2009
THE WORLD TAKAFUL REPORT Opportunities in Adversity - the Future of Takaful
THE WORLD TAKAFUL REPORT 2009
4th Annual
Dear Insurance Industry Leader, It is with great pleasure that we introduce the second annual edition of the EY World Takaful Report 2009, a ground-breaking original research project and an industry-first initiative launched last year at the World Takaful Conference. With new and meaningful strategic insights into changing market directions becoming increasingly vital as industry leaders seek to navigate unprecedented economic challenges, the EY World Takaful Report 2009 could not be launched at a more opportune time as the CEOs of leading international Takaful players tackle the challenges of steering profitable growth for their institutions – a task made even more challenging by the continuing fall-out from the global economic crisis. Notwithstanding the effects of the crisis in the international financial markets, major opportunities continue to exist in the international arena for Takaful products. The market still remains under-penetrated with large untapped potential still to be realised in key countries. The EY World Takaful Report offers detailed insights into these markets and opportunities. This year’s Report will probe how the Islamic insurance industry can catalyse the next phase of growth, providing industry leaders with new insights as they seek to renew their business strategies in a challenging global economic climate. Our gratitude goes to leading audit and business advisory firm, Ernst & Young and their Islamic Financial Services Group led by Sameer Abdi, who have invested their considerable international talent and resources in leading the research project and in developing the insights contained in this Report. The Report is exclusively launched at the 4th Annual World Takaful Conference and has rapidly established itself as an indispensable strategic resource for insurance industry leaders as they seek to strengthen their market position and adapt their strategies in the global Takaful industry. We hope that the content of this second annual edition of the EY World Takaful Report will be useful in your own strategic planning activities and will assist your organisation in its quest for success in this dynamic industry. Yours sincerely, David McLean Managing Director The 4th Annual World Takaful Conference A MEGA Brand Shaping the Future of the Islamic Finance Industry Since 1993 P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003 www.megaevents.net MEGA Brands. MEGA Clients. Market Leaders. 1
The World Takaful Report 2009 Opportunities in adversity - the future of Takaful 14 April 2009
Disclaimer
The contents of the World Takaful Report 2009 are based on qualitative comments and hence provide a subjective assessment of the current market. All quantitative comments are based on published information wherever possible. Where published reliable data was not available, qualitative comments were made which may or may not reflect the true state of affairs. Information has been assimilated from secondary sources, including published country, industry and institutional information, and primary sources, in the form of interviews with industry executives. We are not expressing any assurance on the accuracy or completeness of the information obtained. Although this report has been documented based on our understanding of Islamic financing activities to include only such activities that are deemed Shari’a compliant, no Shari’a opinion whatsoever has been taken on this report. Hence, the contents of this report, in terms of the activities to be carried out, might not necessarily be consistent with Shari’a in all cases, and the opinion of a Shari’a scholar(s) should be taken before any further steps are made to implement suggestions made in the report. Whilst every care has been taken in the preparation of this report, no responsibility is taken by Ernst & Young as to the accuracy or completeness of the data used or consequent conclusions based on that data, due to the respective uncertainties associated with any assumptions that have been made. This report is documented for the World Takaful Conference. No part of this document may be republished, distributed, retransmitted, cited or quoted to anyone without prior written permission from MEGA and Ernst & Young.
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Dear Takaful Executive, On behalf of Ernst & Young, I would like to take this opportunity to introduce to you the Ernst & Young World Takaful Report 2009. We are honored to produce the second edition of this report, which we believe sets a benchmark for the Takaful industry and is essential reading for anyone interested in Islamic financial services. The Takaful industry has strong foundations The fundamental principles of Takaful have remained the same since the inception of Islam: mutual assistance and Shari’a compliance. Takaful markets now span much of the globe with a particular concentration in underpenetrated Islamic markets, the largest of which are Saudi Arabia and Malaysia. Gross Takaful contributions have grown from US$ 1.4 billion in 2004 to over US$ 3.4 billion in 2007. There still exists a large, expanding and untapped Muslim population on almost every continent. Based on research interviews and estimates, the likely size of the global Takaful market could be as high as US$ 8 billion by the end of 2012. Risk management in adverse times is essential ‌ to make the most of opportunities for accelerated growth The financial crisis has severely impacted financial institutions - over the last year the top 10 US and European banks and insurance companies have seen a US$ 1.5 trillion drop in market capitalization. The ensuing recession has tempered growth forecasts in almost every region and sector, including major Takaful markets. As a consequence, Takaful operators are especially wary of the strategic, operational, compliance and financial risks they face today. Takaful operators who can successfully adapt their business models and mitigate against changing business risk will have opportunities to expand through acquisition activity and benefit in the long-term from strong demographic growth, rising income levels and a growing desire to consume Shari’a compliant products. I hope that this report will allow market participants to better understand the growth factors underpinning the industry as well as encouraging new market entrants. I trust that you will find this report informative and helpful in many different ways, allowing you to identify and exploit the various opportunities that exist in the Takaful market today. Sameer Abdi Partner Ernst & Young
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The World Takaful Report 2009
Contents Contents 1. 1.
Introduction to Takaful Introduction to Takaful
2. 2.
Global Takaful Markets Global Markets TakafulTakaful continues to show strong growth in underpenetrated insurance markets.
3. 3.
The Financial Crisis The Financial Crisis Takaful operators that successfully manage their business risks will be well placed to take
4. 4.
Sustaining the Future Sustaining thewill Future Latent demand continue to fuel long-term future growth.
5. 5.
Conclusions Conclusion
6.
Takaful continues to show strong growth in underpenetrated insurance markets.
advantage of emerging opportunities. Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities. Latent demand will continue to fuel long-term future growth.
Historic growth is now being affected by the economic downturn - a window of opportunity Appendix has materialized for those Takaful operators that can manage their risks and sustain future growth.
6.
Appendix
5
1. Introduction to Takaful
Contemporary execution of Takaful has existed for less than three decades Contemporary execution of Takaful has existed for less than three decades Contemporary execution of Takaful has existed for less than three decades
National Company for National Company for Cooperative Insurance Cooperative Insurance Established in Saudi Arabia by Royal National Company for and is decree under the framework Established in captive Saudi Arabia by Royal Cooperative Insurance 100% owned by the government decree under the captive framework and is
Dubai Islamic Bank Dubai Islamic Bank The world’s first fully fledged
Legal & General Legal & General
To set-up Sudanese Islamic Islamic bank is fully established The world’s first fledged Takaful entity in To&set-up Legal General Dubai Islamic Bank Insurance Allianz Takaful Sudanese Islamic Islamic bank is established Bahrain Takaful entity in Company Allianz Takaful Insurance The world’s first fully fledged “Charter of Medina” Bahrain 100% owned by theArabia government To set-up Established in Saudi by Royal Launches first Islamic Sudanese Islamic Company Islamic bank is established Established as the world’s 1st decree under the captive framework Al-diyah/Al aqila Aseanand ReTakaful “Charter of Medina” Takaful entity in is micro-insurance Launches first Islamic Allianz Takaful Fidyahaqila Al-diyah/Al Bahrain 100% owned by the government International Ltd TakafulInsurance company Faisal Asean ReTakaful products in Indonesia Established as the by world’s 1st micro-insurance Company Cooperatives Fidyah Islamic Bank of by Sudan “Charter of Medina” International Ltd Takaful company Faisal products infirst Indonesia Launches Islamic The first active Islamic Cooperatives Al-diyah/Al aqila Islamic Bank of world’s Sudan 1st Aseanreinsurer ReTakaful Established as the micro-insurance The first active Islamic FidyahFirst Islamic International Ltd Takaful company by Faisal Takaful products in Indonesia Salaam reinsurer International Council of Cooperatives Malaysia Islamic Bank of Sudan banks Takaful Firstestablished Islamic Insurance Salaam The first active Islamic Fiqh Academy issues International Council of Fatwa issued by the Egypt Malaysia banksinestablished Insurance reinsurer The Malaysian Takaful ruling on health Fiqh Academy issues Fiqh Council of Muslim First British Fatwa issued by the in Egypt Takaful First Islamic ActThe comes into effect and the Salaam insurance Malaysian Takaful ruling oncontracts health of League in Takaful firm International Council FiqhWorld Council of Muslim First British Malaysia banks established first Takaful company is Insurance Act comes into effect and the insurance contracts favour of Islamic approved by Fiqh Academy issues Worldissued League Takaful firm Fatwa by in the in Egypt established first Takaful company is insurance The Malaysian Takaful the FSA ruling on health favour of Islamic approved by Fiqh Council of Muslim First British established Act comes into effect and the insurance contracts insurance the FSA World League in Takaful firm first Takaful company is favour of Islamic approved by established insurance the FSA 622
1963
1975
1975
1979
1984
1985
1997
2005
2008
622
1963
1975
1975
1979
1984
1985
1997
2005
2008
622
1963
1975
1975
Arab Islamic 1979 Insurance Arab Islamic Company (AIIC) Insurance Arab Islamic Company Established in (AIIC) Dubai by Insurance the Dubai Islamic Bank Established in Dubai by Company (AIIC) the Dubai Islamic Bank Established in Dubai by the Dubai Islamic Bank
1984 1985of the The Fiqh Council Organization of the of Islamic The Fiqh Council the Conference (OIC) approves Organization of the Islamic Takaful as(OIC) the correct Conference approves The Fiqh Council of the alternative to the conventional Takaful as correct Organization of the Islamic insurance full compliance alternativeinto conventional Conference (OIC) approves with Shari'a insurance Takafulinasfull thecompliance correct withtoShari'a alternative conventional insurance in full compliance with Shari'a
Source: Factiva; Literary Search; IFSB; Central Bank Annual Reports; Ernst & Young analysis
Source: Factiva; Literary Search; IFSB; Central Bank Annual Reports; Ernst & Young analysis
Page 6 Page 6
Swiss Re; Hannover Re 1997 Takaful; 2005 Hannover Re Takaful; Munich Re Munich Re Worldwide re-insurance operators Hannover Re Takaful; enter the Re-Takaful market: Swiss Worldwide re-insurance Munich Re operators Re, Switzerland; Hannover Re
2009
2009 Services Islamic Financial Board (IFSB) releases Islamic Financial Services exposure draft on Board (IFSB) releases governance for Islamic exposure draft on Islamic Financial Services insurance (Takaful) governance Islamic Board (IFSB)forreleases enter the Re-Takaful market: operations insurance Takaful, Bahrain; Munich Re, exposure (Takaful) draft on Hannover Re Takaful, Bahrain; Worldwide re-insurance operators operations Malaysia governance for Islamic Munich Re, Malaysia Central Bank of Pakistan releases instructions enter the Re-Takaful market: insurance (Takaful) IslamicBank banks that Takaful, wherever Hannover Re Takaful, to Bahrain; Central of stating Pakistan releases instructions operations feasible, should be used to insure their assets Munich Re, Malaysia to Islamic banks stating that Takaful, wherever feasible,Bank should be used to insure their assets Central of Pakistan releases instructions to Islamic banks stating that Takaful, wherever feasible, should be used to insure their assets
The World Takaful Report 2009 The World Takaful Report 2009
Source: Factiva; Literary Search; IFSB; Central Bank Annual Reports; Ernst & Young analysis
2009
2008
7
Takaful compliant form form of of conventional conventionalcooperative cooperative Takafulcan can be be considered considered aa Shari’a Shari’a compliant Takaful can be considered a Shari’a compliant form of conventional cooperative insurance insurance insurance
Conventional Conventional Conventional Conventional Insurance Insurance Insurance Insurance Conventional Conventional (non-mutual) (non-mutual) (non-mutual) (non-mutual) Insurance Insurance (non-mutual) (non-mutual)
Takaful Takaful Takaful Takaful Takaful Takaful
Five Key Elements FiveKey KeyElements Elements Five Five Key Elements Five Five Key Key Elements Elements
The the insured at level which anticipates will cover claims and result profit. accepts premiums from in aaaprofit. The company accepts premiums from theinsured insuredat ataaaalevel levelwhich whichititititanticipates anticipateswill willcover coverclaims claimsand andresult result in aprofit. profit. Thecompany companyaccepts acceptspremiums premiums from from the the insured at level which anticipates will cover claims and result inin This process of anticipation is akin to Maysir (speculation). of anticipation is akin to Maysir (speculation). This process anticipation is akin to Maysir (speculation). This process of anticipation is akin to Maysir (speculation). The The company company accepts accepts premiums premiums from from the the insured insured at at aa level level which which itit anticipates anticipates will will cover cover claims claims and and result result in in aa profit. profit. This This process process of of anticipation anticipation is is akin akin to to Maysir Maysir (speculation). (speculation). The exchange for indemnity against risks that may not occur. pays premiums The insured premiums to the the company companyininexchange exchangefor forindemnity indemnityagainst againstrisks risksthat thatmay maynot notoccur. occur. Theinsured insuredpays payspremiums premiumsto exchange for indemnity against risks that may not occur. This process of ambiguity isis akin to Gharar (uncertainty). of ambiguity (uncertainty). This process ambiguity akin to Gharar (uncertainty). This process of ambiguity (uncertainty). The The insured insured pays pays premiums premiums to to the the company company in in exchange exchange for for indemnity indemnity against against risks risks that that may may not not occur. occur. This This process process of of ambiguity ambiguity isis akin akin to to Gharar Gharar (uncertainty). (uncertainty). The derive their income from interest and/or prohibited industries. engages in The company engages in investments that derivetheir theirincome incomefrom frominterest interestand/or and/orprohibited prohibitedindustries. industries. Thecompany companyengages engagesin ininvestments that derive derive their income from interest and/or prohibited industries. This process is akin to Riba (usury) and/or relates to Haram (prohibited) activities. is akin to Riba relates to Haram (prohibited) activities. This process to Riba (usury) and/or relates to Haram (prohibited) activities. This process is akin to Riba relates to Haram (prohibited) activities. The The company company engages engages in in investments investments that that derive derive their their income income from from interest interest and/or and/or prohibited prohibited industries. industries. This This process process is is akin akin to to Riba Riba (usury) (usury) and/or and/or relates relates to to Haram Haram (prohibited) (prohibited) activities. activities. Takaful is based on principles is similar to Takaful (mutual assistance) that Tabarru (voluntarily) provided. Takaful similar Takafulis isbased basedon onprinciples principlesof (mutual assistance) Tabarru (voluntarily) provided. Takaful isis similar toto Takaful is based on principles of Ta-awun Ta-awun(mutual (mutualassistance) assistance)that thatisis isTabarru Tabarru(voluntarily) (voluntarily)provided. provided.Takaful Takaful is similar to conventional cooperative participants pool their funds together to insure one another. conventional cooperative insurance whereby participants pool their together to insure one another. conventional cooperative participants funds together to insure one another. conventional cooperative insurance whereby participants pool their funds together to insure one another. Takaful is based on principles of Ta-awun (mutual assistance) that is Tabarru (voluntarily) provided. Takaful is similar to Takaful is based on principles of Ta-awun (mutual assistance) that is Tabarru (voluntarily) provided. Takaful is similar to conventional conventional cooperative cooperative insurance insurance whereby whereby participants participants pool pool their their funds funds together together to to insure insure one one another. another. Mutual Guarantee The is covered by aaafund Mutual Takaful is to pay defined loss from defined fund. The loss covered by fund MutualGuarantee Guarantee ----The Thebasic of Takaful Takaful loss from defined fund. The loss isis covered by Mutual Guarantee The basic objective objectiveof Takafulis isto topay payaaadefined definedloss lossfrom fromaaaadefined definedfund. fund.The Theloss loss is covered by afund fund created by the donations Liability is spread amongst the policyholders and all losses divided between them. In created by the donations of policyholders. Liability is spread amongst policyholders and all losses divided between them. created by the donations of policyholders. Liability the policyholders and all losses divided between them. InIn created by the donations Liability is spread amongst the policyholders and all losses divided between them. Mutual Guarantee The basic objective of Takaful is to pay a defined loss from a defined fund. The loss is covered by a fund Mutual Guarantee - The basic objective of and Takaful is to pay a defined loss from a defined fund. The loss is covered by a fundIn effect, the policyholders are both the insurer the insured. effect, the policyholders are the insured. effect, the policyholders insurer and the effect, the policyholders are both the and the insured. created created by by the the donations donations of of policyholders. policyholders. Liability Liability is is spread spread amongst amongst the the policyholders policyholders and and all all losses losses divided divided between between them. them. In In effect, effect, the the policyholders policyholders are are both both the the insurer insurer and and the the insured. insured. Ownership of the Fund Donating their fund and entitled to its Ownershipof ofthe theFund Fund----Donating Donating their their contributions contributions fund, policyholders are owners of the fund and entitled toto itsits Ownership contributions to the Takaful policyholders are owners of the fund and entitled Ownership of the Fund Donating their contributionsto tothe theTakaful Takafulfund, fund,policyholders policyholdersare areowners ownersof ofthe the fund and entitled to its profits (this varies slightly between the models which are described later). profits(this (thisvaries variesslightly slightlybetween between the the adopted adopted models described later). profits adopted models which are described later). profits (this varies slightly between the adopted models which are described later). Ownership of the Fund Donating their contributions to the Takaful fund, policyholders are owners of the fund and entitled to its Ownership of the Fund - Donating their contributions to the Takaful fund, policyholders are owners of the fund and entitled to its profits profits (this (this varies varies slightly slightly between between the the adopted adopted models models which which are are described described later). later). Elimination of Uncertainty Donations, transfer of ownership to the fund, are voluntary totomutually help in the case of aaa Eliminationof ofUncertainty Uncertainty----Donations, Donations, causing causing transfer Elimination causing the fund, are voluntary mutually help the case Elimination of Uncertainty Donations, causing transfer transfer of of ownership ownershipto tothe thefund, fund,are arevoluntary voluntaryto tomutually mutuallyhelp helpinin inthe thecase caseofof of a policyholder’s loss without any pre-determined benefit. policyholder’sloss losswithout withoutany anypre-determined pre-determined monetary monetary policyholder’s monetary benefit. policyholder’s loss without any pre-determined monetary benefit. Elimination of Uncertainty Donations, causing transfer of ownership to the fund, are voluntary to mutually help in the case of Elimination of Uncertainty - Donations, causing transfer of ownership to the fund, are voluntary to mutually help in the case of aa policyholder’s policyholder’s loss loss without without any any pre-determined pre-determined monetary monetary benefit. benefit. Management of the Takaful Fund is by the operator who, depending on the adopted model, utilises either (or(oraaa Managementof ofthe theTakaful TakafulFund Fund ---- Management Management Management Management depending on the adopted model, utilises either Management of the Takaful Fund Management is is by by the the operator operatorwho, who,depending dependingon onthe theadopted adoptedmodel, model,utilises utiliseseither either(or (or a combination) of two Shari'a compliant contracts, namely Mudaraba or Wakala. combination)of oftwo twoShari'a Shari'acompliant compliant contracts, contracts, namely or Wakala. combination) Mudaraba Wakala. combination) of two Shari'a compliant contracts, namely namely Mudaraba orwho, Wakala. Management of the Takaful Fund Management is by the operator depending on the adopted model, utilises either (or Management of the Takaful Fund - Management is by the operator who, depending on the adopted model, utilises either (or aa combination) of compliant contracts, namely Mudaraba or combination) of two two Shari'a Shari'a compliant contracts, namely Mudarabawhich or Wakala. Wakala. Investment Condition All investments be Shari’a compliant, prohibits investment in Haram industries and requires InvestmentCondition Condition----All Allinvestments investments must must be Shari’a compliant, Investment must which prohibits investment Haram industries and requires Investment Condition All investments must be be Shari’a Shari’a compliant, compliant,which whichprohibits prohibitsinvestment investmentinin inHaram Haramindustries industriesand andrequires requires the use of instruments that are free of Riba. the use of instruments that are free of Riba. the use of instruments that are free of Riba. the use of instruments that are free of Riba. Investment Condition All investments must be Shari’a compliant, which prohibits investment in Haram industries and requires Investment Condition - All investments must be Shari’a compliant, which prohibits investment in Haram industries and requires the the use use of of instruments instruments that that are are free free of of Riba. Riba.
