The Going Gets Tough For Takaful Industry

By Rupinder Singh

Published: 2010/09/08

Malaysia's takaful industry is expected to step up its performance now that an additional four operators have been issued licences to start business next year, said industry players.

Takaful operators were caught unaware last week when Bank Negara Malaysia announced four new licences instead of two.

"With 12 operators in the country now, we have to work harder to gain market share and profits," said an executive from a takaful group that has been in operation for more than 10 years.

Although Malaysia's takaful industry has seen tremendous growth in the last five years, it still lags behind its conventional peers in terms of total insurance market penetration and share.

It is understood that the penetration rate for takaful industry in Malaysia is around 10 per cent, compared with 40 per cent for conventional insurance.

Another existing takaful executive said the entry of four new players is against the spirit of consolidation that the regulator has been propagating.

However, he said the regulator may have decided to add more players since the Islamic banking and takaful industry has yet to command 20 per cent of the banking and insurance market share targeted by 2010.

Takaful fund assets comprise only 8 per cent of the total assets of the Malaysian insurance and takaful industry although it has more than doubled in this same period from RM5.87 billion in 2005 to RM10.5 billion in 2008 and RM12.4 billion in 2009.

Prime Minister Datuk Seri Najib Razak said last year that the liberalisation measures, including new licences, are in line with the provisions and timetable set out in the Financial Sector Master Plan (FSMP) announced in 2001.

The government said then that the measures are aimed at enhancing "inter-linkages to leverage on global developments in Islamic finance and reinforce Malaysia's position as an international Islamic financial hub."

In this context, it will be interesting to see how new takaful players would contribute in areas where there are gaps in the financial system and in which there are new areas of growth in the financial system.

The four new licences issued to joint ventures are between American International Assurance Bhd (70 per cent) and Alliance Bank Malaysia Bhd (30 per cent); AMMB Holdings Bhd (70 per cent) and Friends Provident Group plc, UK (30 per cent); ING Management Holdings (M) Sdn Bhd (60 per cent), Public Bank Bhd (20 per cent) and Public Islamic Bank Bhd (20 per cent); and the joint venture between The Great Eastern Life Assurance Co Ltd (70 per cent) and Koperasi Angkatan Tentera Malaysia Bhd (30 per cent).

Existing takaful operators include CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Hong Leong Tokio Marine Takaful Bhd, HSBC Amanah Takaful (Malaysia) Sdn Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd.

In addition, Malaysia has four Retakaful operators, namely, ACR Retakaful SEA Bhd, MNRB Retakaful Bhd, Munchener Ruckversicherungs-Gesellschaft (Munich Re Retakaful) and Swiss Reinsurance Co Ltd (Swiss Re Retakaful); and one International Takaful Operator in AIA Takaful International Bhd.