Malaysia: Smaller i-BR1M gains for takaful players

Malaysian Takaful players expecting a boost from providing shariah-compliant coverage under the i-BR1M people’s takaful scheme may end up with a smaller windfall as they are likely to pass on 80% of the risk to re-takaful companies.

The i-BR1M scheme covers about two million Bantuan Rakyat 1 Malaysia (BR1M) recipients, generating about RM100 million in total contributions to be divided equally among the takaful companies, regardless of the size of the company.

This means that for the bigger takaful players, the amount to be realised from the i-BR1M scheme would be comparatively small in relation to their business, even though they represent 70% of the takaful industry’s total revenue.

“Because the scheme is new, there is no history with regards to the profitability of the portfolio, hence the re-takaful arrangement,” said an industry practitioner to The Malaysian Reserve (TMR) recently.

The scheme was announced by Prime Minister Datuk Seri Mohd Najib Razak at Budget 2014 and TMR had reported that would affect 7.9 million BR1M recipients but in the end affect only about two million, protected by the scheme at RM50 contribution per person.

This makes total contribution at more than RM100 million and according to sources, total claims so far for this scheme similar to personal accident policy is RM30 million.

A source said from an assumed profit of RM33 million for the scheme for the year, the 11 takaful companies would not be getting RM3 million profit each but only 20% or RM600,000 each.

Takaful Ikhlas Sdn Bhd, as the administer of the scheme, gets slightly more than the other takaful companies.

The biggest gainer would be the retakaful companies who took 80% of the risks and will share 80% of the profits too, totaling RM26.4 million, if the profit is RM33 million.

The source said that Hannover Re Takaful received the biggest chunk of the re-takaful.

So, as a result of the retakaful, many fledgling takaful operators would take longer time to break even before showing profit although AIA Public Takaful Bhd recently declared a total surplus of RM8.5 million for the financial year ended Nov 30, 2013.

This marks the first surplus distribution since the company’s inception three years ago.

Meanwhile, the general insurance industry also have equal share in the Malaysian Motor Pool where each general company, regardless of size would have to take an average loss of RM8 million to RM10 million loss annually.

(The Malaysian Reserve / 30 September 2014)

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