Source: Ernst & Young analysis Source: Ernst & Young analysis
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MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Ernst & Young analysis
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The World Takaful Report 2009
Conventional Conventional forms forms of of insurance insurance are are prohibited prohibited under under Islamic Islamic law law as as they they contain contain elements of Maysir, Gharar and Riba Conventional forms of insurance are prohibited under Islamic law as they contain Conventional forms Gharar of insurance under Islamic law as they contain elements of Maysir, and Riba elements of Maysir, Gharar and Riba elements of Maysir, Gharar and Takaful Takaful Takaful Takaful Takaful Takaful Takaful Takaful
Cooperative Insurance Cooperative Insurance Cooperative Cooperative Insurance Insurance Cooperative Insurance Cooperative Cooperative Cooperative Insurance Insurance
Proprietary Insurance Proprietary Insurance Proprietary Proprietary Insurance Insurance Proprietary Insurance Proprietary Proprietary Insurance ProprietaryInsurance Insurance
Contracts Contracts Contracts Contracts Utilised Contracts Utilised Contracts Contracts Utilised Contracts Utilised Utilised Utilised Utilised Utilised
Donation Donation and and mutual mutual contract. contract. Donation Donation and and mutual mutual contract. contract. Donation and mutual Donation andmutual mutual contract. contract. Donation Donation and and mutual contract. contract.
Mutual Mutual contract. contract. Mutual Mutual contract. contract. Mutual contract. Mutual contract. Mutual Mutual contract. contract.
Exchange Exchange contract. contract. Exchange Exchange contract. contract. Exchange contract. Exchange contract. Exchange Exchange contract. contract.
Company Company Company Company Company Responsibility Company Responsibility Company Responsibility Company Responsibility Responsibility Responsibility Responsibility Responsibility
Pay Pay claims claims with with underwriting underwriting fund; fund; Pay with underwriting fund; Pay claims claims with underwriting fund; interest free loans in case of shortfall. Pay claims with underwriting fund; interest free loans in case of shortfall. Payclaims claims with underwriting fund; interest free loans in case of shortfall. Pay with underwriting fund; interest free loans in case of shortfall. Pay claims with underwriting fund; interest free loans in case of shortfall. interest free loans in case of shortfall. interest interest free free loans loans in in case case of of shortfall. shortfall.
Pay Pay claims claims with with underwriting underwriting fund. fund. Pay Pay claims claims with with underwriting underwriting fund. fund. Pay claims with underwriting fund. Pay claims with underwriting fund. Pay Pay claims claims with with underwriting underwriting fund. fund.
Pay Pay claims claims from from underwriting underwriting fund fund Pay claims fund Payshareholders’ claims from from underwriting underwriting fund and equity. Pay claims from underwriting fund and shareholders’ equity. Pay claims from underwriting fund and shareholders’ equity. Pay claims from underwriting fund and shareholders’ equity. Pay claims from underwriting fund and shareholders’ and shareholders’ equity. equity. and and shareholders’ shareholders’ equity. equity.
Participants’ Participants’ Participants’ Participants’ Participants’ Responsibility Participants’ Responsibility Participants’ Responsibility Participants’ Responsibility Responsibility Responsibility Responsibility Responsibility
Pay Pay contributions. contributions. Pay contributions. Pay contributions. Pay Pay contributions. contributions. Pay Pay contributions. contributions.
Pay Pay contributions. contributions. Pay contributions. Pay contributions. contributions. Pay Pay contributions. Pay Pay contributions. contributions.
Pay Pay premiums. premiums. Pay Pay premiums. premiums. Pay Pay premiums. premiums. Pay Pay premiums. premiums.
Capital Capital Utilised Utilised Capital Utilised Capital Capital Utilised CapitalUtilised Utilised Capital Capital Utilised Utilised
Participants’ Participants’ funds. funds. Participants’ funds. Participants’ Participants’ funds. Participants’funds. funds. Participants’ Participants’ funds. funds.
Participating Participating capital. capital. Participating capital. Participating capital. Participating Participating capital. capital. Participating Participating capital. capital.
Share Share capital. capital. Share capital. Sharecapital. capital. Share Share capital. Share Share capital. capital.
Investment Investment Investment Investment Investment Investment Considerations Considerations Investment Considerations Investment Considerations Considerations Considerations Considerations Considerations
Shari’a Shari’a compliant. compliant. Shari’a compliant. Shari’a Shari’a compliant. Shari’acompliant. compliant. Shari’a Shari’a compliant. compliant.
No No restrictions restrictions except except prudential. prudential. No restrictions except prudential. No restrictionsexcept exceptprudential. prudential. No No restrictions restrictions except prudential. No No restrictions restrictions except except prudential. prudential.
No No restrictions restrictions except except prudential. prudential. No restrictions except prudential. Norestrictions restrictionsexcept exceptprudential. prudential. No No restrictions except prudential. No No restrictions restrictions except except prudential. prudential.
Source: Ernst & Young analysis Source: Ernst Source: Ernst& &Young Younganalysis analysis Source: Ernst & Young analysis
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The World Takaful Report 2009
9
The The Takaful industry currently employs three different models to execute its TheTakaful Takafulindustry industrycurrently currentlyemploys employsthree three different different models models to to execute execute its business with the combined model becoming the most dominant business with the model becoming the dominant business with thecombined combined model becoming the most mostmodels dominant The Takaful industry currently employs three different to execute its business with the combined model becoming the most dominant 1 11
Wakala WakalaModel Model Wakala Model
2 22
1Aprincipal-agent Wakala Model A is between principal-agentarrangement arrangement used betweenthe thepolicyholders policyholdersand andthe the A principal-agent arrangement isisused used between the policyholders and the Takaful operator for both underwriting and Takaful operator bothunderwriting underwritingand andinvestment investmentactivities. activities. Takaful operator forforboth investment activities. A principal-agent arrangement is used between the policyholders and the Takaful operator for both underwriting and investment activities. Policyholders Policyholders Policyholders Policyholders Policyholders Policyholders Contributions (Participants) Contributions (Participants) (Participants) Contributions (Participants) (Participants) (Participants) Policyholders Policyholders Contributions (Participants) (Participants) A fixed Wakalah fee for managing
A fixed Wakalah managing A fixed Wakalah feefee forfor managing operations -- sometimes includes a operations - sometimes includes operations sometimes includes aa performance based element performance based element A fixed Wakalah feeelement for managing performance based operations - sometimes includes a Management Management Management performance based element Fee Fee Fee
Management Fee
Shareholders’ Fund Shareholders’ Fund Shareholders’ Fund Shareholders’ Fund Shareholders’ Fund Shareholders’ Fund (Takaful Operator) (Takaful Operator) (Takaful Operator) (Takaful Operator) (Takaful (Takaful Operator) Operator) Shareholders’ Shareholders’ Fund Fund (Takaful (Takaful Operator) Operator) ReTakaful ReTakaful ReTakaful ReTakaful ReTakaful ReTakaful Operator Operator Operator Operator Operator Operator ReTakaful ReTakaful Operator Operator
provided to the policyholders’ fund on event of deficit
A is principal-manageragreement agreement used between between the the policyholders policyholders (Rab A principal-manager agreement isis used used between the policyholders (Rab al al 2Aprincipal-manager Mudaraba Model Mal capital providers) and the Takaful operator (Mudarib entrepreneur) Mal- -capital capitalproviders) providers) and and the the Takaful Takaful operator operator (Mudarib (Mudarib - entrepreneur) Mal for both underwriting and investment activities. A principal-manager is used between the policyholders (Rab al for bothunderwriting underwritingagreement andinvestment investment activities. for both and activities. Mal - capital providers) and the Takaful operator (Mudarib - entrepreneur) for both underwriting and investment activities.
Underwriting Underwriting Underwriting Underwriting Underwriting Underwriting Surplus Surplus Surplus Surplus Surplus Surplus Underwriting Underwriting Surplus Surplus
Policyholders Policyholders Policyholders Policyholders Policyholders (Participants) (Participants) (Participants) (Participants) (Participants) Policyholders Policyholders (Participants) (Participants) An Aninterest-free interest-freeloan loanprovided providedto tothe the An interest-free loan provided to the policyholders’ policyholders’fund fundon onevent eventof ofdeficit deficit policyholders’ fund on event of deficit An interest-free loanQard provided to the Qard Qard policyholders’ fund on event of deficit Al-Hasan Al-Hasan Al-Hasan Qard Al-Hasan
Policyholders’ Policyholders’ Policyholders’ Policyholders’ Policyholders’ Policyholders’ Fund Fund Fund Fund Fund Fund Policyholders’ Policyholders’ Fund Fund
Qard Qard Qard Al-Hasan Al-Hasan Al-Hasan Qard An interest-free interest-freeloan loan AnAn interest-free loan Al-Hasan provided provided thepolicyholders’ policyholders’ provided to totothe the policyholders’ fund on deficit fund eventof deficit An interest-free loan fund ononevent event ofof deficit
Mudaraba Mudaraba Model Model Mudaraba Model
Investment Investment Investment Investment Investment Investment Income Income Income Income Income Income Investment Investment Income Income
Shareholders’ Shareholders’ Shareholders’ Fund Shareholders’Fund Fund Shareholders’ Fund Shareholders’ Fund (Takaful Operator) (Takaful (Takaful Operator) (Takaful Operator) (Takaful (Takaful Operator) Operator) Shareholders’ Shareholders’ Fund Fund (Takaful (Takaful Operator) Operator) ReTakaful ReTakaful ReTakaful ReTakaful ReTakaful ReTakaful Operator Operator Operator Operator Operator Operator ReTakaful ReTakaful Operator Operator
Contributions Contributions Contributions Contributions
Policyholders’ Policyholders’ Policyholders’ Policyholders’ Policyholders’ Policyholders’ Fund Fund Fund Fund Policyholders’ Policyholders’ Fund Fund
Underwriting Underwriting Underwriting Surplus UnderwritingSurplus Underwriting Surplus Underwriting Surplus & && & Underwriting Surplus Investment Investment Underwriting Surplus Investment Income Management InvestmentIncome Management Investment Income Investment Income Management & Fee Fee & Fee Investment Income Investment Income Management Fee is is aa percentage percentage share of of the Fee share
Fee share of the Feeis a percentage underwriting result --- a combination of underwriting result underwriting result aa combination combination of the the underwriting surplus share and investment investment underwriting surplus and profits Fee is a percentage of the underwriting surplus and investment profits underwriting result - a combination of the underwriting surplus and investment profits
Thecombined combinedmodel modelutilises utilisesboth bothcontracts. contracts.The TheWakala Wakalacontract contractis usedfor for underwriting underwriting activities, activities, while while the the Mudaraba Mudaraba contract The The combined model utilises both contracts. The Wakala contract isisused used for underwriting activities, while the Mudaraba contract isused usedforforinvestment investmentactivities. activities.This Thismodel modelisisrecommended recommendedby bycertain certainfinancial financialservices services regulators regulators (including (including the the Central Bank of is is used for investment activities. This model is recommended by certain financial services regulators (including the Central Bank of Bahrain). Bahrain). The combined model utilises both contracts. The Wakala contract is used for underwriting activities, while the Mudaraba contract Bahrain). is used for investment activities. This model is recommended by certain financial services regulators (including the Central Bank of 3 Note: Critics of the Mudaraba model argue that,ininthe the cooperativeframework, framework, theunderwriting underwriting surplusisisnot not consideredaaprofit profit andthe the Takaful operator operator does not not Note: the argue Note: Critics Critics of ofModel the Mudaraba Mudaraba model model argue that, that, in the cooperative cooperative framework, the the underwriting surplus surplus is not considered considered a profit and and the Takaful Takaful operator does does not therefore therefore have have Bahrain). any right to it. Furthermore, the Mudaraba contract entitles the Takaful operator to a share in the underwriting surplus, but not to a share in any deficit.
