Difference between revisions of "Takful Report"
(Imported from text file) |
(No difference)
|
Revision as of 13:48, 17 September 2016
World Takaful Report 2010
Managing performance in a recovery
Ashar Nazim - Islamic Financial Services Group
Justin Balcombe - Middle East Insurance Leader
Mark Stanley - Islamic Financial Services Group
Key messages
1. Resilient Growth
Takaful has experienced continued growth but penetration remains low in
key markets
2. Takaful Varies Across Geographies
Increased dialogue between regulators and Shari'a scholars will help build
consistency
3. Mixed Financial Performance
Performance of operators in the GCC and Malaysia varies significantly due
to different business and operational strategies
4. Challenging Business Environment
Business risks from last year resonate in 2010 but shifts suggest M&A is
likely
Page 2 The World Takaful Report 2010
Global takaful contributions totalled US$5.3b in
2008
Global Gross Takaful Contributions (US$m)
5,318 28 CAGR 2005-2008
104
CAGR (2005-2008) = 39% 299
4,122 Levant 18%
22 1,146
276 76
3,068 Indian Sub- 135%
18 901 Continent
256 11
1,988 17 695 Africa 18%
8
1,384 14 181 3,742
5 544 2,846 South-East Asia 28%
474 121 2,089
1,239
770 GCC 45%
2004 2005 2006 2007 2008 (e)
Iran - Gross Contributions by Year (US$m)
2,164 2,561 2,896 3,415 4,096 17%
Source: World Islamic Insurance Directory 2010 (Reproduced with permission from Takaful Re Limited), Ernst & Young analysis
Page 3 The World Takaful Report 2010
Insurance penetration rates remain low across
OIC countries
Insurance Penetration and Real GDP Growth for Select Countries
18%
UK
16%
Insurance Penetration (Gross
14%
12%
Organisation of the
10% Islamic Conference (OIC)
France
Singapore member states (2010)
premiums/Nominal GDP in 2008)
USAUnited States of America
8%
World
Italy Germany
6% Canada
Malaysia
India
4% Thailand Morocco
Russia Jordan Qatar
2% UAE Tunisia
Turkey Indonesia
Pakistan Bangladesh
Kuwait KSA Egypt
Algeria Oman Nigeria
0%
-2% 0% 2% 4% 6% 8% 10% 12% 14%
Estimated Real GDP Growth (2009-2011)
Source: Swiss RE - Sigma No. 3 (2009), Global Insight, Ernst & Young analysis
Page 4 The World Takaful Report 2010
Key messages
1. Resilient Growth
Takaful has experienced continued growth but penetration remains low in
key markets
2. Takaful Varies Across Geographies
Increased dialogue between regulators and Shari'a scholars will help build
consistency
3. Mixed Financial Performance
Performance of operators in the GCC and Malaysia varies significantly due
to different business and operational strategies
4. Challenging Business Environment
Business risks from last year resonate in 2010 but shifts suggest M&A is
likely
Page 5 The World Takaful Report 2010
Four business models reflect a diversified
industry
Mudaraba Wakala Combined Wakala Waqf
Strengths ► Enhanced ► No sharing in the ► Two sources of ► Two sources of
profitability technical result revenues revenues
► Operator is ► Excessive risk taking ► No sharing in the ► No sharing in the
incentivized to is fully mitigated as technical result technical result
achieve strong no upside exists ► Qard Al-Hasan
technical results partially limits
► Qard Al-Hasan excessive risk taking
partially limits
excessive risk taking
Constraints ► Shareholders are ► Profitability is ► Excessive risk taking ► No Qard Al-Hasan to
permitted to share in reduced as there is only partially address deficits (e.g.
