Malaysian Islamic insurers plan to expand in Indonesia

Malaysia’s biggest Islamic insurers plan to expand in Indonesia, taking advantage of industry growth that’s almost three times the pace of their home market and increasing wealth in the world’s most-populous Muslim country.

Mayban Ageas, the nation’s largest insurer, is considering an acquisition in Indonesia, chief executive officer Hans De Cuyper said in a March 6 interview. Syarikat Takaful Malaysia Bhd, the second biggest, estimates its Indonesian unit will generate 50 per cent of its profits, from less than 10 per cent now, managing director Hassan Kamil told reporters in Kuala Lumpur on March 7, without giving a timeframe. Indonesia’s Muslim population is 213 million compared with 17 million in Malaysia, US government data show.

Syariah-compliant insurance, known as takaful, rose 48 per cent in Indonesia in 2010 to 4.5 trillion rupiah (US$489 million), while Malaysia’s market expanded 17 per cent in the first seven months of last year to more than 10 times that size. Indonesia has the equivalent of US$7 billion of corporate Islamic bonds outstanding, compared with US$76 billion for its Southeast Asian neighbour, according to data compiled by Bloomberg.

“Indonesia is a very hot market,” said Kuala Lumpur-based Cuyper, whose company is the insurance unit of Malayan Banking Bhd, the nation’s top lender. “The growth potential is significant.”

Southeast Asia’s biggest economy had five takaful companies in addition to 35 booths offering syariah-compliant insurance at non-Islamic operators as of September, according to the Jakarta- based Indonesian syariah Insurance Association. Malaysia currently has 12 such insurers after the central bank issued four new licenses in 2010, while takaful assets totaled RM16.6 billion (US$5.4 billion) in July, the Finance Ministry’s annual report issued in October showed.

Rising wealth in Indonesia makes the country an attractive destination for Malaysian insurers, amid increased domestic demand, Syed Moheeb Syed Kamarulzaman, chairman of the Malaysian Takaful Association in Kuala Lumpur, said in an e-mail March 9.

Indonesia’s per capita gross domestic product increased an estimated 6.8 per cent to US$4,700 last year, according to US government data. Muslims account for 86 per cent of Indonesia’s total population of 248 million and 60 per cent of the 29 million people in Malaysia, the data show.

Takaful is based on the Quranic principle of mutual assistance, where policy holders contribute a sum of money to a common pool managed by the company. The funds are used to pay for claims and any excess is returned to customers.

Global takaful growth has been hampered by the limited supply of syariah-compliant debt, which pays returns on assets to comply with Islam’s ban on interest. Operators have been calling for more sukuk maturing beyond 10 years to help them better manage their longer-term liabilities and roll out new products.

Malaysia’s government is taking measures to address the shortage with plans to sell its first 15-year Islamic bonds in June to help meet demand from insurers and banks, according to the central bank’s debt-auction calendar. Highway operator PLUS Bhd. sold RM30.6 billion of sukuk in December, a record offering of syariah-compliant notes from Malaysia, with maturities ranging from five to 27 years. The 19-year portion yielded 5 per cent.

Global sales of syariah-compliant bonds totaled US$9.4 billion this year, compared with US$4.8 billion in the same period of 2011, according to data compiled by Bloomberg. Offerings reached a record US$36.3 billion last year.

Average yields on Islamic debt declined three basis points, or 0.03 percentage point, in the first three days of this week to 3.67 per cent, near the lowest level in more than four months, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between the average yield and the London interbank offered rate, or Libor, narrowed 17 basis points to 244 basis points, the least since Oct. 31.

Sukuk sold to international investors returned 2.2 per cent in 2012, according to the HSBC/Nasdaq index, while debt in developing markets climbed 5.7 per cent, JPMorgan Chase & Co’s EMBI Global Composite Index shows.

Yields on Malaysia’s 3.928 per cent dollar-denominated Islamic securities due in June 2015 were little changed at 1.96 per cent today, two basis points above the record low reached on March 2, according to prices from Royal Bank of Scotland Group plc. The difference in yields between Dubai’s 6.396 per cent sukuk maturing in November 2014 and Malaysia’s shrank 14 basis points to 222 basis points, according to data compiled by Bloomberg.

Companies in Malaysia issued a record RM75.6 billion of sukuk in 2011, with 88 per cent due in less than 10 years, according to data compiled by Bloomberg. In Indonesia, the ratio was 57 per cent of 1.2 trillion rupiah.

“Demand for long-dated Islamic paper would increase in tandem with growth in Islamic insurers,” Michael Chang, who oversees US$1 billion as head of fixed income at MCIS Zurich Insurance Bhd in Kuala Lumpur, said in an interview yesterday. “This also jives with the inaugural issuance of the 15-year government sukuk this year.”

Ernst & Young LLP estimated in July that customers would contribute US$12 billion to Islamic insurance policies in 2011, a 32 per cent increase from a year earlier and amounting to 1 per cent of the total industry. The company’s World Takaful Report for 2012 will be issued in April.

Bank Negara Malaysia will provide details of the domestic Islamic insurance industry in its 2012 annual report to be unveiled on March 21. Indonesia will release similar data in April, Yatty Nurhayati, the head of the syariah-compliant insurance division at the insurance bureau of the Capital Market and Financial Institution Supervisory Agency, said yesterday.

“The domestic market will steadily become more competitive and eventually the pursuit for continued growth will lead to more and more players’ consideration of expansion abroad,” the Malaysian Takaful Association’s Syed Moheeb said. -- Bloomberg.

(Business Times / 15 March 2012)

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