3 33
Combined Combined Combined Model Model Model Combined
any any right right to to it. it. Furthermore, Furthermore, the the Mudaraba Mudaraba contract contract entitles entitles the the Takaful Takaful operator operator to to a a share share in in the the underwriting underwriting surplus, surplus, but but not not to to a a share share in in any any deficit. deficit. Source: Ernst &the Young analysis model argue that, in the cooperative framework, the underwriting surplus is not considered a profit and the Takaful operator does not therefore have Source: Ernst &ofYoung analysis Note: Critics Mudaraba Source: Ernst & Young analysis any right to it. Furthermore, the Mudaraba contract entitles the Takaful operator to a share in the underwriting surplus, but not to a share in any deficit. 10
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Ernst & Young analysis
Page 9 Page Page 9 9
The WorldTakaful Takaful Report2009 2009 The The World World Takaful Report Report 2009
2. Global Takaful Markets
Takaful continues to show strong growth in underpenetrated insurance markets Takaful continues to show strong growth in underpenetrated insurance markets
Historical Growth
3. The Financial Crisis Window of Opportunity Window of Opportunity
4. Sustaining the Future
4. Sustaining the Future Future Growth Future Growth
Global Takaful Premiums Global Takaful Premiums
A Economic fundamentals ► Takaful contributions have grown from Economic US$1.4b in 2004 to over US$3.4b in 2007. fundamentals B ► Business risks
Economic downturn
Economic downturn
Takaful contributions have grown from ► The largestinglobal include Saudi US$1.4b 2004 markets to over US$3.4b in 2007. Arabia and Malaysia. Business risks C ► The largest global markets include Saudi Takaful continues to display rapid We ► areGlobally, here and Arabia Malaysia. growth in newCompliance and existing markets. Strategic ► Globally, Takaful We are hereOperations Financial continues to display rapid grow in new and existing markets. Strategic Compliance Operations Financial
Previous 5-10 Years
2008-2009
Previous 5-10 Years
Takaful Growth Phases 2008-2009
Source: Ernst & Young analysis
12
Page 11
Takaful Growth The World Takaful Report Phases 2009
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Ernst & Young analysis
Next 5 Years
Next 5 Years
A
B
C
Potential Scenarios
2. Global Takaful Markets Historical Growth
3. The Financial Crisis
Potential Scenarios
2. Global Takaful Markets
Global gross Takaful contributions have grown with contributions in 2007 reaching US$ 3.4gross billionTakaful contributions have grown with contributions in 2007 reaching Global US$ 3.4 billion Global Gross Takaful Contributions by Year (US$m)* Global Gross Takaful Contributions by Year (US$m)* CAGR (2005-2007) = 30%
3,364
CAGR (2005-2007) = 30%
3,364
2,518 1,988 181 1,988
1,384 121 1,384 474 121
5 14
181 544
5 14
544
474
1,238
770
1,238
215 2,518 8 17 8 17
215 692
317 317
11 21 11 21
CAGR 2005-2007 18 32 18 32
951 951
CAGR 2005-2007 Indian SubContinent Indian SubContinent Levant Levant Africa
692
Africa 2,046 1,579
2,046
1,579
2004
2005
2006
2007 (e)
2004
2005
2006
2007 (e)
52% 35% 35% 32%
32% South-East Asia 32% South-East Asia 32% GCC
770
52%
GCC
29% 29%
Iran - Gross Takaful Contributions by Year (US$m) 2,164
2,561
2,164
2,561
Iran - Gross Takaful Contributions by Year (US$m) 3,283
4,157
27%
3,283
4,157
27%
Source: Ernst & Young WTR08, Ernst & Young analysis
* Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.
Source: Ernst & Young WTR08, Ernst & Young analysis
* Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.
Page 12
The World Takaful Report 2009
13
Saudi Arabia remains the largest Takaful market in the GCC with contributions of US$ 1.7 billion in 2007the largest Takaful market in the GCC with contributions of Saudi Arabia remains US$ 1.7 billion in 2007 Gross Takaful Contributions in the GCC (US$m) Gross Takaful Contributions in the GCC (US$m)
CAGR (2005-2007) = 29%
2,046
CAGR (2005-2007) = 29%
2,046
1,579 1,238 1,238 770 770 645
15 25 31 15 54 25 31 54
15 34 42 15 83 34
1,579
42 83
1,065
34 50 65 34 90 50 65 90
59 76 59 109 76 124 109 124
1,695 1,340
1,695
1,340
1,065
645 2004
2005
2006
2007(e)
2004
2005
2006
2007(e)
Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis 14
CAGR 2005-2007 CAGR 2005-2007
Takaful Penetration* Takaful Penetration* 2005 2007
Bahrain
98%
0.11% 2005
Bahrain Qatar
98% 50%
0.11% 0.32% 0.04% 0.07%
Qatar UAE
50% 62%
0.04% 0.07% 0.10% 0.15%
UAE Kuwait
62% 22%
0.10% 0.15% 0.03% 0.03%
Kuwait
22%
0.03% 0.03%
Saudi Arabia
26%
0.76% 0.85%
Saudi Arabia
26%
0.76% 0.85%
0.32% 2007
* Takaful penetration is gross contributions as a percentage of nominal GDP in the respective year
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis * Takaful penetration is gross contributions as a percentage of nominal GDP in respective year
Page 13
The World Takaful Report 2009
Malaysiaremains remainsthe thelargest largestTakaful Takafulmarket marketininSouth-East South-EastAsia Asiawith withcontributions contributionsof of Malaysia US$0.8 0.8billion billioninin2007 2007 US$ Malaysia remains the largest Takaful market in South-East Asia with contributions of US$ 0.8 billion in 2007 Gross Takaful Contributions in the South-East Asia (US$m) Gross Takaful Contributions in the South-East Asia (US$m) Gross Takaful Contributions in the South-East Asia (US$m)
CAGR (2005-2007)= 33% CAGR (2005-2007)= 33%
951 951
CAGR (2005-2007)= 33%
951 692 692
417 417 417 343 343
544 544 24 2430 3077 77 24 30 77
544
692
27 2730 3075 75 27 30 75
534 534
412 412
30 3032 3280 80 30 32 80
797 797 797
534 412
343
2004 2004
2005 2005
2006 2006
2007 (e) 2007 (e)
2004
2005
2006
2007 (e)
Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis Page 14
Page 14
35 3535 3594 94 35 35 94
CAGR CAGR 2005-2007 2005-2007 CAGR 2005-2007
Brunei Brunei
14.0% 14.0%
Takaful Takaful Penetration* Penetration* Takaful Penetration* 2005 2007 2005 2007 0.28% 0.26% 2005 2007 0.28% 0.26%
Brunei Thailand Thailand
14.0% 8.0% 8.0%
0.28% 0.26% 0.01% 0.01% 0.01% 0.01%
8.0% Thailand Indonesia 12.0% Indonesia 12.0%
0.01% 0.01% 0.05% 0.05% 0.05% 0.05%
Indonesia Malaysia Malaysia
12.0% 39.0% 39.0%
0.05% 0.05% 0.23% 0.32% 0.23% 0.32%
Malaysia
39.0%
0.23%
0.32%
* Takaful penetration is gross contributions as a percentage of nominal GDP in the respective * Takaful year penetration is gross contributions as a percentage of nominal GDP in the respective year
* Takaful penetration The World Takaful Report 2009is gross contributions as a percentage of nominal GDP in the respective The World Takafulyear Report 2009
15
Contributions towards family and medical Takaful have become especially significant Contributions towards family and medical Takaful have become especially significant Gross Takaful Contributions by Business as a Percentage of the Total (2006)* Gross Takaful Contributions by Business as Percentage of the Total (2006)* MENA South East Asia 4%
MENA
16% 16%
9% South
6%
34%
4%
9%
6%
34%
East Asia
33% 33%
46%
53%
46%
53%
Gross Takaful Contributions by Business as a Percentage of the Total (2007)* Gross Takaful Contributions by Business as Percentage of the Total (2007)* MENA South East Asia MENA
17%
30%
17%
38%
30%
38%
South East Asia
16% 16%
21% 21%
11% 11% Family and Medical
Source: World Islamic Insurance Directory 2008 and 2009 Family and Medical 16
Marine & Aviation
3%
65%
3%
65%
Property & Accident
Motor
Note:&MENA includes the GCC,&Africa and Levant. Marine Aviation Property Accident Motor
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: World Islamic Insurance Directory 2008 and 2009 Note: MENA includes the GCC, Africa and Levant.
The TheTakaful Takafulindustry industryhas hasbeen beenexpanding expandingby bytapping tappinginto intolarge largeMuslim Muslimmarkets markets globally globally The Takaful industry has been expanding by tapping into large Muslim markets globally Global GlobalTakaful TakafulOperators Operatorsand andContributions Contributionsinin2008 2008 January January2009 2009 ~124 ~124 Takaful Companies (+38 Windows) January 2009 Takaful Companies (+38 Windows) Global Takaful Operators and Contributions in 2008 ~124
~143 ~143 ~143
Takaful Companies (+38 Windows)
September September2008 2008 Takaful September 2008 TakafulCompanies Companies Takaful Companies
11 11 1
1 11
2007 Estimated 2007 Estimated Gross Contribution Gross Contribution 2007 Estimated Income (US$m) Income (US$m) Gross Contribution Income (US$m) 3000+ 3000+
11 1 1
22 1 21 2 2
1 1 1
3000+ 1000 - 3000 1000 - 3000
12
1
1
11 1 1
1414
3 3 14 7 15* 7 36 1 3 3737 123 6 11 3 7 1515 37 1316 1 1 15
Sudan Sudan ~15 ~15 Sudan
1000 100 -3000 1000 100 - -1000
~15
100 10 -1000 100 10 - -100 10 - 100 Under – 10 Under 1 –1 10 Takaful present Takaful present Under 1operators – operators 10 butbut nono record of contributions Takaful present record ofoperators contributions but no record of contributions Source: CIA World Fact book; Global Source: CIA World Fact book; Global Insight; Middle East Insurance Review; Insight; Middle East Insurance Review; World Islamic Insurance Directory 2009; World Islamic Insurance Directory 2009; Source: CIA World Fact book; Global Ernst & Young analysis Ernst & Young analysis Insight; Middle East Insurance Review;
World Islamic Insurance Directory 2009; Ernst & Young analysis
15* 15*
1 13 3 1212
44 77
4
7 22
44 4
2
KSA KSA ~37 ~37 KSA Bahrain Bahrain ~37 ~7~7 Bahrain
~7
Kuwait Kuwait ~12 ~12 Kuwait UAE UAE ~12 ~6~6 UAE
1212 3 3 2 212
33
2
3
Malaysia Malaysia ~12 ~12 Malaysia Indonesia Indonesia ~12 ~3 ~3 Indonesia ~3
~6
Excludes Takaful windows. Totalincluding includingwindows windows≈ ≈179 179Takaful TakafulOperators Operators Excludes Takaful windows. Total 3 Takaful Operators+ +2727Shari'a Shari'aDivisions Divisions Takaful Operators ~143 Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators 15*Iran’s Iran’s insurance companiesare aregoverned governedbybyShi’ite Shi’itelaw lawand andtheir theirproducts productshave havebeen beenapproved approvedasashalal. halal. 15* insurance companies 3 Indonesia: 3 Takaful Operators + 27 Shari'a Divisions 15* Iran’s insurance companies are governed by Shi’ite law and their products have been approved as halal. Note: Due varying definitions, the number Takaful operators differs depending source. Wehave haveassumed assumed thebroadest broadest definition. Note: Due to to varying definitions, the number ofof Takaful operators differs depending onon source. We the definition. ~143 ~143
3 3 Indonesia: Indonesia: 3
Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition.
Page1616 Page
TheWorld WorldTakaful TakafulReport Report2009 2009 The
17
But there are still significant untapped markets in Asia and MENA But there are still significant untapped markets in Asia and MENA Global Estimated Muslim Populations in 2008 Global Estimated Muslim Populations in 2008
Egypt ~71m
Estimated Muslim Populations Estimated in 2008 Muslim Populations 100m + in 2008 50 - 100m 100m + 10 – 50m 50 - 100m 5 – 10m 10 – 50m 1 – 5m 5 – 10m 1Under – 5m1m
~33m
Egypt Morocco ~71m ~32m
Algeria
Morocco
~33m
~32m
Algeria
Turkey
Iran
~71m
~64m
Turkey
Iran
~71m
~64m
Indonesia ~207m Indonesia
Nigeria ~64m Nigeria ~64m
~207m Pakistan
India
~160m
~151m
Pakistan India Bangladesh ~160m~132m~151m Bangladesh ~132m
Under 1m
Source: CIA World Fact book; Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data. Global Insight; Ernst & Young analysis Source: CIA World Fact book; Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamicbeen Finance Industry Sinceusing 1993 estimated Muslim percentages of totals and 2008 population data. 18 GlobalMEGA determined Insight; Ernst & Young PageNote: 17 Muslim populations have The World Takaful Report 2009 analysis
2. The Financial Crisis
2. Global Takaful Markets
3. The Financial Crisis
4. Sustaining the Future
2. Global Takaful Markets Historical Growth
3. The Financial Crisis Window of Opportunity
4. Sustaining the Future Future Growth
Historical Growth
Window of Opportunity
Future Growth A Economic A fundamentals Economic fundamentals
B
Business risks Economic downturn Economic downturn
► ► ► ►
C C
We are here We are here Strategic
Compliance The financial crisis has severely impacted financial institutions and the Operations Financial Strategic Compliance The financial crisis has has tempered severely impacted financialininstitutions and region the ensuing recession growthFinancial forecasts almost every Operations ensuing recession hasmajor tempered growth forecasts in almost every region and sector, including Takaful markets. and includingTakaful major Takaful markets. As asector, consequence, operators are increasingly concerned with the As a consequence, Takaful operators increasingly concerned with the strategic, operational, compliance andare financial risks they face today. strategic, operational, compliance and financial risks they face today.
