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By Iris LaiMalaysia has laid out a regulatory framework aimed at
building a foundation for the growth and development of takaful, or Islam-compliant insurance, as the country seeks to become a global takaful hub.
Bank Negara Malaysia, the countrys central bank and regulator, is considering an introduction of risk-based capital requirements for takaful operators and has pub-lished a draft paper on the topic. It has also issued new guidelines for valuation of liabilities, financial reporting and operational frameworks.
The new guidelines and framework are designed to ensure that Malaysias takaful operators establish strong governing principles and that risks from business activi-ties are properly identified and managed, said Brandon Bruce, senior executive director of assurance at consul-tancy Ernst & Young.
The RBC framework draft for takaful is more strin-gent than the existing one for conventional insurers, said Marcel Omar Papp, head of retakaful at Swiss Re in Malaysia. Hopefully, the final RBC framework will be amended in a way that there is a level playing between conventional insurers and takaful operators, he said.
Bank Negara is in principle supporting the develop-ment of takaful in Malaysia as it wants the country to become a global hub for Islamic finance, noted Papp. However, he said some of the recent regulatory changes raise concern that the development may be hampered.
The draft paper introduces risk-based principles for managing capital so that takaful operators should remain financially resilient in response to their risk profiles. Bruce said Malaysia plays an important role in the global takaful market and is leading the sector in regulatory framework, financial reporting, capital adequacy requirements, prod-uct innovation and operational excellence.
Takaful regulation in Malaysia is robust and advanc-ing well, in tandem with market developments and con-sumer expectations, said Bruce.
There have been positive deveopments in several takaful markets such as Malaysia because of the intro-duction of takaful-specific regulation and minimum capi-tal requirements, said A.M. Best Co. in a recent report (Bests News Service, July 12, 2011).
The opportunity to participate in new takaful regula-tion development, along with tax incentives, are proving
an attraction for local and international operators, said Azli Munani, chief executive officer and executive secre-tary of the Malaysian Takaful Association.
Less than of 50% of Malaysias population has an insurance or takaful plan, and that, along with ready-made talent in the field, are among the business drivers for the market, according to Munani.
Malaysias takaful sector has seen growth of 20% to 25% per year in the past five years. The government has played a prominent role through market liberaliza-tion, building Islamic finance foundations and promot-ing business development across Malaysia, said Azim Mithani, CEO of Prudential BSN Takaful Bhd.
The governments promotion and regulatory efforts
Malaysia Seeks Takaful Growth With New Regulations
Continued on page 2
Takaful in MalaysiaThe top players are still the so-called early established operators, namely, Etiqa Takaful, Syarikat Takaful Malaysia and Takaful Ikhlas. However, the total market shares of these three are reducing by year.
No. Name Ownership
Family (Life) Takaful Operators
1. AIA AFG Takaful Bhd. Foreign
2. Great Eastern Takaful Sdn Bhd Foreign
3. ING Public Takaful Ehsan Berhad Foreign
Composite Takaful Operators
1. CIMB Aviva Takaful Berhad Local
2. Etiqa Takaful Berhad Local
3. Hong Leong MSIG Takaful Berhad Local
Re-Takaful
1. ACR Retakaful SEA Berhad Local
2. MNRB Retakaful Berhad Local
3. Munich Re Retakaful Foreign
Composite International Takaful Operators
1. AIA Takaful International Berhad Foreign
Source: Malaysia Takaful Association
November 2011
give insurers a good chance to develop, according to Nirmala Menon, CEO of ING Insurance Bhd. (Malaysia) and head of Southeast Asia.
In 2010, four new family taka-ful licenses were granted to joint ventures led by ING Groep NV, Great Eastern Life Assurance Co. Ltd., Ameri-can International Assurance Bhd., and AMMB Holdings Bhd. Three foreign-owned operations including AIA AFG Takaful, Great Eastern Takaful and ING Public Takaful, have been launched in the past year.
The new operators have strong value propositions to enhance fam-ily takaful in Malaysia, particularly untapped businesses in micro-takaful, medical and retirement products, said Munani.
The four new licenses were issued with a view to fast-tracking family takaful penetration in Malaysia, given the operators sizable existing conven-tional agency forces and established bancassurance networks, said Bruce.
With the new licenses, Malaysias takaful penetration is expected to
reach 18% by 2013. This is seen as an important step forward for the industry, as total takaful penetration was only 11% as of September 2010, compared with about 54% overall for insurance and takaful together, noted Bruce.
The new takaful operators have regional or global insurance groups as joint venture partners, creating a positive effect on the market with new product ideas, services and sys-tems, said Papp.
The arrival of new players has forced existing players to beef up their game, said Papp. However, he added there is still potential for companies to venture into new market segments and not to com-pete on existing business. The chal-lenges on human resources will be increased as the takaful talent pool
is rather small with a lot of turnover among companies.
In Malaysia, Munani said family takaful grew 28% annually over the past five years, representing 80% of the total takaful market. The takaful sector achieved 12.4% market share in terms of net contributions.
Top takaful players in Malaysia are the early-established local opera-tors including Etiqa Takaful, Syarikat Takaful Malaysia and Takaful Ikhlas. However, Munani said the total mar-ket shares of these three operators has been reduced in recent years.
Malaysia has four family taka-ful operators, eight composite takaful insurers, four retakaful operators and one composite international takaful insurer. The country applies a com-bined takaful model in which segre-gation of funds between sharehold-ers and policyholders is required.
Average return on equity for Malaysias takaful operators was about 5% between 2006 and 2010. Bruce said the results appeared to be largely propped up by those of the two largest players, Syarikat Takaful and Etiqa Takaful, which recorded return on equity of about 10% to 11% on average over the past two years.
Key Takaful IndicatorsMarket Structure1 2006 2007 2008 2009 2010
No. of Registered Takaful Operators2 8 8 8 8 9
No. of Agents 15,194 43,843 60,197 88,895 74,089
Family 11,188 32,987 44,222 55,898 42,698
General 4,006 10,856 15,975 32,997 31,391
No. of Offices 151 154 157 104 106
No. of Employees 2,967 2,863 2,411 2,499 2,713
Takaful Fund Assets
Total (RM million) 6,899.0 8,818.3 10,569.4 12,445.8 14,691.1
Family 5,800.9 7,445.2 8,900.1 10,536.6 12,445.3
General 1,098.1 1,373.1 1,669.3 1,909.2 2,245.7
% of Gross National Income 1.2 1.6 1.5 1.9 2 .0
% of total assets of the insurance and takaful industry
5.9 6.7 7.5 7.6 8.0
1 As at 31 December2 Direct composite and family takaful operatorsNumbers may not necessarily add up due to roundingSource: Bank Negara Malaysia
Takaful regulation in Malaysia is robust and advancing well, in tandem with market developments and consumer expec-tations. Brandon Bruce Ernst & Young
robust and advancing
market developments
Continued from page 1The [risk-based capital] framework draft for takaful is more stringent than the existing one for conventional insurers. Marcel Omar Papp Swiss Re, Malaysia
more stringent than
conventional insurers.
The government has played a prominent role through market liberaliza-tion, building Islamic finance foundations and promoting business development across Malaysia.Azim Mithani Prudential BSN Takaful Bhd
prominent role through
tion, building Islamic finance foundations and promoting business development across
TAKAFUL
2 BestWeek AsiA/PAcific November 2011
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