Welcome to the inaugural issue of our new dedicated Takaful section. With the continual rise of the Takaful industry, we at Islamic Finance news believe that this pillar of the Islamic finance industry warrants its own section devoted solely to the comings and goings within the flourishing Takaful industry.
The launch of the newly redesigned Islamic Finance news newsletter has afforded us the opportunity to highlight these events, giving greater insight and focus to a segment of the Islamic finance industry that continues to register significant growth above and beyond even conservative estimates.
In this section we will highlight the recent newsworthy developments taking place in the world of Takaful under the separate banner of Takaful news. Each week we will also feature an exclusively authored article on the Takaful industry written by industry practitioners and those directly involved in the world of Islamic insurance.
This week AM Best’s Vasilis Katsipis shares his thoughts on the challenges for Takaful in the Middle East.
These pages will look forward to where the industry is headed, challenges faced as well as insights and analysis on the current trends, regulations, prospects and barriers facing the Takaful sector as a whole. We will be speaking directly to the industry and the movers and shakers that dominate the headlines. By giving this much maligned sector of the Islamic finance industry a greater voice it is our hope that we can be a part of its continual rise.
Prospects abound
As the Takaful industry continues to gain momentum across the globe, carving out new markets beyond its MENA and Southeast Asian regional base there is no reason to assume that the Takaful market cannot mirror the achievements of conventional insurance and eclipse that of the investment banking market.
This will not happen overnight but the opportunities are there. Takaful offers both vertical and horizontal growth prospects. With premiums from the conventional insurance business declining, opportunities are abound for Takaful operators. With conventional insurance markets becoming saturated and many majority Muslim nations beyond the UAE, Malaysia and Saudi Arabia only beginning to register significant take-up, Takaful will continue to provide ever increasing avenues for those willing to get involved.
Global Takaful contributions are estimated to be well on course to touch US$12 billion in 2011 up from US$9.15 billion in 2010, according to Ernst & Young’s World Takaful report 2011.
According to the report, there still remain key issues facing the Takaful sector. They are competition for growth, diversification and specialization and the cultural and religious acceptability of insurance.
The report documents that competition, shortage of expertise and socio-political uncertainty are key business risks for Takaful in 2011. While other challenges remain, including evolving regulations, misaligned cost base and achieving an underwriting profit.
The increasing number of Takaful players in key markets has intensified competition, with small local players competing against established conventional players. According to industry observers the Malaysian and UAE markets are the most likely to see a flourish of M&A activity. This follows the easing of restrictions on foreign ownership of Malaysian insurers to 70% up from 49% under the financial sector liberalization plan and the introduction of the risk based capital framework and saturation of the UAE market.
The Takaful industry has yet to witness any of this much talked about consolidation, despite market saturation. With no mergers in sight, organic growth still appears a viable route even as competition increases.