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