Although the Takaful industry has seen double digit growth since 2010 according to reports, it still suffers from a lack of penetration in supposedly vibrant markets, and is still performing at what is considered to be lackluster levels. Saudi Arabia remains by far the largest Takaful market, contributing US$4.3 billion or 51.8% of the industry at an average contribution per operator of US$141 million. Malaysia, considered one of the largest markets in the Islamic capital market space, grew 24% to reach contributions of US$1.4 billion at an average contribution per operator of US$141 million. The UAE, with contributions of US$818 million, has charted a growth rate of 28%; whilst Sudan, which is considered to be the most significant market outside of the GCC and Southeast Asia, has seen more than 7% growth since 2010, with contributions totalling US$363 million.

Many within the industry have admitted to a gamut of issues which need to be addressed urgently and effectively in order to allow the industry to perform at its best; particularly in the investment space, where Takaful companies are suffering from a dearth of long-term investment opportunities to suit their risk and investment profiles. Another issue stems from the lack of risk-based capital, where there is a mismatch between the companies’ assets and liabilities, and the universal issue of lack of talent and understanding of Shariah based insurance products.

And although the global credit crisis has contributed to the slow-down in the growth of the Takaful industry, with lower returns all round for shareholders and Takaful policyholders and slower business growth on the back of a contracting economy, there is still much untapped potential in the re-Takaful sector, which has on the contrary seen new players entering the market due to the lower entry cost for re-Takaful operators, and the ability to write business on a global scale.

In this issue of Islamic Finance news Supplements, we take a closer look at the fundamentals of the Takaful industry, its issues from a macro and micro perspective, and what needs to be done to mitigate these problems in order to prevent a stagnation of growth within a sector which is ultimately brimming with potential.

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