the technical results no upside from the mitigated through during catastrophic
► Excessive risk taking policyholders’ fund. Qard events), which may
only partially ► Direct financial ► Direct financial impact long-term
mitigated through incentives to improve incentives to improve sustainability
Qard technical results are technical results are
limited limited
► Corporate governance for participants
► Equitable distribution of surplus over time
Source: Ernst & Young analysis
Page 6 The World Takaful Report 2010
Takaful business models - the way forward
Key Strategic Issues
Revenue drivers Shari’a and regulatory Building customer trust /
1 2 3
vary significantly requirements vary brand loyalty
► Fee structures and ► Takaful regulations are ► Governance standards
profitability vary specific to jurisdictions remain limited
► Resilience of each model ► Shari’a framework is yet ► Policyholders are sole
is impacted by these to be convincingly applied providers of risk capital
revenue streams as a business advantage
Recommendations
Review feasibility of Address local leading Strengthen corporate
A B C
operating models practices governance
► Clearly understanding ► Understanding of Shari'a ► Communicate uniqueness
each model and its requirements and of takaful models
practical implementation regulations is key ► Position as competitive
is key advantage
Source: Ernst & Young analysis
Page 7 The World Takaful Report 2010
Key messages
1. Resilient Growth
Takaful has experienced continued growth but penetration remains low in
key markets
2. Takaful Varies Across Geographies
Increased dialogue between regulators and Shari'a scholars will help build
consistency
3. Mixed Financial Performance
Performance of operators in the GCC and Malaysia varies significantly due
to different business and operational strategies
4. Challenging Business Environment
Business risks from last year resonate in 2010 but shifts suggest M&A is
likely
Page 8 The World Takaful Report 2010
Average RoE for a sample of takaful operators
in GCC and Malaysia
20%
15%
11.1%
9.7%
10%
10.0% 6.2% 7.6%
5% 5.7%
1.6% 5.2%
0%
2005 2006 2007 2008 2009
-5%
-6.5%
-5.3%
-10%
GCC Malaysia
Takaful has not historically been a 20% RoE industry
Source: Company Annual Reports, Ernst & Young analysis
Page 9 The World Takaful Report 2010
Net income breakup for takaful operators in the
GCC and Malaysia
GCC (Sample) Malaysia (Takaful Industry)
100% 100%
90% 16% 90% 22% 19% 22%
25% 27%
80% 80%
70% 62% 70%
60% 80% 60%
Investment
50% 97% income 50%
40% 84% 40% 81%
Underwriting 75% 78% 78%
73%
30% income 30%
20% 38% 20%
10% 20% 10%
3%
0% 0%
2005 2006 2007 2008 2005 2006 2007 2008 2009
GCC takaful industry’s income is not derived from underwriting
Source: Company Annual Reports, CBB Insurance Market Review (Bahrain), Financial Stability and Payments Systems Report (Malaysia), Ernst & Young Analysis
Page 10 The World Takaful Report 2010
Retakaful ratios for a sample of operators in
GCC and Malaysia
45% 42.2%
37.9% 39.3%
40% 36.3%
37.0%
35%
30%
25%
20%
15%
9.1% 8.5%
10%
3.9% 4.7%
5% 4.5%
0%
2005 2006 2007 2008 2009
GCC Malaysia
GCC operators also rely heavily upon retakaful
Source: Company Annual Reports, Ernst & Young analysis
Page 11 The World Takaful Report 2010
Average claims ratio for takaful operators in the
GCC and Malaysia
70%
60.9%
55.6%
60% 54.2%
49.5% 47.3% 53.6%
50%
43.2% 43.8%
41.3% 43.2% 47.8%
40% 38.6% 41.5%
Ratio (%)
30% 33.6% 34.8%
32.4%
27.6% 29.3% 28.6%
20%
10%
0%
2003 2004 2005 2006 2007 2008
Saudi Arabia Insurance Claims Ratio UAE Insurance Claims Ratio
Bahrain Takaful Claims Ratio Malaysia Takaful Claims Ratio
Business mix and claims management needs to improve
Source: CBB Insurance Market Review (Bahrain), Annual Takaful Statistics issued by Bank Negara Malaysia (Malaysia), Annual Insurance Statistics issued by Insurance Authority (UAE), SAMA Insurance
Review (Saudi Arabia)
Page 12 The World Takaful Report 2010
Financial performance - the way forward
Key Strategic Issues
Quality of underwritten Ensuring investment
