Sukuk & Capital Market - Islamic Finance News

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of the companies involved will sustain their profitability over
the longer term, particularly in the GCC region. However,
developments in Malaysia - the largest Takaful market in
Southeast Asia - appear much more healthy and sustainable.
They are supported by more sophisticated regulatory oversight
and the stronger investment profile of the industry.
How is the global economic slowdown affecting the growth
of Takaful?
The worldwide slowdown in economic activity will ultimately
depress growth in economies that provide resources for
manufacturing; this happens to include many of the resourcerich
countries where Takaful is developing. For insurers, this
constrains growth, partly by reducing demand for insurance,
but also by limiting investment yields.
Globally, the current low investment yields have hurt insurance
providers and markets. Insurance, Takaful included, is an
asset-rich business. Fierce competition in the economies
where Takaful is developing is putting underwriting margins
under pressure, especially in the high-volume, low-margin
retail lines that form the bulk of Takaful business. Meanwhile,
yields on Shariah compliant instruments and investments
are increasingly depressed. Providers will therefore need to
maintain their underwriting profitability to succeed.
to be a constraint that places downward pressure on their riskbased
capital position.
Is there potential for cross-border Takaful
activity?
To date, the primary Takaful sector in
Southeast Asia and the GCC region has
tended to comprise local operators that rarely
engage in cross-border activity. This reflects
the relatively small operational scale of the
sector and its still-developing status.
However re-Takaful companies, which
provide protection to the primary Takaful
sector, are operating in increasingly diverse
geographical areas. We see Southeast
Asian-based re-Takaful companies Willis
competing and working with GCC-based re-
Takaful companies to develop and service
the growing capacity needs of the primary
sector in Africa, Southeast Asia, and the GCC region. As local
companies become increasingly mature and financially robust,
we expect cross-border activity in the primary sector to grow.
We also expect to see some consolidation in the more overpopulated
insurance markets.
What is S&P’s key concern for the Takaful market?
We remain concerned by widespread use of high-risk
investment strategies by Takaful providers, and by the sector’s
lack of global standards in areas such as accounting standards
and Shariah compliance. In our view, it is unclear how many
What are the growth prospects of Takaful versus
conventional insurance?
Over the next 12-18 months, S&P expects Takaful company
contributions in the GCC region to significantly outgrow
premiums in the local conventional insurance industry, as
well as the global insurance industry. Global
insurance premium growth is expected to be
little more than 2% in 2012; by contrast, in its
World Takaful Report, Ernst & Young estimates
that gross Takaful contribution for 2012 will grow
to US$12 billion, a year-on-year increase of
24%.
In Southeast Asia, we anticipate that tightening
regulatory requirements in Malaysia could
depress the strong growth momentum the
industry has built up over the short-to-medium
term. That said, tighter solvency calculations
are likely to strengthen the financial profiles of
Takaful operators and operators will also benefit
from revised risk management practices in the
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Connie Wong,
Managing Director and Analytical Manager for Insurance Ratings,
Asia-Pacific, Standard & Poor’s
Kevin Willis,
Director, Insurance Ratings, Standard & Poor’s
28 November 2012