Previous 5-10 Years
2008-2009
Next 5 Years
Previous 5-10 Years
Takaful2008-2009 Growth Phases
Next 5 Years
Source: Ernst & Young analysis 20
B
Business risks
Takaful Growth Phases
MEGA MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: ErnstBrands. & Young analysis
Page 19
The World Takaful Report 2009
Potential Potential Scenarios Scenarios
Global Global Takaful Takaful Premiums Premiums
Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities
The financial landscape has experienced significant shifts with many institutions collapsing or landscape requiring government capital support shifts with many institutions The financial has experienced significant collapsing or requiring government capital support
WAMU
Q4 loss: UBS US$14b Q4 loss: US$14b
Citi 15Citi Jan: US$18.1b 15 Q4 Jan: loss US$18.1b Q4 loss
S&P 500 Average S&P 2007:500 Average 1,477 2007: 1,477
8 April: WAMU Receives US$7b 8 April: from TPG Receives US$7b Capital from TPG Capital
Bear Stearns Bear 16 March: Stearns
HSBC
12 May: US$3.2b 12 Q1May: loss US$3.2b Q1 loss
16 Sept: Loan AIGof US$85b approved by the Fed 16 Sept: Loan of US$85b approved by the Fed Fannie Mae/
Freddie Mac Fannie Mae/ 7 Sept: Nationalized Freddie Mac by the US Treasury
7 Sept: Nationalized by the US Treasury
Deutsche Bank
WAMU
US$3.9b Deutsche Bank
22 July: WAMU US$3.3b loss 22 July: US$3.3b loss
17 Jan: US$11.5b Merrill Lynch Q4 loss 17 Jan: US$11.5b Q4 loss
3 Oct: US Congress passes US$700b bailout 3 Oct: US Congress passes US$700b bailout
AIG
HSBC
Taken over by 16 Morgan March: JP Taken over by JP Morgan
Merrill Lynch January January 20082008
18 Sept: Federal Bank and other central banks 18inject Sept:billions Federal Bank into the and otherglobal central banks markets inject billions into the global markets
Q1 loss US$3.9b Q1 loss
RBS; HBOS; RBS; Lloyds TSB HBOS; 13 Oct: UK bails Lloyds TSB out RBS, HBOS
Bank of America Bank of 16America Jan: US
Treasury invests 16 Jan: US US$20b in Bank Treasury invests of America US$20b in Bank of America 19 Jan: UK announces a 19 UK newJan: bank announces a rescue new bank program rescue program
13 Oct: UK TSB bails and Lloyds outaRBS, HBOS at cost of and Lloyds TSB US$63b at a cost of US$63b
March: US Federal March: ReserveUS buys Federal almost US$1.4t Reserve in debt buys almost US$1.4t in debt
Lehman 14Lehman Sept: Files for bankruptcy and 14 Sept: Files for stock markets bankruptcy and plummet stock markets plummet 10 Oct: G7 Finance Ministers 10 Oct: G7issue a meet and Financeplan Ministers 5-point meet and issue a 5-point plan
January January 20092009
UBS
Source: Factiva; Bloomberg; Ernst & Young analysis Source: Factiva; Bloomberg; Ernst & Young analysis
Page 20
21
The World Takaful Report 2009
Insurance firms in particular have suffered major losses Insurance firms in particular have suffered major losses
Reported Losses of Insurers and Government Supported Enterprises* Reported Losses of Insurers and
Government Supported Enterprises* Asia US$1.4b Asia
Insurance Company Equity Performance MSCI indicesCompany (US$ returns): 1 2007=100 Insurance EquityJan Performance MSCI indices (US$ returns): Jan 1 2007=100
US$1.4b Europe US$23.4b Europe US$23.4b
Americas US$317.8b Americas US$317.8b
Americas Americas Europe
Total: US$342.6b
Europe Asia
Total: US$342.6b
Asiawrite-downs and credit losses between January 1st 2007 Includes and March 6th 2009. Includes write-downs and credit losses between January 1st 2007 * GSE: Freddie 2009. and e.g. March 6thMac Source: Bloomberg; IIF, March 2009
Source: IIF, Freddie March 2009 * GSE: e.g. Mac 22
MEGA Brands.2009 MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: IIF, March
Page 21
The World Takaful Report 2009
Source: Bloomberg; IIF, March 2009
Surviving financial institutions have lost significant value Surviving financial institutions have lost significant value Market Capitalization of top 10 Financial Institutions by Region USA
Market Capitalization of top 10 Financial Institutions by Region Europe GCC South East Asia
USA 793 Banks Banks % of change % of change
Europe 920
GCC
South East Asia
793
920
176
160
455
449
160 89
455
449
176 93
-42%
-51%
-42%
-51%
93
89
-47%
-44%
Market capitalization between 31st Dec 2007 and 02nd Feb 2009
-47%
-44%
Market capitalization between 31st Dec 2007 and 02nd Feb 2009
601
456 Insurers Insurance % of change
601
456
183
100
183
100 -78%
% of capitalization change between -78% Market
595 7
595
7 4
261 261
-70%
4 -41%
-42%
-70%
-41%
-42%
1st June 2007 and 20th Nov 2008
Market capitalization between 1st June 2007 and 20th Nov 2008
Market capitalization between 1st June 2007 and 20th Nov 2008
Market capitalization between 1st June 2007 and 20th Nov 2008
Bank Capitalization in US$b
13th Mar 2009
1st Jan 2008 (unless stated otherwise)
Insurer Capitalization in US$b Bank Capitalization in US$b
13th Mar 2009 13th Mar 2009
1st Jan 2008 (unless stated otherwise) 1st Jan 2008 (unless stated otherwise)
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Sourcestated Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks: Insurance Capitalization in US$b 13th Mar 2009 1stBloomberg, Jan 2008One (unless otherwise) Reuters MENA Insurance: Zawya, One Source
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks: Reuters MENA Insurance: Zawya, One Source
Page 22
The World Takaful Report 2009
23
American and and European financial financial institutions institutions have have lost lost over over US$1.5t US$1.5t in in value value American American and European European financial institutions have lost over US$1.5t in value American and European financial institutions have lost over US$ 1.5 trillion in value
USA USA USA USA
Banks by market Banks by market capitalization Banks by market capitalization capitalization Banks by market capitalization
147 147 147 37 37 37 147
% of change % %of ofchange change Insurance firms Insurers firms % ofmarket change Insurers firms by by market by market capitalization capitalization capitalization Insurers (1st Junefirms 2007 (1st June 2007 th Nov (1st June 2007 and 20 by market ththNov and 20 and 20 Nov 2008) capitalization 2008)
-75% -75% Citi -75%
2008) (1st June 2007 and 20th Nov % of change 2008) % of change
% of change
% of change
EUROPE EUROPE EUROPE EUROPE
Citi Citi 37 Citi
-75% 116 116 116 3 116 33
AIG AIG AIG
144 144 144 71 71 71 144
Bank of America Bank of America Bank of 71 America
-51% -51% Bank of America -51% 58 58 58 21 21 21 58
Manulife Manulife Manulife
21 -64% -64% -64% Manulife
189 -97% 189 189
-64% 99 99 99
132 189 132 132
Banks by market capitalization % of change %of ofchange change %
HSBC 132 HSBC HSBC
-30% -30% HSBC -30%
109 95 95 95 109
Wells Fargo Wells Fargo Wells 95 Fargo
15% 15% Wells Fargo 15%
-51%
3 -97% -97% -97% AIG
Banks by market Banksby bymarket market Banks capitalization capitalization capitalization
Change in in Market Market Capitalization Capitalization Change Change in Market Capitalization 109 87 85 Change 109 in Market 87 Capitalization 85
39 39 99 39
Intesa Intesa Intesa Sanpaolo Sanpaolo Sanpaolo 39
-61%
Intesa -61% -61% Sanpaolo
15% 51 51 51 13 51 13 13
MetLife MetLife MetLife
13 -75% -75% -75% MetLife
87 53 53 87 53
Chase Chase Chase
53 -40% -40% Chase -40% -40% 47 47 47 6 66 47 Prudential
Prudential Prudential
6 -87% -87% -87% Prudential
-75%
-87%
98 98 98 55 55 55 98 Santander
98 98 98 50 50 50 98 BNP Paribas
Santander Santander
55 -44% -44% Santander -44%
BNP BNPParibas Paribas
8536 36 36 85
Goldman Goldman Sachs 36 Goldman Sachs Sachs
-57%
-57% Goldman -57% Sachs -57% 38 3838 10 1010 38 Allstate Allstate 10 Allstate -74% -74% -74% Allstate -74% 93 9393 38 3838 93
UBS UBS UBS 38
Hartford Hartford
2 -94% -94% -94% Hartford
-44% 85 8585 39 3939 85 BBVA
BBVA BBVA 39
-94% 67 6767 25 2525 67 Société Société Société Générale 25 Générale Générale
30 3030 15 1515 Great-west 30 Great-west
Great-west
15 -50% -50% -50% Great-west -50% 66 6666 33 3333 66 Credit Credit Credit Suisse 33 Suisse
2008) 2008) (1st June 2007 and 20th Nov % of change %of of change % change 2008)
Allianz Allianz Allianz
28 -72% -72% -72% Allianz
-86% -86% -86%
% of change
-72%
-86%
Generali Generali Generali
31 -47% -47% -47% Generali
Fortis Fortis
2 -96% -96% -96% Fortis
BankCapitalization Capitalization US$b Bank inin US$b Bank Capitalization -47% in US$b -68% -96% Insurance Capitalization in US$b Insurer Capitalization in US$b Insurer Capitalization in US$b Bank Capitalization in US$b
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
The World Takaful Report2009 2009 The Takaful Report Insurer Capitalization US$b The World World Takaful Reportin 2009
Zurich Zurich Zurich
23 -49% -49% -49% Zurich
MunichRe MunichRe MunichRe
25 -41% -41% -41% MunichRe
Suisse
11 1111 41
Aviva Aviva Aviva 11
-73% -73% -73% Aviva
One
-17% 20 20 20 1 1 1 20 Lincoln
-67%
-95%
-67% -67% -67% Sun life
66 66 66 20 20 20
1 -95% -95% -95% Lincoln
60 60 60 20 20 20
66 60 Deutsche Barclays Deutsche Barclays Deutsche Barclays Bank 20 20 Bank Bank
25 2542 25
Générale
Suisse
-51% -51% Credit -51%
One
-17% -17% Capital -17%
Lincoln Lincoln
23 2345 23
54 5454 2 22 54 Fortis
-62% -62% Société -62%
16 16 16 14 14 14 16 Capital Capital One 14 Capital One
Sun life SunSun life9life
37 37 37
58 58 58 31 31 31 58
23 Page 23 Page 23
33 3333 2 2 2 Hartford 33
-68% 27 27 27 9 9 9 27
41 4141
90 90 90 29 29 29 90
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source
20 -44% -44% -44% Travelers
-50%
-15%
Stanley
42 4242
98 98 98 14 14 14 98
Source: US/Europe Insurance: Insurance:The TheBanker, Banker,Bloomberg, Bloomberg,One OneSource Source Source: US/Europe US/Europe Banks: Banks: Factset US/Europe Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source
24
Travelers Travelers
Express
Stanley
-68% -68% Morgan -68%
-70%
100 100 100
ING
36 3636 20 2020 36 Travelers
-50% -50% American -50%
-51%
-59%
29 -68% -68% -68% AXA
-26%
Express
-62%
-49%
AXA AXA AXA
46 -15%
-15% U.S. Bank -15%
-54% 45 4545
-44%
ING ING ING 14
U.S. Bank U.S. Bank
48 48 48 15 15 15 48 Morgan Morgan Stanley 15 Morgan Stanley
-54% -54% BBVA -54%
-61%
28 28 28 100
49 -26% -26% JP Morgan -26%
52 52 52 26 26 26 52 American American Express 26 American Express
-59% -59% UBS -59%
-30%
(1st June 2007
JP Morgan JP Morgan
55 55 55 46 46 46 55 U.S. Bank
50 -49% -49% BNP-49% Paribas
Insurance firms % of change Insurers firms Insurers firms by market by market by market capitalization capitalization capitalization Insurers firms (1st June2007 2007 by market (1st June th Nov and 20 and20 20ththNov Nov and capitalization 2008)
65 65 65 49 49 49 65 JP Morgan
-70% -70% Deutsche -70% Bank
9 99 37
Pru PLC Pru PLC Pru9PLC
-76% -76% -76% Pru PLC
-67% -67% Barclays -67% -67% 36 36 36 11 11 11 36
SwissRe SwissRe SwissRe 11
-69% -69% -69% SwissRe
13th Mar 2009 1st1st 2008 (unless stated otherwise) 13th Mar 2009 JanJan 2008 (unless stated otherwise) 13th Mar 2009 -41%1st Jan-73% 2008 (unless stated otherwise) -76% -69% -49% 13th Mar 2009 1st1st 2008 (unless stated otherwise) 13th Mar 2009 JanJan 2008 (unless stated otherwise) 13th Mar 2009 1st Jan 2008 (unless stated otherwise) 13th Mar 2009 1st Jan 2008 (unless stated otherwise) 13th Mar 2009
1st Jan 2008 (unless stated otherwise)
Asia and MENA have also experienced significant losses Asia significant losses Asiaand andMENA MENAhave have also also experienced experienced significant losses Asia and MENA have also experienced significant losses
ASIA ASIA ASIA ASIA
MENA MENA MENA MENA
39 39 Top 10 Banks by 39 Top 10 Banks by capitalization Top 10 Banks by 24 capitalization 39 24 capitalization 24 Top 10 Banks by Hang Seng Bank Hang Seng Bank Hang capitalization 24 Seng Bank % of change -39% %%ofofchange Bank changeHang Seng -39% -39%
21
Change in Market Capitalization Change in Market Market Capitalization Capitalization Change in 20 21 18 Capitalization 20 Market 21 Change in 20
13 21 13 13
13 13 20 13
DBS
DBS 13 DBS -38% -38% DBS-38%
18 18
10 10 18 10
OCBC Bank United OCBCBank Bank United Overseas Bank OCBC United 13 Overseas Bank 10 Overseas Bank
-35% -35% United-35%
-41% -41% -41% OCBC Bank
14
14 7 14 77 Maybank 14 Maybank Maybank
7 -48% -48% -48% Maybank
10 1010 3 33 10
12 12 6 12 6 CIMB6 12CIMB CIMB 6 -50% -50% -50% CIMB
BRI BRI 3 BRI
-67% -67% -67% BRI
10 10 10 4 4 4 10
BEA 4 BEA BEA
-65% -65% -65% BEA
10 10 10 6 10 6
6 BCA BCABCA
-42% 6 -42% -42% BCA
7 7 47 4 4 Bangkok7Bank
Bangkok Bank Bangkok 4 Bank
-51% -51%
-51% Bangkok Bank
Overseas Bank 237 % of change -39% -38% -35% -41% -48% -50% -67% -65% -42% -51% 237 237 Top 10 147 79 55 Top Insurers 30 Top1010 Insurers 147 14 147 Insurance firms 55 79 55 10 9 8 8 30 30 1414 firms firmsbyby 237 10 9 8 8 37 16 by capitalization 16 5 86 510 59 58 28 85 16 37 16 capitalization capitalization 16 5 86 16 5 86 Top 10 5 5 5 2 5 5 5 2 147 85 85 79 55 30 14 China Pacific Ping An Tokio Marine Sompo Sony Financial T&D Holdings Insurance firms China Life Insurance China Life Insurance Nipponkoa Orix 10Japan 9Financial 8 8 China Pacific Ping An Tokio China Pacific Holdings An Insurance TokioMarine Marine Sompo Japan T&D Holdings Sompo Japan Sony Sony FinancialInsurance T&D Holdings Insurance (Grp) Nipponkoa Insurance Grp) Orix Orix Nipponkoa Holdings China Life Insurance Co China Life Insurance Corporation Co. (HK) China LifeInsurance Insurance 37 16 China Life by capitalization Co. (China) 16 5 86 Insurance (Grp) Insurance (Grp) Holdings Insurance Holdings Insurance (Grp) Holdings 5 5Holdings Insurance 5 Co Co Corporation 2 Insurance Co Insurance of China Grp) Insurance Corporation 85 Co.(HK) (HK) Co. Co.(China) (China) Co. Co of China China % of change -64% -42% -54% -71% -47% -62% -55% -43% -30% -71% China Pacific Ping An Japan Financial change Nipponkoa Orix-71% -64% China Life Insurance -42% -54% -71% -47% -62% -30% -71% %%ofofchange -64% -42% -71% Tokio Marine -47% T&D Holdings -62% Sompo-55% -55% Sony-43% -43% -30% China Life Insurance Insurance (Grp) Insurance Grp) Holdings Insurance Holdings Insurance Co Corporation Co. (HK) Co. 44 (China) Co of China 15 44 44 15 17 14 15 29 % of change 15 -64% -42% -54% -71% -47% -62% -55% -43% -30% -71% 15 17 1414 29 15 17 13 29 Top 10 Banks by 10 10 1313 10 Top1010Banks Banksbyby 22 1010 10 10 Top 10 10 capitalization 8 8 22 44 22 8 8 11 11 10 10 capitalization 8 capitalization 15 10 88 5 10 8 8 11 10 4 15 8 17 14 10 5 5 29 8 (31st Decst2007 4 4 8 (31 Dec 2007 st Banks Bank National Bank Qatar National Top 10 by Al Rajhi Bank 10 nd Kuwait13 Finance National Banque Saudi Dec 2007 Saudi British Emirates NDB 10 and (31 02 Feb Riyad Bank Samba Financial National Bank National Bank Qatar National 10 Bank Bank nd Feb Kuwait Finance Banque Saudi Saudi British Emirates NDB Al Rajhi Bank and 02 Samba Financial Riyad Bank National Bank National Qatar National nd Banque Saudi Kuwait Finance of Kuwait Abu Dhabi SAQ 22 Saudi British Emirates NDB House Fransi Bank Al Rajhi Bank and 02 Feb Samba Financial Riyad capitalization Group of Kuwait Abu Dhabi Bank SAQ 2009) House 8 Fransi Bank 8 Bank 11 10 Group 10 of Kuwait Abu Dhabi Bank SAQ 2009) Fransi Bank 8 House Group 8 5 2009) 4 -49% -65% -56% -47% -30% -29% -35% -50% -57% -22% (31 2007 %stofDec change -49% -65% -56% -47% -30% -29% -35% -50% -57% -22% % of change -65% -56% Riyad Bank -47% Emirates -30% -29% Kuwait Finance -35% National Bank -50% National Bank -57% Qatar National -22% Banque Saudi Saudi British %ndofFeb change Al Rajhi -49% NDB Bank and 02 Samba Financial
2009)
Fransi
Group
-49% -65% 2 1 1 2 2 1 Top 10 Top 10 Insurers Top 10firms Insurers 0.39 0.39 Insurance firms by 0.39 0.710.71 firms by 2 1 0.71 by capitalization capitalization capitalization Top 10 The Company for for QatarQatar Insurance The Company Insurance 0.39 The Company for Qatar Insurance Insurance Company Cooperative Insurance Company Insurance firms Cooperative 0.71 Cooperative Insurance Company by capitalization % of change
The Company for -80% -80%Insurance Cooperative % of change change
% of % of change
-80%
Qatar Insurance -38% -38% Company
-38%
-80% -38% % of change Factset, Reuters, The Banker, Bloomberg, One Source Source:Source: Factset, Reuters, The Banker, Bloomberg, One Source Source: Factset, Reuters, The Banker, Bloomberg, One Source
Page Source: Factset, Reuters, The Banker, Bloomberg, One Source Page 24 24
Page 24
-56% 1
1 1 0.170.17 0.17 1 ArabArab Islamic Islamic
Islamic Arab Insurance Insurance 0.17 Insurance Company Company Company Islamic Arab -85% -85% Insurance -85% Company
-47% 1 1 1 0.78 0.78 1 0.78
Oman Oman Oman Insurance Insurance Insurance 0.78 Company Company Company Oman Insurance 40% 40% Company 40%
of Kuwait
House
Bank
-30% 0.80.8 0.8
-29% -35% -50% 0.40.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.30.3 0.3 0.3 0.2 0.2 0.70.7 0.3 0.3 0.2 0.7 0.8 0.4 AbuAbu Dhabi Dhabi Kuwait 0.4 Insurance Al0.4 AinAin AlAlAhleia Kuwait Insurance Al Ahleia Abu Dhabi National National Kuwait Al Ain Al Ahleia 0.3 InsuranceAhlia Company Insurance Insurance Company Ahlia Insurance Insurance 0.3 0.2 National Insurance Insurance 0.7 Company Ahlia Insurance Company Insurance Company Company Company Insurance Co. Co. Co. Abu Dhabi Kuwait Insurance National 17% -37% 17% -37% Company Insurance17% -37% Co.
