In 2009, investment portfolios, human resources and competition are key business risks for the Takaful industry
Takaful operators that successfully adapt their business models and mitigate against changing business risk will have opportunities to expand
Dubai, 14th April, 2009: Ernst & Young's World Takaful Report 2009 notes that global Takaful contributions have risen to US$3.4 billion in 2007 as compared to US$2.5 billion in 2006. Saudi Arabia, with contributions totalling US$1.7 billion in 2007, and Malaysia, with US$797 million, are the top two Takaful markets worldwide. The report was unveiled at the Annual World Takaful Conference 2009.
Takaful, or Shari'a compliant cooperative insurance, has been expanding by tapping into large Muslim markets globally. However, there are still significant untapped markets in Asia and the MENA region. The GCC, Malaysia and Sudan are the top three markets for Takaful while the Indian Subcontinent, Indonesia, Egypt and Turkey, remain the least penetrated Muslim markets.
Compared to the reported losses of almost US$350 billion of conventional insurers and government supported enterprises in the Americas, Europe and Asia, the Takaful market has largely shown resilience in the current economic downturn.
However, the last quarter of 2008 has seen a decline in the returns-on-equity of major Takaful operators. As a consequence, Takaful operators are increasingly concerned with the strategic, operational, compliance and financial risks they face today.
New challenges, new risks
Omar Bitar, Managing Partner, Advisory Services, Ernst & Young Middle East, said, "The global downturn has affected everyone and Takaful is not immune. Takaful operators now need to better manage their costs in a more challenging market as the risk landscape has changed substantially. Investment portfolios, human resource expertise and competition will be their most pressing business risks over the coming 12 months. Operators will also need to reassess their core business, move away from a reliance on high-risk investment returns, and focus on achieving underwriting profit."
Ernst & Young's report recommends that to counter high-risk investment portfolios, Takaful operators need to enhance their portfolio management capabilities and improve risk-adjusted returns. This risk for the operators is an opportunity for asset managers, who need to address the unique risk-return profile of Takaful operators.
To deal with human resource expertise risk, operators are advised to focus on developing local talent and partnering for quick market entry. Hiring indigenous talent and providing structured internal training programs helps to create a development culture and reduces turnover. For conventional insurers, partnering with established local operators can provide existing infrastructure and access to Shari'a compliance expertise. For local Takaful operators, international insurers provide expertise in risk management and specialist lines of business.
Opportunities ahead
Favorable demographics, increased income earnings, the propensity to consume and changing social attitudes towards insurance are the fundamental long-term demand drivers of Takaful. A young population in core Takaful markets will need more coverage as government subsidies decrease and more families require private coverage. Regulatory support and framework, insurance legislation and compulsory coverage will facilitate its growth in the medium term.
The window of opportunity in the coming 12 months rests on operators capitalizing on increased alliances, cross selling and BancTakaful, product innovation, multiplying their distribution channels, mergers and acquisitions and expansion in underpenetrated emerging markets.
According to Sameer Abdi, Head of Ernst & Young's Islamic Financial Services Group, "Takaful markets now span much of the globe but there still exists a large, expanding and untapped Muslim population on almost every continent. We estimate that the global Takaful market could be as high as US$7.7 billion by the end of 2012.''
"The ensuing recession has tempered growth forecasts in almost every region and sector, including major Takaful markets. Takaful operators who can successfully adapt their business models and mitigate against changing business risk will have opportunities to expand through acquisition activity. They will benefit in the long-term from strong demographic growth, rising income levels and a growing desire to consume Shari'a compliant products," concluded Sameer.
-Ends-
About Ernst & Young Middle East
The Middle East practice of Ernst & Young is an independent professional services firm, which has operated in the region since 1923 and is a full member of Ernst & Young Global. For over 80 years, the firm has evolved itself to meet the legal and commercial developments in the region. Ernst & Young Middle East currently has over 3,500 staff working from 18 offices in 13 Arab regions.
For more information, please visit www.ey.com/me
About Ernst & Young Global
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.
For more information, please visit www.ey.com.
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
Contact name: Lamice Murshid
Company: Ernst & Young
Tel: +971 4 332 4000
E-mail: lamice.murshid@ae.ey.com
Contact name: Sandeep Sharma
Company: Weber Shandwick MENA
Tel: +971 4 320 077
E-mail: sandeep.sharma@ws-mena.com
© Press Release 2009
Link:
0 Comments:
Post a Comment