Feb 2010 Takaful Roundup

Cautiously confident
10 March 2010 | By: Mohamed Hairul Borhan The green shoots appearing in the financial industry are giving Takaful operators quiet confidence that the sector will continue on its path towards recovery. Mohamed Hairul Borhan reports If I can describe the mood of the Takaful industry at the moment, I think “cautiously confident” is a very apt description. Why? First of all, just as conventional insurance, Takaful is one part of the entire financial stable, and thus definitely not immune to the ups and downs of the financial sector. Its performance, demand and even development are somewhat interlinked to that of other financial instruments. So, when financial institutions around the world got dragged down by the recent global financial turmoil, the entire Takaful industry was affected as well, and growth forecasts were curtailed. But now, as markets begin to show signs of recovery, Takaful operators are once again rapidly positioning themselves to capitalise on any new growth opportunities. There is definitely room to grow as current global Takaful contributions account for less than 1 per cent of total premiums worldwide. However, not everybody is jumping on this bandwagon. The launch of Al Jasr Takaful Insurance Company, which was scheduled to be early this year, has been postponed as its founder felt that the current marco-environment was still unfavourable. In a statement released by Shaikh Nawaf Bin Mohammed Bin Jabr Al Thani, Chairman of the founders’ Committee, he said that the decision was taken due t he changing business and investment environment caused by the global financial crisis. Even then, financial analysts continue to have faith in the Takaful industry. They said that the sector will continue to grow this year, driven by a rise in the number of individuals and companies opting for Takaful covers instead. Other factors that will lead to the rise include improving regulatory mechanism and increasing government support. Tommy Trask, Executive Director and Head of Industry Research Services for Alpen Capital in Dubai, said that he expects the Takaful industry to grow by about 16 per cent yearly between 2009 and 2012. Sharing his optimism about the sector is David Hunt, Head of Insurance for HSBC Middle East. In an interview with Emirates Business 24/7, he said that the Middle East Takaful industry would continue to grow faster than non-oil GDP and conventional insurance due to the low insurance penetration in the region. Governments are also playing a big role in promoting the growth of the sector. For instance, the introduction of compulsory motor and health insurance in Saudi Arabia has helped to develop its insurance industry, which has been completely reworked around the Takaful model.

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Feb 2010 Takaful Roundup Another perennial factor that has always impeded the growth of the Takaful sector in the GCC is the lack of regulations. But this barrier is also being slowly eroded as more governments in the region develop supervisory frameworks. For instance, in Saudi Arabia, the introduction and implementation of supervisory frameworks have resulted in a massive reduction in the number of unregistered insurers. From more than 100 unregistered companies, the Saudi insurance market now consists of only a handful of separately-listed entities. One such entity is Solidarity Saudi Takaful Company, a joint-venture between several prominent Saudi investors and Bahrain-based Solidarity Group. To raise the remaining 40 per cent of its SAR555 million authorised and paid-up capital, the company is planning to offer 22.2 million shares, at SAR10 per share, in an initial public offering which is expected to take place between 22 to 28 March this year. The government’s hand in helping to regulate the Takaful industry is not only felt in the Middle East. Over in Indonesia, the government now requires Takaful operators and Takaful windows to separate Takaful and shareholders’ funds in their first quarter reporting as part of the new accounting standards implemented for Takaful operators this year. The Indonesian insurance regulator will also keep a close watch on the situation to see if this ruling has any negative impact on the solvency of the country’s Takaful operators. February 2010 also saw several Takaful companies releasing their 2009 results. First off is the Islamic Arab Insurance Co, or more commonly known as SALAMA. It reported net profits of AED116.2 million in 2009, up from a loss of AED8.2 million in 2008. In a statement to the Dubai Financial Market, the insurer stated that its revenues grew by about 23.1 per cent to AED1.6 billion. Over in Qatar, in its statement to the Qatar Exchange, Al Khaleej Takaful Insurance & Reinsurance Co said that its gross premiums for 2009 rose by 5.5 per cent year-on-year to QAR281.9 million while net premiums rose by 10 per cent to QAR130.1 million. However, net profits fell 15.1 per cent to QAR73.8 million. [ENDS]

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