Bank Capitalization US$b Bank Capitalization in in US$b Capitalization in US$b -85%Bank 40% InsurerCapitalization Capitalization in17% US$b Insurance in US$b Insurer Capitalization in US$b Bank Capitalization in US$b
World Takaful Report TheThe World Takaful Report 2009 Insurance Capitalization in 2009 US$b The World Takaful Report 2009
Company Al Ain -11% -11% Ahlia Insurance -11% Company
Company Al Ahleia -53% -53% Insurance -53% Company
Abu Dhabi
-57%
Bank SAQ
-22%
0.3 0.2 0.3 0.2 0.3 0.2 0.3 0.2 0.3 0.2 0.3 0.2 0.3 0.2 Gulf Arab Gulf Arab Insurance Insurance Gulf Arab Insurance Insurance Group. Insurance Group. 0.3 0.2Group. Insurance Co. Co.
Gulf
Co.
-12% -12% Insurance Co.-12%
Arab Insurance -10% -10% Group.
-10%
13thMar Mar2009 2009 1st Jan Jan2008 2008 (unless (unless stated otherwise) 13th 1st otherwise) 13th Mar 2009 1st Jan 2008 (unless stated otherwise) -37% -10% 13thMar Mar2009 2009-11% 1st 1st Jan Jan-53% 2008 (unless (unless -12% stated otherwise) 13th 2008 stated otherwise) 13th Mar 2009 1st Jan 2008 (unless stated otherwise) 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
13th Mar 2009
1st Jan 2008 (unless stated otherwise)
25
Short-term performance of Takaful operators has been impacted Short-term performance of Takaful operators has been impacted
Average Return on Equity for a Sample of GCC and Malaysian Takaful Operators
Return on Equity (percentage) Return on Equity (percentage)
Average ROE for a Sample of GCC and Malaysian Takaful Operators
15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10%
9.0% 9.0% 6.6% 6.6% 2005 2005
11.0% 7.4%
6.3%
11.0%
7.4% 3.8%
5.0%
3.8% 2006
5.0% 2007
2006
2007
-10%
6.3%
2008 2008 -6.3%
5% 5% 4% 4% 2009e 2009e
-6.3%
Year Year GCC GCC
Malaysia Malaysia
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate interviews. Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate interviews.
Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis 26
MEGA Brands. MEGAReports, Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Company Annual Corporate Interviews, Ernst & Young analysis
Page 25
The World Takaful Report 2009
Despite improvements in efficiency, Takaful operators need to better manage their costs in improvements a more challenging market Takaful operators need to better manage their Despite in efficiency, costs in a more challenging market Average Cost Income and Claims Ratios for a Sample of GCC and Malaysia Takaful Operators Average Cost Income and Claims Ratios for a sample of GCC and Malaysia Takaful Operators
Average Cost Income Ratios
Ratio Ratio
5.0 4.0
Average Cost Income Ratios 4.3 4.3
4.0 3.0 3.0 2.0
1.6
2.0 1.0
1.6 1.1
0.7
2.2 1.0 0.8 1.0
1.0 0.0
0.7
1.1
0.0
2005
2006
0.8 2007
2005
2006
Year 2007
1.8
2.2
Claims Ratios
60%
0.7
1.8 0.8
0.7
0.8
2008
2009e
2008
2009e
Ratio Ratio (%) (%)
5.0
Claims Ratios
50% 60%
48.8%
40% 50%
48.8% 43.2%
30% 40%
34.8% 43.2%
32.4% 38.6%
30% 20%
34.8%
22.7% 32.4%
10% 20%
43.2% 43.2% 38.6%
46.6%
46.0%
46.6% 41.5%
45.0% 46.0% 32.0% 45.0% 31.0% 32.0%
29.4% 41.5% 28.4% 29.4% 28.4%
22.7%
31.0%
10% 0% 0%
2005
2006
2005
2006
Year
GCC Year
Malaysia
Saudi Arabia Claims Ratio Year
GCC
Malaysia
Saudi Arabia Claims Ratio Bahrain Claims Ratio Bahrain Claims Ratio
2007
2008e
2007
2008e
UAE Claims Ratio UAE Claims Ratio Malaysia Malaysia Claims Ratio
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon available market data and corporate interviews. For claims ratios, the data forcorporate Malaysia and Bahrainhas is specific to theInTakaful industry, while data for Saudi Arabia and the UAE to 2007 the insurance industry Note: Where possible, publicly available information been used. the GCC, 9 companies published information in 2005, 13 is in specific 2006 and and 4 in 2008. In as a whole. No data is available Saudi Arabia in 2005. Malaysia, 4 companies publishedfor information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon available market data and corporate interviews. For claims ratios, the data for Malaysia and Bahrain is specific to the Takaful industry, while data for Saudi Arabia and the UAE is specific to the insurance industry as a Company whole. No dataReports, is available Saudi ArabiaTakaful in 2005. Source: Annual Bankfor Negara Malaysia Annual Report, SAMA Annual Reports, UAE Central Bank Annual Reports, CBB Insurance Annual Reviews, Ernst & Young analysis Source: Company Annual Reports, Bank Negara Malaysia Takaful Annual Report, SAMA Annual Reports, UAE Central Bank Annual Reports, CBB Insurance Annual Reviews, Ernst & Young analysis
Page 26
The World Takaful Report 2009
27
Especially in the face of large exposures to volatile equity markets Especially in the face of large exposures to volatile equity markets
Average Equity Exposures and Cash Holdings for a sample of GCC and Malaysia Takaful Operators
Average Equity Exposures and Cash Holdings for a sample of GCC and Malaysia Takaful Operators Average Equity Exposures
Average Equity Exposures
100%
0%
Average Cash/Total Assets
40% 35% 40%
30.1%
30% 35% 51.1%
51.1% 25.5%
25.5%
47.7%
45.0%
53.6%
47.7%
45.0%
22.8%
22.0%
22.8%
22.0%
22.0%
22.0%
20% 25%
18.2%
18.2%
15% 20%
18.2%
18.2%
2005
2006
2006 GCC
GCC
2007 Year
Year
2008e
2007
39.6%
10% 15% 5% 10% 0% 5%
2005
39.6%
30.1%
25% 30%
53.6%
Ratio Ratio (%) (%)
Exposure (%) Exposure (%)
90% 100% 80% 90% 70% 80% 60% 70% 50% 60% 40% 50% 30% 40% 20% 30% 10% 20% 0% 10%
Average Cash/Total Assets
0%
2008e
2.0%
1.7%
0.2% 2005
2.0% 2006
1.7% 2007
0.2% 2008
2005
2006
2007
2008
0.2%
Malaysia
GCC
Malaysia
GCC
Year
Year
0.2%
Malaysia
Malaysia
Note: For equity exposures, data for Malaysia includes family and general Takaful operators and was derived from holdings of Islamic private debt securities and equities, where it was assumed that 50% of the total holdings were in the form of public equities. All estimates have been made based upon available corporate interviews.
Note: For equity exposures, data for publicly Malaysiaavailable includescorporate family and general Takaful operators derived from holdings of Islamic privateindebt securities andand equities, For cash holdings, where possible, information has been used. Inand thewas GCC, 10 companies published information 2005, 13 in 2006 2007. In where it was4 assumed that 50% of information the total holdings were the form public All estimates have been made based upon available corporate interviews. Malaysia, companies published in 2005, 6 inin2006, 8 in of 2007 andequities. 6 in 2008. For cash holdings, where possible, publicly available corporate information has been used. In the GCC, 5 companies published information in 2005, 9 in 2006 and 2007. In
Source: Bank 4 Negara Malaysia Annual Takaful Statisticsin2007, Company Annual Ernst Malaysia, companies published information 2005, 6 in 2006, 8 inReports, 2007 and 4 &inYoung 2008.analysis
28
MEGA Clients. Market Leaders. | Shaping the Future of theAnnual Islamic Reports, Finance Industry 1993analysis Source: BankBrands. NegaraMEGA Malaysia Annual Takaful Statistics 2007, Company Ernst &Since Young
Page 27
The World Takaful Report 2009
The 2009 Takaful business risks landscape has changed substantially The 2009 Takaful business risks landscape has changed substantially
How the Business Risks match up - 2009 and 2008 results
Risk and RiskRisk andand Risk and Category Category Category Category
How the Business Risks match up - 2009 and 2008 results
Contributing Factors Contributing Factors Contributing Contributing Factors Factors
2009 2009 2009 2009 2008 2008 2008 2008
Investment Investment Portfolios Portfolios Investment Investment Portfolios Portfolios Financial Financial Risk Risk
Human Human Resources Resources Human Human Resources Resources Operational Operational Risk Risk
Financial Financial Risk Risk
1stst
1 11stst 44thth 44thth
► ►Restricted Restricted
investment investment universe universe ► ►Restricted Restricted and and unbalanced unbalanced investment universe investment investments. investments.universe and unbalanced and unbalanced ► ►High High equity equity investments. investments. exposures. exposures. ► ►High High equity equity ► ►High High counterparty counterparty exposures. exposures. risks. risks. ► ►High High counterparty counterparty ► ►Reduced Reduced Sukuk Sukuk risks. risks. issuance issuance is is further further ► Reduced Sukuk ►limiting Reduced Sukuk limiting fixed fixed issuance is issuance is further further income income equivalents. equivalents. limiting fixed limiting fixed income income equivalents. equivalents.
Strategic Strategic Risk Risk
Global Global Economic Economic Downturn Downturn Global Global Economic Economic Downturn Downturn Financial Financial Risk Risk
Enterprise Enterprise Risk Risk Management Management Enterprise Enterprise Risk Risk Management Management Compliance Compliance Risk Risk
Regulatory Regulatory Regimes Regimes Regulatory Regulatory Regimes Regimes Compliance Compliance Risk Risk
Operational Operational Risk Risk
Strategic Strategic Risk Risk
Financial Financial Risk Risk
Compliance Compliance Risk Risk
Compliance Compliance Risk Risk
nd 2nd
3rdrd
4thth
5thth
66thth 66thth N/A N/A N/A N/A
2 nd 22nd st 11st 11stst
► ►Lack Lack of of skilled skilled HR HR
and and increasing increasing ► of HR ►Lack Lack of skilled skilled competition for competition forHR and increasing and increasing resources. resources. competition for competition for ► ►Limited Limited pool pool of of resources. resources. scholars scholars with with ► pool of ►Limited Limited pool of suitable suitable knowledge. knowledge. scholars with scholars with ► ►Lack Lack of of operational operational suitable suitable knowledge. knowledge. expertise expertise in in certain certain ► of operational ►Lack Lack of operational lines of business. lines of business. expertise expertise in in certain certain lines lines of of business. business.
Competition Competition Competition Competition
3 33rdrd N/A N/A N/A N/A
► ►Low Low barriers barriers to to
entry entry (minimum (minimum ► barriers ►Low Low barriers to to capital capital entry (minimum entry (minimum requirements). requirements). capital capital ► ►Increasing Increasing requirements). requirements). competition competition and and ► ►Increasing Increasing aggressive aggressive pricing. pricing. competition competition and and ► ►Competitive Competitivepricing. aggressive aggressivereducing pricing. pressures pressures reducing ► ►Competitive Competitive safety safety margin margin in in pressures pressures reducing reducing premiums. premiums. safety safety margin margin in in premiums. premiums.
4 44thth N/A N/A N/A N/A
► ►Decrease Decrease in in new new
premium premium growth. growth. ► new ►Decrease Decreaseinin indefaults new ► ►Increase Increase in defaults premium growth. premium growth. and claims. and claims. ► in ►Increase Increase in defaults defaults ► risk ►Market Market risk and and and claims. and claims. resulting negative resulting negative ► risk and ►Market Market effect effect on onrisk and resulting negative resulting negative investment investment effect on effect on portfolios. portfolios. investment investmentcrisis ► ►Economic Economic crisis portfolios. portfolios. caused caused by by the the ► crisis ►Economic Economic collapse the collapse of ofcrisis the caused the caused by by the banking sector. banking sector. collapse collapse of of the the banking banking sector. sector.
5 55thth 66thth 66thth
► ►Reputational Reputational risk risk
from from varying varying ► risk ►Reputational Reputational risk business business models. models. from from varying varying ► Controls, risk ► Controls, risk business business models. models. management management and and ► Controls, risk ►reporting Controls, reporting risk management and management framework. framework. and reporting reporting ► ►Obtaining Obtaining an an framework. framework. rating. independent independent rating. ► an ►Obtaining Obtaining an ► ►Conflict Conflict between between independent rating. independent rating. motives of motives of the the ► Conflict between ►Takaful Conflict between fund and Takaful fund and motives of motives of the the the the shareholders’ shareholders’ Takaful fund and Takaful fund and fund. fund. the the shareholders’ shareholders’ fund. fund.
► ►Varying Varying regulatory regulatory
requirements requirements --
► regulatory ►Varying Varying business models businessregulatory models
requirements requirements requirements. requirements.business models business models ► ►Young Young and and requirements. requirements. inexperienced inexperienced ► and ►Young Young andregimes. regulatory regulatory regimes. inexperienced inexperienced ► capital ►Evolving Evolving capital regulatory regulatory regimes. regimes. requirements requirements (risk (risk ► Evolving capital ►based Evolving capital capital). based capital). requirements requirements (risk (risk based based capital). capital).
Source: Ernst & Young analysis Source: Ernst & Young analysis
29
High risk investment portfolios, human resource expertise and competition will be the most global Takafulhuman business risks over the next months will be High risk pressing investment portfolios, resource expertise and12 competition the most pressing global Takaful business risks over the next 12 months Takaful Globally Takaful Globally
Key Business Risks 2008* Key Business Risks 2008* Lack of Human
Financial
Compliance
1
Financial
Compliance
1
Resource Expertise* Lack of Human Resource Expertise* Limited Product
2
Development Limited Product Development Inability to Tap
2 3
Pent-up Demand* Inability to Tap Pent-up High-riskDemand* Investment High-risk Portfolios* Investment Portfolios* Lack of Rated ReTakaful* Lack of Rated ReTakaful* Enterprise Risk
3 4 4 5 5 6
Global Economic Downturn Global Economic Downturn Investment Portfolios Investment Portfolios
Management* Enterprise Risk Management*
Competition
Key to Symbols
Competition
6
KeyUp to Symbols from 2008 Up from 2008 Down from 2008 Down from 2008 New entry
▲ ▲ ▼ ▼
Regulatory Regimes Regulatory Regimes
▲ ▲
▲ ▲ ▼ ▼
1 1 2 2 3 3 4 4 5 5
6
Human Resources Human Resources
6 7 7 8 8
Strategic
Operational
Strategic
Operational
9 9 10 10
New entry Source: Corporate Interviews, Ernst & Young analysis 30
Enterprise Risk Management Enterprise Risk Management
Key Business Risks 2009 Key Business Risks High-risk 2009 Investment High-risk Portfolios Investment Portfolios Lack of Human Resource Expertise Lack of Human Resource Expertise Competition Competition Global Economic Downturn Global Economic Downturn Enterprise Risk Management Enterprise Risk Management Varying Regulatory Regimes Varying Regulatory Regimes Inability to Achieve Underwriting Profit Inability to Achieve Underwriting Lack of RatedProfit ReTakaful Lack of Rated ReTakaful Lack of Financial
Flexibility Lack of Financial Flexibility Inability to Tap Pent-up Demand Inability to Tap Pent-up Demand
* Note: To ease comparability, the names of these 2008 risks have been amended to reflect responses from this years.
