services (Labuan) Limited PWS East Asia (L) Ltd

Sources: BNM and Lofsa

Licensed by BNM

Licensed by Lofsa


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Improved Operational

Efficiency

Promoting operational efficiencyis another facet of this strategy,Specifically, BNM is facilitating

outsourcing arrangements bytakaful operators and promotingbancatakaful as a major distribu-tion channel.

Initiatives in place includestrengthening market practicesand public confidence in theindustry by way of guidelines toreduce incidents of replacementsof takaful certificates and througha specific revision on claimssettlement practices aimed atimproving the transparency and

objectivity of the claims estima-tion process.These are complemented by

specific measures directed at strengthening governanceover information systems and the appointment of externalauditors of takaful operators.

Penetrating the International Scene

In the international arena, BNM took several steps topromote the progressive development of takaful andconvergence in takaful practices. It actively participatedin the Joint Working Committee of the Islamic Financia lServices Board (IFSB) and the International Associationof Insurance Supervisors (IAIS). It supports the IFSBin developing international prudential standards for theregulation and supervision of takaful.

A major breakthrough was the implementation of theMemorandum of Understanding between Malaysia andthe Islamic Development Bank (IDB) signed in 2004,

with the establishment of a 12-member committee to beresponsible for promoting the development of takaful andretakaful in the Organisation of the Islamic Conferences(OIC) member countries.

Other key developments which serve to facilitate theglobal integration of the domestic takaful industry includethe equity participation of a Malaysian takaful operator inthe first takaful company established in Pakistan and theparticipation of the IDB through its subsidiary, the IslamicCorporation for the Development of Private Sector, in theequity of Asean Retakaful International (L) (Aril).

Moving Onward

There is vast potential for continued lucrative returns inthe coming years. The rapid pace of development of retaka-ful business will reinforce the enabling environment forfurther expansion of general takaful business, particularlyin commercial lines.

Innovation will be key in maintaining the competitiveedge, with attention needed in product development,services and overall operational efficiencies.

Another crucial success factor is talent. Recognisingthis, the International Centre for Education in IslamicFinance (INCEIF) has been set up to develop professionalsand specialists in takaful.

The challenge will be for exist ing and new market play-ers to manage risks (specialised, liability and catastrophicamongst others) in an effort to attain a greater share inthe insurance sector and promote rapid growth of thetakaful industry.

At the International Takaful and Retakaful Conventionin Kuala Lumpur a year ago, organised by the IslamicBanking and Finance Institute Malaysia (IBFIM) andMalaysian Takaful Association, participants were toldthe secret of Malaysias success as a leader in the takaful

sector.Malaysian Deputy Premier Najib Tun Razak, in his

keynote speech, said that multiple stakeholders workedto create a conducive environment for Islamic finance tothrive in. These include:

The Governments proactive efforts in laying out theregulatory framework to ensure soundness of the Islam-ic financial system, and in garnering financial resourcesto kick-start the establishment of the first Islamic bankand takaful operator. The government has introducedvarious laws relating to Islamic finance to support thegovernance of these industries and brought about a taxneutral regime in an effort to remove impediments tothe development of Islamic finance.

The judiciary has given special focus to the resolutionof disputes relating to Islamic finance with the estab-lishment of a dedicated High Court to adjudicate allmuamalat cases in the Commercial Division of theKuala Lumpur High Court, complementing the me-diation and arbitration dispute resolution mechanismalready in existence for the Islamic financial system.

Malaysian institutions of higher learning and theIslamic banking and financial community have alsoembarked on several initiatives, courses and trainingprogrammes on Islamic finance, in response to the ris-ing demand for competent practitioners to spearhead

innovation in Islamic financial instruments. The private sector has been very receptive in mobilising

its resources in support of the initiatives put forth bythe Government.

2003 2004 2005

Total Takaful Net Contribution Income (RM million) 1,014.0 1,123.0 1,333.7

% growth over previous year (takaful) 14.4 10.8 18.8% growth over previous year (conventional business) 11.6 17.2 6.9

GDP growth (%) 5.4 7.1 5.3

Family

Total premiums (RM million) 762.5 794.4 977.1

Insurance Density (Premiums per capita in RM) 30.1 30.6 36.6

Insurance Penetration (% of GDP) 0.33 0.32 0.37

General

Total premiums (RM million) 251.5 328.7 356.6

Insurance Density (Premiums per capita in RM) 9.9 12.6 13.4

Insurance Penetration (% of GDP) 0.11 0.13 0.14

Source: BNM

Malaysia: Insurance Statistics

takaful-msia november 2006

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