Takaful growth prospects diverge as countries choose different models

The business lines that predominate in these two regions are distinctly different, as are the sources of growth and the investment models. S&P anticipates the rapid rate of growth that the global Takaful market has seen so far will slow, given the stuttering global economy and the relative maturity of some of the larger Takaful markets.

Within this global growth pattern, it expects the GCC to continue to significantly grow faster than local and global conventional insurance, while Southeast Asia is likely to see constrained growth due to tightening regulatory requirements in Malaysia, its largest market.

In S&P’s view, the credit profile of Takaful insurers has improved over the past decade. Capitalization could be hampered in future by volatile investment markets and continued growth.

In a report published today (25 September), Standard & Poor's Ratings Services expressed its view that the growing need for insurance that complies with Shari’ah law means that the global Takaful sector is becoming an increasingly significant niche within the wider insurance industry. It expects to see generally strong growth in contributions, which act as premium income, and greater use of insurance in Islamic states.

Takaful has developed most in the Gulf Cooperation Council (GCC) region and southeast Asia, but individual countries in each region have taken different routes to develop the sector. Thus, the business lines that predominate in these two regions are distinctly different, as are the sources of growth and the investment models.

S&P remain concerned by widespread use of high-risk investment strategies by Takaful providers, and by the sector's lack of global standards in areas such as accounting standards and Shari’ah compliance. In its view, it is unclear how many of the companies involved will sustain their profitability over the longer term, particularly in the GCC region.

However, developments in Malaysia--the largest Takaful market in Southeast Asia--appear much more healthy and sustainable. They are supported by more-sophisticated regulatory oversight and the stronger investment profile of the industry, according to S&P.

(C.P.I Financial / 25 Sep 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com