MEGA Brands.Interviews, MEGA Clients. Market Leaders. | Shaping the Future* of the Islamic Finance Industry Since Source: Corporate Ernst & Young analysis Note: To ease comparability, the 1993 names of these 2008 risks have been amended to reflect responses from this years.
Page 29
The World Takaful Report 2009
Takaful operators from the GCC and South-East Asia are facing similar risks, but regional nuances exist Takaful operators from the GCC and South-East Asia are facing similar risks, but regional nuances exist Takaful in the Gulf Cooperation Council (GCC ) Takaful Financial
in the Gulf Cooperation Council (GCC ) Compliance
Financial
Compliance
Financial
Financial Global Economic Downturn Global Economic Downturn Investment Portfolios Investment Portfolios Competition Competition
Takaful in South-East Asia (SEA)
6 6 5
4
5
1 1 3 3
4 2 2
Regulatory Regimes Regulatory Regimes Enterprise Risk Management Enterprise Risk Management Human Resources Human Resources
Takaful in South-East Asia (SEA)
Compliance Compliance
Investment Portfolios Investment Portfolios Global Economic Downturn Global Economic Downturn Achieving Underwriting Profit Achieving Underwriting Profit 6
6 Competition
2 2
5
1
5
1 3 4
3
Enterprise Risk Management Enterprise Risk Management Human Resources Human Resources
4
Strategic
Operational
Competition Strategic
Operational
Strategic
Operational
Strategic
Operational
Business Risks in the GCC ► Equity concentrated investment portfolios are a key risk. Business Risks in the GCC ► HR continues to concern many operators. ► Equity concentrated investment portfolios are a key risk. ► Increased competition has emerged as a new risk. ► HR continues to concern many operators. ► Increased competition has emerged as a new risk.
Business Risks in SEA ► The global downturn is seen as the most important risk. Business Risks in SEA ► Although more diversified, investment portfolios are also a key risk ► The global downturn is seen as the most important risk. as equity markets and interest rates fall. ► Although more diversified, investment portfolios are also a key risk ► HR continues to concern many operators. as equity markets and interest rates fall. ► HR continues to concern many operators.
Source: Corporate Interviews, Ernst & Young analysis Source: Corporate Interviews, Ernst & Young analysis
Page 30
31
The World Takaful Report 2009
High risk investment portfolios have moved up the agenda High risk investment portfolios have moved up the agenda Commentary and Contributing Factors Commentary and Contributing Factors The limited investment universe results in concentrations: ► Takaful operators are required to invest only in Shari’a-compliant investments. The investment universe The limited investment universe results in concentrations: is thus reduced and lacks fixed income equivalents. The result is an unbalanced investment portfolio, ► Takaful operators are required to invest only in Shari’a-compliant investments. The investment universe particularly with regard to the policyholders’ fund, which is over-concentrated in high-risk equity is thus reduced and lacks fixed income equivalents. The result is an unbalanced investment portfolio, investments, illiquid real estate and low-return cash deposits (Murabaha). particularly with regard to the policyholders’ fund, which is over-concentrated in high-risk equity ► Sukuk issuance has been negatively affected by the global collapse of capital markets and by concerns investments, illiquid real estate and low-return cash deposits (Murabaha). over Shari’a compliance - the result has been a reduction in new fixed income investments. ► Sukuk issuance has been negatively affected by the global collapse of capital markets and by concerns ► A large allocation to cash, which is particularly evident for GCC-based operators, is often accompanied over Shari’a compliance - the result has been a reduction in new fixed income investments. with a concentration in a small number of Islamic financial institutions. ► A large allocation to cash, which is particularly evident for GCC-based operators, is often accompanied ► This risk has highlighted shortcomings in the industry, particularly in the GCC, where operators are with a concentration in a small number of Islamic financial institutions. reliant upon investment income. For one GCC Takaful executive, recent events have been a wakeup ► This risk has highlighted shortcomings in the industry, particularly in the GCC, where operators are call: “The economic crisis has brought to light weaknesses in the insurance sector…this will hopefully reliant upon investment income. For one GCC Takaful executive, recent events have been a wakeup help them to take corrective measures to concentrate on their core activity [insurance underwriting]”. call: “The economic crisis has brought to light weaknesses in the insurance sector…this will hopefully ► In Malaysia, regulatory restrictions on foreign investment have also limited opportunities for help them to take corrective measures to concentrate on their core activity [insurance underwriting]”. diversification. ► In Malaysia, regulatory restrictions on foreign investment have also limited opportunities for diversification. However, conservative investment strategies do exist: ► Takaful windows argued that their “conservative investment strategies” have made this risk less However, conservative investment strategies do exist: pertinent. Their focus has instead been on achieving an underwriting profit. ► Takaful windows argued that their “conservative investment strategies” have made this risk less pertinent. Their focus has instead been on achieving an underwriting profit. Key Considerations
“ The ability to deliver adequate investment “ The ability to deliver performance in today's shelladequate investment shocked environment is performance in today's shellseen as the key risk shocked environment is challenges are falling asset seen as the key risk values, market volatility and challenges are falling asset extra low interest rates. ” values, market volatility and - SEA Takaful executive extra low interest rates. ” - SEA Takaful executive “ The economic crisis has brought to light weaknesses “ The economic crisis has in the insurance sector. ” brought to light weaknesses - UAE Takaful executive in the insurance sector. ” - UAE Takaful executive “ Equity/real estate investments, particularly “ Equity/real estate regional, are highly risky and investments, particularly low-risk instruments are regional, are highly risky and limited in volume. ” low-risk instruments are - Ratings executive limited in volume. ” - Ratings executive
Key Considerations Increase retention, focus on underwriting and seek professional asset management: ► Those operators who have relied upon investment income need to enhance their portfolio management capabilities to improve risk adjusted Increase retention, focus on underwriting and seek professional asset management: returns. This risk is an opportunity for asset managers, who need to address the unique risk/return profile of Takaful operators. ► Those operators who have relied upon investment income need to enhance their portfolio management capabilities to improve risk adjusted returns. This risk is an opportunity for asset managers, who need to address the unique risk/return profile of Takaful operators. Source: Corporate interviews, Ernst & Young analysis 32
MEGA Brands.interviews, MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Corporate Ernst & Young analysis
Human resource expertise has remained a key risk for operators Human resource expertise has remained a key risk for operators Commentary and Contributing Factors Commentary Human resources risks are still high on the executive agenda: and Contributing Factors ► As with the wider Islamic financial services industry, Takaful continues to suffer from a shortage of Human resources risks are still high on the executive agenda: human resources with the requisite expertise. This risk was considered more important in the GCC, but ► As with the wider Islamic financial services industry, Takaful continues to suffer from a shortage of South East Asian operators also acknowledged its continued relevance. According to interviewees, human resources with the requisite expertise. This risk was considered more important in the GCC, but human resource risk is particularly acute in specialist fields, including life insurance, risk management South East Asian operators also acknowledged its continued relevance. According to interviewees, and Shari’a compliance. human resource risk is particularly acute in specialist fields, including life insurance, risk management ► The continued under-penetration of life insurance in the GCC has resulted in the near non-existence of and Shari’a compliance. indigenous expertise. As a result, a number of recent attempts to expand family Takaful in this market ► The continued under-penetration of life insurance in the GCC has resulted in the near non-existence of have included participation from international conventional insurers. indigenous expertise. As a result, a number of recent attempts to expand family Takaful in this market ► Executives in both key markets (GCC and Malaysia), voiced concern over the availability of Shari’a have included participation from international conventional insurers. scholars with relevant business acumen. ► Executives in both key markets (GCC and Malaysia), voiced concern over the availability of Shari’a scholars with relevant business acumen. However, not all operators are suffering to the same extent: ► Takaful windows are tapping large pools of conventional talent relocated from depressed markets. However, not all operators are suffering to the same extent: ► There has been a shift towards the recruitment and development of indigenous talent in recognition of ► Takaful windows are tapping large pools of conventional talent relocated from depressed markets. the additional expenses of expatriate staff and their willingness to repatriate. Such sentiment was ► There has been a shift towards the recruitment and development of indigenous talent in recognition of confirmed by a SEA Takaful executive who pointed out: “During this period, companies with financial the additional expenses of expatriate staff and their willingness to repatriate. Such sentiment was strength can target new employees - a lot of those Malaysians working abroad are being retrenched.” confirmed by a SEA Takaful executive who pointed out: “During this period, companies with financial strength can target new employees - a lot of those Malaysians working abroad are being retrenched.”
“ The availability of business/ financially qualified scholar “ The availability of business/ in the industry is still an financially qualified scholar issue. ” in the industry is still an - SEA Takaful executive issue. ” - SEA Takaful executive “ We have created a good culture and focus on hiring “ We have created a good locally, which has greatly culture and focus on hiring reduced executive turnover. ” locally, which has greatly - GCC Takaful executive reduced executive turnover. ” - GCC Takaful executive “ There is an openness in terms of the movement of “ There is an openness in conventional skilled terms of the movement of personnel into Takaful. ” conventional skilled - Takaful window executive personnel into Takaful. ” - Takaful window executive
Key Considerations Considerations Focus on developing local talent and partnering for quickKey market entry: ► Hiring indigenous talent and providing structured internal training programs helps to create a development culture and reduce turnover. Focus on developing local talent and partnering for quick market entry: ► For conventional insurers, partnering with established local operators can provide brand equity, infrastructure and access to HR including ► Hiring indigenous talent and providing structured internal training programs helps to create a development culture and reduce turnover. expertise in Shari’a compliance. For local Takaful operators, international insurers provide expertise in risk management and specialist lines. ► For conventional insurers, partnering with established local operators can provide brand equity, infrastructure and access to HR including expertise in Shari’a compliance. For local Takaful operators, international insurers provide expertise in risk management and specialist lines. Source: Corporate interviews, Ernst & Young analysis Source: Corporate interviews, Ernst & Young analysis
Page 32
33
The World Takaful Report 2009
Competition has emerged as a major global risk for operators Competition has emerged as a major global risk for operators Commentary and Contributing Factors and Contributing Factors New local operators and international windowsCommentary are crowding the landscape: ► Regulatory authorities in many established Takaful markets have recently relaxed restrictions on the New local operators and international windows are crowding the landscape: insurance sector. Licenses have been awarded to new locally-backed entities and Takaful windows of ► Regulatory authorities in many established Takaful markets have recently relaxed restrictions on the large conventional incumbents. Interviewees, particularly in the GCC, argued that increased insurance sector. Licenses have been awarded to new locally-backed entities and Takaful windows of competition in a contracting market had resulted in overly aggressive pricing for group and commercial large conventional incumbents. Interviewees, particularly in the GCC, argued that increased risks. competition in a contracting market had resulted in overly aggressive pricing for group and commercial risks. The wakalah business model puts Takaful at a pricing disadvantage: ► Price remains a key differentiating factor - “Customers still go for ‘value for money’ insurance The wakalah business model puts Takaful at a pricing disadvantage: purchases over faith purchases” is how one GCC Takaful executive described preferences. ► Price remain a key differentiating factor - “Customers still go for ‘value for money’ insurance purchases ► When competing for business that does not require Shari'a compliant coverage, wakalah-based over faith purchases” is how one GCC Takaful executive described preferences. operators are unable to use retained underwriting surplus to discount. As a result, a number of ► When competing for business that does not require Shari'a compliant coverage, wakalah-based interviewees argued that Takaful pricing for group and commercial cover was often uncompetitive. This operators are unable to use retained underwriting surplus to discount. As a result, a number of lack of competitiveness reduced an operator’s ability to use brokerage as a “cost-effective mechanism” interviewees argued that Takaful pricing for group and commercial cover was often uncompetitive. This to source business. lack of competitiveness reduced an operator’s ability to use brokerage as a “cost-effective mechanism” to source business. But competition is still lacking in GCC family Takaful: ► The specialist nature of family Takaful and long gestation period has limited competition - “What But competition is still lacking in GCC family Takaful: competition? I wish we had more”, was the response from one GCC Takaful executive. For the majority ► The specialist nature of family Takaful and long gestation period has limited competition - “What of GCC-based interviewees, critical mass has not yet been established for family Takaful. competition? I wish we had more”, was the response from one GCC Takaful executive. For the majority of GCC-based interviewees, critical mass has not yet been established for family Takaful. Key Considerations
“ Competition has become very tough in the last year, “ Competition has become competitors are cutting very tough in the last year, rates aggressively - the competitors are cutting market is changing, due to rates aggressively - the lower business. ” market is changing, due to - GCC Takaful executive lower business. ” - GCC Takaful executive “ Because we can’t share in underwriting income, we “ Because we can’t share in can’t adjust pricing and underwriting income, we can’t meet the same terms can’t adjust pricing and brokers are offered by can’t meet the same terms conventional insurers. ” brokers are offered by - GCC Takaful executive conventional insurers. ” - GCC Takaful executive “ Competition drives the industry to better itself. ” “ Competition drives the - Takaful window executive industry to better itself. ” - Takaful window executive
Key Partnerships and specialization can differentiate operators, butConsiderations critical mass is essential: ► Partnerships with conventional incumbents and specialization in specific lines can differentiate operators from their competition. However, Partnerships and specialization can differentiate operators, but critical mass is essential: without critical mass, profitability in family Takaful will be delayed and competiveness when bidding against insurance companies will be ► Partnerships with conventional incumbents and specialization in specific lines can differentiate operators from their competition. However, limited. without critical mass, profitability in family Takaful will be delayed and competiveness when bidding against insurance companies will be ► Distributions are a unique value proposition for Takaful and should be emphasized when competing against conventional competition. limited. Source: Corporate interviews, & Young analysis ► Distributions are aErnst unique value proposition 34
for Takaful and should be emphasized when competing against conventional competition.