1 2 3 Efficiency in operation
business discipline
► Limited access to quality ► Limited access to Shari’a ► Critical business volume
customers compliant capital markets not achieved
► Complex risks are a ► High direct exposure to ► High combined ratios
challenge equity markets ► Service quality remains
► Business mix is sub- ► Ad-hoc approach to sub optimal
optimal portfolio management
Recommendations
Revisit strategy and Sustainable investment
A B C Lower cost of operation
implementation plan management
► Revisit business mix and ► Manage portfolio via ► Target economies of
build scale specialist intermediaries scale and scope
► Specialize - customer, ► Actively lobby for ► Improve loss ratios -
sectors, business lines deepening local Islamic business mix and claims
► Build risk infrastructure capital markets ► Shared service
and improve retention arrangements
Source: Ernst & Young analysis
Page 13 The World Takaful Report 2010
Key messages
1. Resilient Growth
Takaful has experienced continued growth but penetration remains low in
key markets
2. Takaful Varies Across Geographies
Increased dialogue between regulators and Shari'a scholars will help build
consistency
3. Mixed Financial Performance
Performance of operators in the GCC and Malaysia varies significantly due
to different business and operational strategies
4. Challenging Business Environment
Business risks from last year resonate in 2010 but shifts suggest M&A is
likely
Page 14 The World Takaful Report 2010
Takaful business risks in 2010 reflect improved
market conditions and potential for M&A
Takaful Global Business Risks 2010
Key Business Risks 2009
Financial Compliance
High-risk
1 Investment
Portfolios Regulatory
Shortage of High-risk Compliance
2
Expertise
Investment
3 Competition Portfolios -
Global Economic
4
Downturn
Enterprise Risk Inability to
5
Management Limited Achieve
Regulatory Financial Underwriting
6
Compliance Flexibility Profit
Inability to Achieve
7
Underwriting Profit
Lack of Rated Shortage of
8
ReTakaful Competition Expertise
Limited Financial
9
Flexibility
Inability to Tap Pent-
10 Strategic Operational
up Demand
Source: Corporate Interviews, Ernst & Young analysis
Page 15 The World Takaful Report 2010
Business risks - the way forward
Mitigating Key Strategic Business Risks
Balancing investment
1 Developing talent pool 2 Managing competition 3
portfolios
► Boards to actively direct ► Quickly build critical ► Disciplined approach to
investment in skill building business volumes - M&A investing
► Establish alliances ► Specialization, service ► Lobby for new products
► Initiate industry-wide quality and Shari'a and deeper Shari’a
compulsory training and ► Strategy execution and capital markets
qualification programs accountability
Strengthening underwriting Regulatory guidance
4 5 Creating financial flexibility 6
capabilities as a business enabler
► Specialize by customer ► Boards to actively direct ► Embrace regulatory
segment, sectors and strategic M&A compliance
business lines ► Capital planning to ► Infrastructure institutions
► Link-up with specialists address business and like IFSB, AAOIFI and
► Focus on originating regulatory requirements IIFM to play a more
quality business ► Prudent use of retakaful proactive role
Source: Ernst & Young analysis
Page 16 The World Takaful Report 2010
Key executive level takeaways
1. Achieving Scale
Takaful needs to build scale if it is to improve technical income and reduce
its reliance upon investments - M&A and specialization are key drivers
2. Differentiation
Convincing customers of the value of takaful remains a challenge - a
focused offering and brand credibility are key to addressing this issue
3. Strategy Development and Execution
Benchmarking performance, developing the right strategy and successful
implementation and accountability will differentiate market leaders
Page 17 The World Takaful Report 2010
Thank you
Contact us:
Ashar Nazim - ashar.nazim@bh.ey.com
Justin Balcombe - justin.balcombe@ae.ey.com
Mark Stanley - mark.stanley@bh.ey.com
