The World of Takaful Current Achievements & Future Outlook

1. The World of TakafulCurrent Achievements&Future Outlook By Dr. S.J.Malaikah Chairman – BEST Re

4. Introduction “Takaful” is the brand name for the Islamic alternative to conventional insurance.

5. Basic Principles • Very similar in nature to co-operative and mutual insurance, • it endorses their basic principles of solidarity and profit-sharing • whilst retaining a capitalistic base (shareholders) and above all • Ensuring compliance with the Islamic Shariah rules and principles

6. Shariah Compliance • Shariah compliance is an essential element in Takaful insurance . • It is ensured through a Shariah Supervisory/ Advisory Board at the level of each Takaful company. • The role of the Shariah Board is vital in meeting the specific demand of a public who would not insure otherwise.

7. Takaful Pioneers • Takaful started some 27 years ago in the Middle East with the launching of two companies: • The Islamic Arab Insurance Co. (IAIC) in the UAE and • The Islamic Insurance Co. of Sudan • But it took some time for the movement to take shape.

8. Takaful Pioneers • Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act). • This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asia.

9. Other Islamic/ Takaful Legislations • Other markets such as the Sudan and Iran have Islamic regulatory environments and became naturally Takaful markets. • In the Gulf countries specific Takaful legislations are coming through in Bahrain and in Saudi Arabia

10. Takaful Today • From a handful of operators two decades ago the Takaful movement has blossomed into a fast growing phenomenon in many Muslim countries with very promising prospects in other countries with a large Muslim community.

11. Takaful drivers • This movement is driven by • a strong demand from a public who would not insure otherwise (because of religious beliefs); and • The successful development of Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment.

12. Takaful Drivers • Islamic banks and financial institutions play a strategic and important role in the distribution of Takaful products (especially Life Takaful Products). • Just as Bancassurance played an important role in the distribution of personal lines insurance products Bancatakaful is an important driver for Takaful.

13. Takaful Operators • The number of Takaful operators worldwide is now estimated at: • 60 Takaful companies • 3 Retakaful companies • This number may reach 90 + if so-called Takaful windows are to be included.

14. Takaful Premium • Takaful is one of the fastest growing segments in insurance (at around 20% pa. on average) • World Takaful contributions are conservatively estimated at around US$ 3billions, of which: • 60% General Takaful • 40% Family Takaful

15. Takaful Geographical Spread • South& East Asia : 56% • Middle East : 36% • Africa: 7% • Europe, USA & Others: 1%

16. Main Markets • Malaysia • Indonesia • Iran • GCC countries • Other Arab countries • Other Asia Pacific

17. General Vs Family Takaful • In the Far east region Family Takaful was and still is the driver of the segment in terms of contributions and growth; • Whereas General Takaful leads the way in the Middle east markets. • This trend is slowly changing with the advent of new highly capitalised Takaful players in the GCC determined to develop Family Takaful products.

18. Personal Lines Vs. Corporate Accounts • Current Takaful portfolios are in most cases geared towards personal lines with the largest percentage derived from Motor business. • Diversification towards Corporate accounts is a big challenge ahead

19. The Challenges ahead • Despite a remarkable breakthrough and a dynamic and sustained growth, there are challenges facing the Takaful industry.

20. The business model dilemma • The existence of two business models: • Mudharabah (Profit & Loss sharing) • Wakala (agency contract with a performance fee element to replace surplus sharing) • And the introduction more recently of the Waqf model • Could create an uneven / unfair business environment to operate • Need to reach a consensus internationally on a common and standard Takaful business model

21. Takaful Best Practices • Regional Takaful institutions and organisations need to come together internationally in order to promote and standardise best practices within the industry: • Islamic Financial Services Board (IFSB) • ASEAN Takaful Group (ATG) • International Takaful Association (ITA) • Accounting and Auditing Organization of Islamic Financial institutions (AAOIFI)

22. Retakaful Solutions • Takaful operators are heavily reliant on reinsurance. • There is a high need for ReTakaful solutions

23. Retakaful Solutions • There are currently 3 Retakaful operators in the market providing services to primary Takafuls: • Asean Retakaful International (L) Ltd. (Malaysia) • BEST Re (Tunisia) • Takaful Re (U.A.E.)

24. Retakaful Solutions • Need to create a mechanism for an active role of Retakaful in the Islamic financial system; • Need to promote a strong Retakaful operator capable of playing a leading role in providing first class security, capacity and value-added services.

25. Retakaful Solutions • The idea of an International Retakaful Syndicate/ Consortium was launched recently in Langkawi (Malaysia) at the 2nd International Symposium on Takaful. • Need to promote a Retakaful hub capable of hosting the maximum number of Retakaful offers.

26. Future Outlook • Despite the remarkable growth rate recorded by the Takaful industry, penetration is still far below the enormous market potential offered by the Muslim community worldwide (23% of the total world population).

27. Growth Outlook • World Muslim population is estimated at 1.5 billions, of which around 97% are based in Asia and Africa. • A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East).

28. New Takaful Frontiers • Markets like Europe, North and Latin America, Central Asia, Australia where large Muslim communities live are huge untapped reservoirs; • The recent opening towards “Islamic windows” in the banking sector in Europe is likely to be followed by “Takaful windows” initiatives.

29. Takaful at Lloyd’s • The recent opening at Lloyd’s of a Takaful dedicated syndicate (Creechurch) is a clear indication that the segment is promising.

30. Takaful, Cooperatives & Mutuals • International institutions such as the UK-based International Co-operative and Mutual Insurance Federation (ICMIF) recognised the Takaful movement as part of the global cooperative & mutualistic paradigm. • ICMIF is firmly committed to supporting the development of Takaful schemes in Muslim and Non-Muslim countries.

31. Takaful, Cooperatives & Mutuals • “Folksam”, an ICMIF member, is actively building affinity with the Muslim community in Sweden by offering Takaful schemes and products. • In France, Some mutuals are showing interest in Takaful products.

32. Takaful Products to Non-Muslims • Takaful Products are not exclusive to Muslims. • Competitively priced and sold through the right channel it could attract any consumer irrespective of their origin or faith.

33. Conclusions • Despite the challenges facing this “new” industry, exciting times are ahead once the latent potential is unleashed. • The success of Takaful largely depends on that of Islamic Financial institutions on a global basis.

34. Conclusions • There is a need for • More strategic alliances and synergy between Islamic Financial institutions; • More cooperation between Islamic operators at an international level • A better legal and regulatory environment • Better competencies in Islamic Finance.