MEGA Brands.interviews, MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Corporate Ernst & Young analysis
The global economic downturn has now begun to affect market conditions The global economic downturn has now begun to affect market conditions Commentary and Contributing Factors Commentary The global economic downturn is now impacting the GCC andand SEA:Contributing Factors ► markets were largely from thethe early impacts of the global economic downturn. The Emerging global economic downturn isshielded now impacting GCC and SEA: However, the situation has now changed and the majority of interviewees acknowledged a drop in ► Emerging markets were largely shielded from the early impacts of the global economic downturn. premiums. In SEA, reduced business confidence and a corresponding reduction in lending has However, the situation has now changed and the majority of interviewees acknowledged a drop in negatively affected finance Takaful - a key family product in that region. In the GCC, the collapse of premiums. In SEA, reduced business confidence and a corresponding reduction in lending has equity markets has reduced uptake in investment-linked family products. negatively affected finance Takaful - a key family product in that region. In the GCC, the collapse of ► A number of interviewees argued that, despite the relatively sound performance of the Takaful industry equity markets has reduced uptake in investment-linked family products. vis-à-vis conventional financial services, contagion had also taken its toll. ► A number of interviewees argued that, despite the relatively sound performance of the Takaful industry vis-à-vis conventional financial services, contagion had also taken its toll. The downturn has increased claims and the prevalence of fraud ► riskincreased has grownclaims as bullish begin of to fraud slow and asset bubbles deflate. Claims The Underwriting downturn has andeconomies the prevalence ratios across the GCC and SEA are expected to rise as defaults increase. One GCC Takaful executive ► Underwriting risk has grown as bullish economies begin to slow and asset bubbles deflate. Claims gave an example of: “Warehouses bought at inflated prices being burnt down to collect insurance ratios across the GCC and SEA are expected to rise as defaults increase. One GCC Takaful executive payouts”. gave an example of: “Warehouses bought at inflated prices being burnt down to collect insurance payouts”. Opportunities exist for family Takaful ► A handful ofexist interviewees argued that the downturn could potentially increase demand for family Takaful Opportunities for family Takaful as customers seek annuity products that offer long-term diversification. For one GCC-based Takaful ► A handful of interviewees argued that the downturn could potentially increase demand for family Takaful executive, “the growth in life insurance [family Takaful] is purely due to the investment element.” as customers seek annuity products that offer long-term diversification. For one GCC-based Takaful executive, “the growth in life insurance [family Takaful] is purely due to the investment element.” Key Considerations
“ We saw a down-turn [in premiums] in the previous “ We saw a down-turn [in quarter of about 30-40%, premiums] in the previous especially in life, property quarter of about 30-40%, and motor. ” especially in life, property - GCC Takaful executive and motor. ” - GCC Takaful executive “ Business confidence is down. ” “ Business confidence is - SEA Takaful executive down. ” - SEA Takaful executive “ As personal financing has reduced, so too has finance “ As personal financing has Takaful. ” reduced, so too has finance - SEA Takaful executive Takaful. ” - SEA Takaful executive “ With bad conditions, the risks of underwriting have “ With bad conditions, the increased. ” risks of underwriting have - GCC Takaful executive increased. ” - GCC Takaful executive
Improve the core business function and diversify income:Key Considerations ► To meet challenges a depressed market and increased competition, Takaful operators need to enhance their underwriting capabilities Improve the the core businessoffunction and diversify income: and capacity. ► To meet the challenges of a depressed market and increased competition, Takaful operators need to enhance their underwriting capabilities ► Operators should also consider the benefits of diversifying exposures, both across lines of business and across geographies. and capacity. ►
Operators should also consider the benefits of diversifying exposures, both across lines of business and across geographies.
Source: Corporate interviews, Ernst & Young analysis Source: Corporate interviews, Ernst & Young analysis
35
Enterprise risk management has moved up our rankings and reflects market turmoil Enterprise risk management has moved up our rankings and reflects market turmoil Commentary and Contributing Factors Commentary The global financial crisis brings risk management to the fore:and Contributing Factors ► markets, slowed economic realizedtolosses and The Volatile global financial crisis brings riskgrowth, management the fore:
the subsequent possibility of regulatory intervention or increased monitoring are all weighing heavy upon Takaful operators. ► Volatile markets, slowed economic growth, realized losses and the subsequent possibility of regulatory ► As a nascentorand fragmented industry, riskheavy management (ERM) has been slow to develop intervention increased monitoring areenterprise all weighing upon Takaful operators. with only a handful of established operators and windows claiming to have fully implemented an ► As a nascent and fragmented industry, enterprise risk management (ERM) has been slow to develop effective framework. The importance of risk management has been underlined by the current crisis. with only a handful of established operators and windows claiming to have fully implemented an ► A sharp decrease in investment income, which followed a has sustained bull-run in by both GCC crisis. and South effective framework. The importance of risk management been underlined thethe current East Asia, has also made the management of stakeholder expectations more challenging. As one SEA ► A sharp decrease in investment income, which followed a sustained bull-run in both the GCC and South Takaful executive points out: “The pressure is to remain solvent, profitable, and be able to meet client East Asia, has also made the management of stakeholder expectations more challenging. As one SEA claims and expectations”. Takaful executive points out: “The pressure is to remain solvent, profitable, and be able to meet client claims and expectations”. Getting rated - a mixture of opinions: ► Recent events in the financial services sector have exposed ratings agencies to criticism. A number of Getting rated - a mixture of opinions: our interviewees questioned the validity and merit of ratings - a GCC-based Takaful executive ► Recent events in the financial services sector have exposed ratings agencies to criticism. A number of explained how a ratings downgrade assigned to one of their reinsurance companies would not effect our interviewees questioned the validity and merit of ratings - a GCC-based Takaful executive future treaties. Track record, reputation and existing due diligence were sufficient. explained how a ratings downgrade assigned to one of their reinsurance companies would not effect ► That otherTrack interviewees described and ratings as a necessity if Takaful was to more effectively futuresaid, treaties. record, reputation existing due diligence were sufficient. compete with its conventional counterpart in industrial and commercial underwriting. ► That said, other interviewees described ratings as a necessity if Takaful was to more effectively compete with its conventional counterpart in industrial and commercial underwriting.
Key Considerations Key Considerations
“ In such an environment, people are learning to be “ In such an environment, more cautious. ” people are learning to be - GCC Takaful executive more cautious. ” - GCC Takaful executive “ Compliance plays a major role and it’s fundamental to “ Compliance plays a major starting any business - it’s role and it’s fundamental to a differentiating factor for starting any business - it’s companies. ” a differentiating factor for - Takaful window executive companies. ” - Takaful window executive “ These days, ratings are overrated. ” “ These days, ratings are - GCC Takaful executive overrated. ” - GCC Takaful executive “ Get themselves financially rated in order to compete “ Get themselves financially for bigger business. ” rated in order to compete - GCC Takaful executive for bigger business. ” - GCC Takaful executive
Prioritize risk management and seek ratings: ► The Takaful industry is facing combination Prioritize risk management and a seek ratings: of insurance and Shari'a risks, fragmentation and a lack of financial strength, a concentration in emerging markets and a reliance upon inexperienced regulatory regimes. Implementing effective ERM is key to sustainability. ► The Takaful industry is facing a combination of insurance and Shari'a risks, fragmentation and a lack of financial strength, a concentration in ► For all its failings, independent ratinginexperienced remains a differentiating factor in Implementing the insurance effective industry. ERM If Takaful operators are to effectively compete emerging marketsan and a reliance upon regulatory regimes. is key to sustainability. with their conventional counterparts for high value underwriting, a rating appears essential. ► For all its failings, an independent rating remains a differentiating factor in the insurance industry. If Takaful operators are to effectively compete Source: Corporate Ernst & counterparts Young analysis for high value underwriting, a rating appears essential. with their interviews, conventional 36
MEGA Brands.interviews, MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Corporate Ernst & Young analysis
Varying regulatory regimes have emerged as a business risk and reflect increased sophistication of players Varying regulatory regimes have emerged as a business risk and reflect increased sophistication of players Commentary and Contributing Factors Commentary and Contributing Factors Industry expansion has highlighted regulatory risks: ► In the GCC, a lack of regulation has historically impeded Industry expansion has highlighted regulatory risks:
growth in the insurance sector and is now also considered a business risk for Takaful. A number of interviewees argued that the progress made by the ► In the GCC, a lack of regulation has historically impeded growth in the insurance sector and is now also industry has not been matched by the regulatory authorities. As one GCC Takaful executive stated; considered a business risk for Takaful. A number of interviewees argued that the progress made by the “Regulation and regulators are somewhat immature, there is still a lot of development needed.” industry has not been matched by the regulatory authorities. As one GCC Takaful executive stated; ► As competition increases and international conventional incumbents become more active, the “Regulation and regulators are somewhat immature, there is still a lot of development needed.” sophistication of operators will continue to improve. Regulators will subsequently have to develop ► As competition increases and international conventional incumbents become more active, the supervisory frameworks to match industry innovation. To date, only a small number of countries have sophistication of operators will continue to improve. Regulators will subsequently have to develop implemented tailored regulations for Takaful - Bahrain and Malaysia being the two clearest examples. supervisory frameworks to match industry innovation. To date, only a small number of countries have implemented tailored regulations for Takaful - Bahrain and Malaysia being the two clearest examples. The application of conventional regulations to Takaful ► The application of capital adequacy to Takaful is complicated by the separation of shareholders’ and The application of conventional regulations to Takaful policyholder’s funds. A number of interviewees disagree with the application of such requirements to ► The application of capital adequacy to Takaful is complicated by the separation of shareholders’ and policyholders’ funds in isolation, which requires an accumulation of earnings, particularly in the early policyholder’s funds. A number of interviewees disagree with the application of such requirements to years of operations, and the subsequent withholding of distribution to policyholders. policyholders’ funds in isolation, which requires an accumulation of earnings, particularly in the early years of operations, and the subsequent withholding of distribution to policyholders.
“ Countries need to properly develop their regulations “ Countries need to properly and aim for standardization develop their regulations Takaful is treated differently and aim for standardization in each country. ” Takaful is treated differently - Takaful window executive in each country. ” - Takaful window executive “ The Gulf states are highly fragmented in their “ The Gulf states are highly regulatory approach. ” fragmented in their - Ratings executive regulatory approach. ” - Ratings executive “ Solvency criteria are difficult to meet and “ Solvency criteria are effectively remove our difficult to meet and competitive advantage. ” effectively remove our - GCC Takaful executive competitive advantage. ” - GCC Takaful executive
Key Considerations Transparency and consistency, preparation and dialogue:Key Considerations ► The ongoing ambiguity and opaqueness of the Takaful industry Transparency and consistency, preparation and dialogue: ► ► ►
reduces its appeal to a wider audience. Takaful operators should strive to adopt consistent business models and provide transparency to consumers. The ongoing ambiguity and opaqueness of the Takaful industry reduces its appeal to a wider audience. Takaful operators should strive to adopt changes and continuous dialogue with authorities helps to smooth the learning curve. Preparation for regulatory consistent business models and provide transparency to consumers. Preparation for regulatory changes and continuous dialogue with authorities helps to smooth the learning curve.
Source: Corporate interviews, Ernst & Young analysis Source: Corporate interviews, Ernst & Young analysis
37
3. Sustaining the Future
2. Global Takaful Markets
3. The Financial Crisis
4. Sustaining the Future
2. Global Takaful Markets Historical Growth
3. The Financial Crisis Window of Opportunity
4. Sustaining the Future Future Growth
Historical Growth
Window of Opportunity
Future Growth
► ► ► ► ► ►
Takaful operators who successfully adapt their Takaful whomitigate successfully adapt their businessoperators models and against changing business risk models and mitigate against will have opportunities tochanging expand. business risk will favorable have opportunities to expand. In the long-term, demographics, risks In the income long-term, rising andfavorable a growingdemographics, desire Business to consume Business risks rising and products a growingwill desire to consume Shari’aincome compliant benefit Takaful. Economic downturn Shari’a compliant willand benefit Takaful. Based on researchproducts interviews estimates, Economic We are here Based ondownturn research andStrategic estimates, the likely size of theinterviews global Takaful marketCompliance We are here Operations Financial the likely size of the global Takaful market could be as high as US$ 7.7 billion by the end Strategic Compliance Operations Financial could be as high as US$ 7.7 billion by the end of 2012. of 2012.
A Economic A fundamentals Economic fundamentals
B B
C C
Previous 5-10 Years
2008-2009
Next 5 Years
Previous 5-10 Years
Takaful2008-2009 Growth Phases
Next 5 Years
Source: Ernst & Young analysis Source: Ernst & Young analysis
Takaful Growth Phases
Potential Potential Scenarios Scenarios
Global Global Takaful Takaful Premiums Premiums
Latent demand will continue to fuel long-term future growth for the Takaful industry Latent demand will continue to fuel long-term future growth for the Takaful industry
39
Long term growth of Takaful is predicated on strong underlying factors Long term growth of Takaful is predicated on strong underlying factors
► ► ►
► ►
► ► ► ►
► ► ►
Takaful Takaful Takaful Takaful Industry Industry Industry Industry
Facilitators Facilitators Regulatory support and framework Regulatory support and framework Insurance legislation Insurance legislation Compulsory coverage Compulsory coverage
Source: Ernst & Young analysis 40
s s ionion ditdit onon t Ct C rkerke MaMa
►
Favorable demographics Favorable demographics Increased income earnings and propensity to consume Increased income earnings and propensity consume Changing socialtoattitudes towards insurance Changing social attitudes towards insurance
FuFu ndnd amam enen taltal s s
►
MEGA MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: ErnstBrands. & Young analysis
►
Available Shari’a compliant projects Available Shari’a compliant projects Equity markets Equity markets Investment opportunities Investment Institutional opportunities growth Institutional growth
Real GDP Growth Rate - GCC
Real GDP Growth Rate - South East Asia
Real GDP Growth Rate - GCC
Real GDP Growth Rate - South East Asia
12.0
12.0
10.0 12.0
10.0 12.0
8.0 10.0 6.0 8.0 4.0 6.0 2.0 4.0 0.0 2.0 0.0
2005
2006
2007
2008e 2009e
2010e 2011e
2012e
2005
2006 Bahrain 2007 2008eKuwait 2009e
2010e Oman2011e
2012e
Qatar Bahrain Saudi Arabia Kuwait
United Arab Emirates Oman
Qatar
United Arab Emirates
Saudi Arabia
Percentage Percentage Growth Growth
Percentage Percentage Growth Growth
Although the global recession has led to a drop in short term GDP forecasts, long term prospects for growth in the GCC Asia remain Although the global recession has led and to a South drop inEast short term GDP positive forecasts, long term prospects for growth in the GCC and South East Asia remain positive
8.0 10.0 6.0 8.0 4.0 6.0 2.0 4.0 0.0 2.0 -2.0 0.0 -2.0
2005
2006
2007
2008e
2005
2006
2007 2008e Malaysia Malaysia
2009e
2010e
2011e
2012e
2009e 2010e Indonesia
2011e
2012e
Indonesia
Source: Global Insight Source: Global Insight
41
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The World Takaful Report 2009
A young population in core Takaful markets will need more coverage as government decrease in and more families require private Asubsidies young population core Takaful markets will need coverage more coverage as government subsidies decrease and more families require private coverage Population (m) in 2008 Population (2008)
CAGR 2004-08
CAGR 2004-08 1.3%
72.2
Iran
72.2
Iran 1.1
6.5%
Kuwait Bahrain
2.9 1.1
2.8% 6.5%
Qatar Kuwait
1.4 2.9
17.5% 2.8% 2.4% 17.5%
33%
21%
1.9% 3.3%
20%
32%
2.7
1.9%
25.3
6.1
Jordan
234.3
0.4 27.0 4.5
234.3
27.0 64.3
4.5
Thailand Sudan
Sudan
35%
35%
3.3% 2.1%
28%
1.2% 2.1%
27% 28%
1.8% 1.2%
27%30%
0.4
Singapore Malaysia
32%
3.3%
6.1
Malaysia Indonesia
64.3
1.2% 1.8%
17%
1.2% 0.7%
21% 17%
0.7%
21%
38.6
38.6
38%
2.1% Source: Global Insight
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Global Insight
Page 41
The World Takaful Report 2009
30%
38%
2.1%
Source: Global Insight
42
21% 23%
2.7 4.5
Jordan
Thailand Singapore
23% 26%
33%
Oman UAE
Indonesia Brunei
25.3
26%
20%
4.5
Brunei
26%
3.3% 2.4%
UAE Saudi Arabia
Oman
26%
1.3%
Bahrain
SaudiQatar Arabia 1.4
Youth Population as a Percentage of Total (2008) Youth Population as a Percentage of Total (2008)
Source: Global Insight
With insurance penetration levels in Muslim countries at their current levels, there is considerable latent demandlevels for Takaful With insurance penetration in Muslim countries at their current levels, there is considerable latent demand for Takaful
Insurance Penetration and GDP per Capita for Select Countries (2007) Insurance Penetration and GDP per Capita for Select Countries (2007) Insurance Insurance Penetration Penetration – – Premiums Premiums as aas %aof%Nominal of Nominal GDPGDP in 2007 in 2007
18% 18% 16%
UK
16% 14%
UK Mature Markets
14% 12%
Mature Markets
12% 10% 10% 8% 8% 6% 6% 4%
France
Early Development
Italy
Germany
Canada
Italy
Germany
Canada
Current OIC member states (2008) Current OIC member states (2008)
Singapore
USA
Singapore Growth markets
India Jordan
Malaysia Russia 4% Tunisia 2% Turkey Jordan Russia Tunisia Algeria 2% 0% Turkey Algeria 15,000 Indonesia Egypt 20,000 Nigeria 0% Pakistan Bangladesh Egypt Indonesia 15,000 20,000 Nigeria0 5,000 10,000 Nascent Markets Pakistan Bangladesh 0 5,000 10,000 Nascent Markets
USA
France
Early Development World Morocco Thailand World Morocco India Malaysia Thailand
Growth markets
UAE
Oman
Qatar
KSA 25,000
Oman 30,000
Qatar 35,000
40,000
45,000
Kuwait 50,000
55,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
KSA
Kuwait
UAE
Nominal GDP per Capita in 2007 at PPP Exchange Rates Nominal GDP per Capita in 2007 (US$ per person) at PPP Exchange Rates (US$ per person)
Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis
43
By 2012, total Takaful contributions could reach US$ 7.7 billion By 2012, total Takaful contributions could reach US$ 7.7 billion Global Gross Takaful Contributions by Year (US$m) Indian Sub-Continent Indian Levant Sub-Continent Africa Levant South East Asia Africa GCC South East Asia GCC
Global Gross Takaful Contributions by Year (US$m)
7,696
A 63
769 7,696
67 63
5,929
796
67
583 5,929
1,778 1,778
583 1,457
43 53
4,293
43 53
413
4,293 413 1,142
1,457
27 40 27 40
1,142
3,364 3,364 951 951 2,046
18 32 317 18
32 317
5,019 5,019
2,046
2007e 2007e
3,792
2,673
3,792
2,673
A
B
C
Optimistic
Balanced
Conservative
A
B
C
A Optimistic US$7,696m Optimistic CAGR: 18% US$7,696m CAGR: 18% B B Balanced US$5,929m Balanced CAGR: 12% US$5,929m CAGR: 12% C
C Conservative
US$4,293m Conservative CAGR: 5% US$4,293m CAGR: 5%
2012 Potential Projections Optimistic Balanced Conservative 2012 Potential Projections
Source: World Islamic Insurance Directory 2008; Ernst & Young analysis 44
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: World Islamic Insurance Directory 2008; Ernst & Young analysis
Page 43
The World Takaful Report 2009
Potential Scenarios Potential Scenarios Optimistic
Assumes unabated demand growth with Optimistic no significant impact from the global economicunabated crisis anddemand continued growth in Assumes growth with supply. no significant impact from the global economic crisis and continued growth in supply. Balanced Assumes moderate impact from the Balanced global economic crisis and short-term reduction in economic growth, Assumes moderate impact fromreduced the premiums in personal general lines but global economic crisis and short-term also increased market growth, share inreduced corporate reduction in economic and group.in personal general lines but premiums also increased market share in corporate and group. Conservative Assumes significant impact from the Conservative global economic crisis and prolonged reduction in economic growth. Reduced Assumes significant impact from the demand for personal general lines and global economic crisis and prolonged investment-linked family products, reduction in economic growth. Reduced together for with aggressive pricing in and the demand personal general lines corporate segment, will slow premium investment-linked family products, growth. with aggressive pricing in the together corporate segment, will slow premium growth.
Conclusions
Historic growth is now being affected by the economic downturn - a window of Historic growth now being for affected the economic downturn a window of risks opportunity has is materialized thoseby Takaful operators that can --manage their Historic growth is now being affected by the economic downturn a window of risks opportunity has materialized for those Takaful operators that can manage their and sustain future growth opportunity materialized for those Takaful operators that can manage their risks and sustain has future growth and sustain future growth
► ► ► ► ► ► ► ► ► ► ► ►
Basic product ranges. Basic ranges. Simpleproduct distribution channels. Basic product ranges. Simple distribution channels. Development of regulatory Simple distribution channels. Development of regulatory frameworks. Development of regulatory frameworks. Emergence of standardization. frameworks. Emergence of standardization. Emergence of standardization.
Economic Economic downturn Economic downturn downturn
► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ►
3. The Financial Crisis 3. The Financial Crisis 3. The Financial Crisis Window of Opportunity Window of Opportunity Window of Opportunity
Increased alliances. Increased alliances. Mergers and acquisitions. Increased alliances. Mergers and Cross selling acquisitions. and BancTakaful. Mergers and acquisitions. Cross selling and BancTakaful. Product innovation. Cross selling and BancTakaful. Product innovation. Multiple distribution channels. Product innovation. Multiple distribution Emerging markets. channels. Multiple distribution channels. Emerging markets. Emerging markets. Business risks Business risks Business risks
We are here We are here We are here Strategic
Compliance Strategic Compliance Operational Financial Strategic Compliance Operational Financial Operational Financial
Previous 5-10 Years Previous 5-10 Years Previous 5-10 Years
46
2008-2009 2008-2009 Takaful2008-2009 Growth Phases Source: Ernst & Young analysis Takaful Growth Phases Takaful Growth Phases Source: Ernst & Young analysis MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Ernst & Young analysis
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4. Sustaining the Future 4. Sustaining the Future 4. Sustaining the Future Future Growth Future Growth Future Growth
The World Takaful Report 2009
Economic Economic fundamentals Economic fundamentals fundamentals
► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ►
A A A B B B C C C
Potential Potential Potential Scenarios Scenarios Scenarios
Global Global Global Takaful Takaful Takaful Premiums Premiums Premiums
2. Global Takaful Markets 2. Global Takaful Markets 2. Global Takaful Markets Historical Growth Historical Growth Historical Growth
Large population centres. Large population centres. Expanding income. Large population centres. Expanding income. Changing social attitudes towards Expanding income. Changing social attitudes towards Takaful. Changing social attitudes towards Takaful. Growing awareness. Takaful. Growing Economicawareness. development. Growing awareness. Economic development. Growth of Islamic banking. Economic development. Growth of Islamic banking. Growth of Islamic banking.
Next 5 Years Next 5 Years Next 5 Years
References and Methodology
The Ernst & Young team The Ernst & Young team
EMEIA
+973 1751 2801
sameer.abdi@bh.ey.com
EMEIA
Sameer Abdi
+973 1751 2801
sameer.abdi@bh.ey.com
Bahrain Bahrain
SalmaanJaffery Jaffery Salmaan
+973 17512802 2802 +973 1751
salmaan.jaffery@bh.ey.com salmaan.jaffery@bh.ey.com
Saudi Arabia
Saudi Arabia Qatar
Ahmed Taher
Ahmed Taher
Robert Abboud
+966 1215 9438
+966 1215 9438 +974 4573 444
ahmed.taher@sa.ey.com
ahmed.taher@sa.ey.com robert.abboud@qa.ey.com
Qatar
Robert Abboud
+974 4573 444
robert.abboud@qa.ey.com
Kuwait
Daryoush Pour
+965 2295 5055
daryoush.pour@kw.ey.com
UAE United Kingdom
Najeeb Rana Richard H. Grainger
+971 9343 +444312 207 951 1091
najeeb.rana@ae.ey.com rgrainger@uk.ey.com
United Kingdom Luxembourg
Ken Eglinton Pierre Weimerskirch
+44 20742951 +352 1242000 8312
keglinton@uk.ey.com pierre.weimerskirch@lu.ey.com
Malaysia Luxembourg
AbdulWeimerskirch Rauf Rashid Pierre
+603 +352 427495 1248000 8312
abdul-rauf.rashid@my.ey.com pierre.weimerskirch@lu.ey.com
Kuwait UAE
Hong Kong
Malaysia
48
Sameer Abdi
Daryoush Pour Najeeb Rana
James A. Smith
Abdul Rauf Rashid
+965 2295 5055 +971 4312 9343
+852 2846 9888
+603 7495 8000
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
daryoush.pour@kw.ey.com najeeb.rana@ae.ey.com
james.smith@hk.ey.com
abdul-rauf.rashid@my.ey.com
The report’s methodology and our interviews The report’s methodology and our interviews
Survey Methodology Survey ► Our Methodology survey sought to identify key trends and business risks for the global Takaful industry through in-depth withrisks executives ► Our survey sought to identify key trends interviews and business for the and industry observers. global Takaful industry through in-depth interviews with executives industry observers. ► and These discussions were used to gauge business sentiment and identifydiscussions key areas for inquiry. ► These were used to gauge business sentiment and keywere areas for inquiry. ► identify Interviews conducted in February and March of 2009. A total of 21 interviews were conducted in seven different ► Interviews were conducted in February and March countries of 2009. Aby total Ernst & Young staff. of 21 interviews were conducted in seven different countries by & Young staff. on three main topics of discussion, namely; ► Ernst Interviews centered ► Business confidence, and supply ► Interviews centered on threedemand main topics of discussion, namely; ►
Mega trends Business confidence, demand and supply Business risks Mega trends
►
Business risks
►
Business Risk Ratings Business Ratings ► Ernst &Risk Young subject matter experts from the Middle East, Asia and Europe developed a list ofexperts Takafulfrom business risks and ► Ernst & Young subject matter the Middle East, Asia contributing factors. and Europe developed a list of Takaful business risks and factors. ► contributing All interviewees were provided with this list of business risks and requested to rate eachprovided to reflectwith its severity to business their respective ► All interviewees were this list of risks and business over the coming 12 months. Interviewees were also requested to rate each to reflect its severity to their respective asked to add they Interviewees felt were important. business overany the additional coming 12risks months. were also to addofany risks were they felt were important. ► asked The results thisadditional rating process tallied and a relative ranking assigned each.process This rank formed basis for our ► The results of thistorating were talliedthe and a relative comparative studytowith 2008 results. ranking assigned each. This rank formed the basis for our comparative study with 2008 results.
Business Risks Radar Business Risks Radar risk radar is a simple device that allows us to ► The Ernst & Young present the&top 6 business risks the Takaful ► The Ernst Young risk radar is ainsimple deviceindustry. that allows us to business risks in the industry. ► present The risksthe at top the 6center of the radar are Takaful those that the individuals we interviewed thought would pose the greatest challenge to the ► The risks at the center of the radar are those that the individuals industry in 2009. we interviewed thought would pose the greatest challenge to the industry in 2009. Business Risk Categories Business RiskisCategories ► The radar divided into four sections that correspond to the Ernst & Young Risk Universe™ model. ► The radar is divided into four sections that correspond to the Ernst Young Riskthreats Universe™ model. ► & Compliance originate in politics, law, regulation or corporate governance; ► Compliance threats originate in politics, law, regulation or ► corporate Financial governance; threats stem from volatility in markets and the real economy; ► Financial threats stem from volatility in markets and the real ► economy; Strategic threats are related to customers, competitors and ► investors; Strategic and threats are related to customers, competitors and andthreats impact the processes, systems, people and ► investors; Operational overall value threats chain ofimpact a business. ► Operational the processes, systems, people and overall value chain of a business. Anonymity and Quotes Anonymity and Quotes ► All interviewees were assured of anonymity and minutes documented during our discussions were approved by respective ► All interviewees were assured of anonymity and minutes interviewees. documented during our discussions were approved by respective ► interviewees. Quotations have been used to support argument made in the ► report. Quotations have been used to support argument made in the report.
49
References and the Project Team References and the Project Team
Sources Sources ► Global Insight - Comparative World Overview Tables ► Global Insight - Comparative World Overview Tables ► Datamonitor ► Datamonitor ► Swiss RE, Sigma No. 3 (2008) ► Swiss RE, Sigma No. 3 (2008) ► CIA World Fact book ► CIA World Fact book ► Middle East Insurance Review ► Middle East Insurance Review ► World Islamic Insurance Directory (WIID) 2008 & 2009 ► World Islamic Insurance Directory (WIID) 2008 & 2009 [Author: Takaful Re] [Author: Takaful Re] ► Factiva ► Factiva ► Bloomberg ► Bloomberg ► The Banker ► The Banker ► Zawya ► Zawya ► Reuters ► Reuters ► Institute of International Finance (IIF) ► Institute of International Finance (IIF) ► SAMA Annual Reports ► SAMA Annual Reports ► UAE Central Bank Annual Reports ► UAE Central Bank Annual Reports ► CBB Insurance Annual Reviews ► CBB Insurance Annual Reviews ► Bank Negara Malaysia Annual Takaful Statistics 2007 ► Bank Negara Malaysia Annual Takaful Statistics 2007 ► Bank Negara Malaysia Statistical Bulletins ► Bank Negara Malaysia Statistical Bulletins
Ernst & Young’s Project Team Ernst & Young’s Project Team Bahrain Office Bahrain Sameer Office Abdi Sameer Abdi Mark Stanley Mark Stanley Klaudia Reich Klaudia Reich Natasha Varma Natasha Varma
Salmaan Jaffery Salmaan Jaffery Samir Bhegani Samir Bhegani Hala Naseeb Hala Naseeb Faisal Hassan Faisal Hassan
Dubai Office Dubai NajeebOffice Rana Najeeb Rana
Farah Khalid Farah Khalid
Malaysian Office Malaysian Abdul RaufOffice Rashid Abdul Rauf Rashid
Brandon Bruce Brandon Bruce
Hong Kong Office Hong Office JamesKong A. Smith James A. Smith London Office London Richard Office H. Grainger Richard H. Grainger For questions or comments, please contact Mark Stanley on: For questions or comments, please contact Mark Stanley on: +973 1751 2811mark.stanley@bh.ey.com +973 1751 2811mark.stanley@bh.ey.com
50
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
MEGA is the leading business information firm focused on achieving business results for the Islamic banking & finance industry since 1993. Our exclusive focus on Islamic finance has enabled us to create significant value for the leading players in the Islamic banking, finance and investment markets. The portfolio of MEGA brands represents the landmark industry conferences and our clients are the leading players in the international financial markets. Partnering with Governments and the Industry Thought Leaders Our Strategic Associates are world leaders in their respective fields and include key government finance and regulatory agencies such as the Central Bank of Bahrain, Dubai International Financial Centre, UK Trade & Investment, the Monetary Authority of Singapore, and the Economic Development Board of Bahrain. These and our other strategic alliances with international thought leaders including Ernst & Young and global strategy advisory firm McKinsey & Company further strengthen MEGA’s brand leadership position in the Islamic finance industry worldwide. Investing in our Brands: Number 1 in Each of Our Markets MEGA continues to grow its portfolio of Islamic finance brands to further extend our leadership position across the Banking, Takaful, Funds, Capital Markets, and Project Finance segments. Each brand is developed over many years in order to further cement its number 1 position in its respective market. In 1994 we founded the World Islamic Banking Conference (WIBC), which at the time was one of the first conferences in the world to focus on this nascent industry. That first year we had 120 pioneering delegates and one sponsor. Today, more than a decade later and with more than 1,200 delegates from over 45 countries attending the conference each year, WIBC is an iconic brand recognised as the largest and most significant gathering of banking and finance leaders in this rapidly growing industry anywhere in the world. A World Stage: Genuinely Global Dialogues MEGA brands have a genuinely global reach across the Islamic finance industry. An initiative to further broaden this international representation ‘The World Comes to WIBC’ was launched at WIBC 2007 and has grown to now feature a British Pavilion led by UKTI and comprising 18 British-based banks. 2008 saw us further extending this programme to Asia, in partnership with the Monetary Authority of Singapore, which resulted in a high-profile Singapore delegation led by the MAS Governor. A number of leading international Islamic banking groups also now convene their annual board meetings along the sidelines of WIBC. Understanding Client Needs & Delivering Long-Term Value MEGA’s leadership position has come as a result of our relentless focus on the constantly changing needs of our clients as the industry has grown and matured. Whether it be the challenges of launching a new bank, a new investment fund, an innovative new retail financial product or raising corporate profile in a key target market, we ensure that our offerings are closely aligned to the immediate business priorities of our clients. Then we make sure that we deliver on our promises and that is why the market leaders come back and work with us year after year. Our genuine value creation is highlighted by our long-term relationship with Ernst & Young who have worked with us continuously since the inception of the World Islamic Banking Conference 16 years ago - and who are also now our partners across the portfolio of MEGA brands.
Shaping the Future of the Islamic Finance Industry Since 1993 P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003 www.megaevents.net MEGA Brands. MEGA Clients. Market Leaders.
MEGA BRANDS. MEGA CLIENTS. MARKET LEADERS. MEGA is the market leading business information firm focused on achieving business results for the global Islamic banking & finance industry since 1993. The portfolio of MEGA brands represents the landmark industry conferences and our clients are the leading players in the international financial markets.
Shaping the Future of the Islamic Finance Industry Since 1993 P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003 www.megaevents.net MEGA Brands. MEGA Clients. Market Leaders.