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June 16, 2008

Takaful

Successful Islamic insurance operations in the 21st centurySuccessful Islamic insurance operations in the 21st century

Ahmad Feizal Sulaiman Khan

Head, Business Development, Etiqa - ICBU

feizal.sk@etiqa.com.my

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Takaful % share of insurance market

0.7

3

Insurance: Annual GWP ($trn)

1.6

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Agenda

• Success!? of Takaful

• Initiatives such as MIFC

• Food for thought

• Conclusion

• eTiQa

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Success!? Of Takaful

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Success!? of Takaful

• Total of 139 takaful operators including windows (Source: Best Re & Survey on Takaful and Retakaful Development by Malaysia-IDB)• Expected to grow between 15% - 20% p.a. to reach USD7.4 bn annual premiums by 2015 (Source: 2005 Global Takaful Review, Islamic Finance News)• Greater participation of conventional markets e.g. UK, premium growth est. :

from USD6 million in 2000 to USD260 million by year 2015 (source: Prospects for Evolution of Takaful in the 21st Century by Omar Fisher and Dawood Y. Taylor, presented at 5th Harvard University Forum on Islamic Finance)

• Additional new licences granted in the Middle East and Indonesia• Malaysia and Indonesia at the forefront of Takaful business (USD 1.4 billion in premiums)

Global takaful contributions

3.6

0.51.4

0.0

1.0

2.0

3.0

2000 2004 2010

Takaful contributions

USDb

Source: Takaful Industry, Global Profile & Islamic Finance Review

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Takaful Operators Worldwide

Success!? of Takaful

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• Penetration Rate:• Not enough focus on customer convenience and easily explainable products• Wider availability necessary for Takaful products• New markets, not only Muslims but also non-Muslims

• Brand awareness & Global recognition – Cross border activities still minimal– must transpire into guidelines for ease of ‘passporting’

– Takaful as a brand as well as the underlying companies not recognized

• Public awareness is low:• Adequate training to agents / dist. Channels and education• Incentive modes – to be creative – akin to Wakalah model

• Banca development - Takaful products need to become bankable (easy access)

• Competitive pricing

• Innovative product development – infant stage compared to structured / tailor made wealth mgt/protection solution– one stop centre – to include Islamic trust, will-writing and investment services

Growing pains

Success!? of Takaful

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Few re-Takaful operatorscurrently in operation

Around 13 re-Takaful companies operating worldwide

Only 1 rated re-Takaful operator

Highest capitalization of re-Takaful operator USD125m

Most retakaful operators are newly established compared with professional re-insurers, therefore perceived to have less value proposition by ceding Takaful companies

Strong security rating

High capitalization

Proven track record of technical expertise

• But how much re-Takaful capacity do we need?• Currently there are no known credible database collating statistics on size of

global Takaful and re-Takaful market• Conclusion : Growth in Takaful industry is still desired to fill in gap, creating

sizeable demand for re-Takaful

Growing pains

RE-TAKAFUL Operators

Success!? of Takaful

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Art of wealth

Entrepreneurial ambition

Capital growth

Income/Capital preservation

Capital protection

One Stop Centre - Holistic Service Offering

Art of wealthRealising one’s interests in society, culture, leisure or the arts.

Entrepreneurial ambitionDevelopment/expansion of entrepreneurial activities & talents.

GrowthStructures allowinga LT increase inwealth.

Income, capital preservationPreserving standards of living & continued cash flows.

Capital protectionBuilding, protecting & transferring wealth

Success!? of Takaful

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The Global Takaful MarketMuslims in Predominantly Muslim Countries

• GDP of USD 1.5 Trillion (4% of World GDP)*• State support for Islamic Financial Solutions.• Disparate levels of Economic Development.

Muslim Minorities

Non- Muslims

Large Minorities in China, India.• Growing Middle Class in Europe & North • America.• May be more Observant than Muslims in Predominantly Muslim Countries.

• Takaful may need to be repositioned to emphasize its Universal Values:

–Ethical.–Mutual Sharing & Ownership.–Transparent.

• Build on the success of Islamic Banking.*Ref: A snapshot of the current economic state of Muslim Countries- Hamid, 2006

Success!? of Takaful

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Europe Potential?? - European Muslims

More than 50 million Muslims in Europe

14 million in the European Union

Numbers have tripled in the last 30 years

Most demographers forecast similar or higher future growth

Islam is the fastest growing religion In Europe

Strong culture of insurance especially in the UK, France and Netherlands

Success!? of Takaful

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Initiatives such as MIFC

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Malaysia International Islamic Financial Centre

• To create a vibrant, innovative and competitive international Islamic financial services industry in Malaysia, supported by high calibre human talents, world-class infrastructure and best international standards.

• This initiative has been made a national agenda by the Prime Minister to strengthen Malaysia’s position as an Islamic financial hub.

• Objectives are:• Rapid development of the domestic Islamic financial system• Liberalisation of Islamic banking and Takaful market through increase in foreign

participation with the presence of international institutions, eg. ICBU model• Global integration of the Islamic financial system with active involvement• A wide variety of financial products and a vibrant financial market, growing pool of

talents and resources• Effective role in promoting Takaful internationally especially among Islamic

Development Bank member countries.

MIFC

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Onshore Offshore

Int’l JV Int’l Currency Business Unit (ICBU)

- Banca- 3rd party banca

-Onshore focused- Suitable business partners- Underwriting Base Capital required

- Regulated offshore environment

- G to G recognition goes a long way

- Central booking- To export and import creativity

and product innovativeness

Distributor Focus under MIFC

International Takaful Operator (ITO)

MIFC

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International Currency Business Unit

An ICBU can be set up under an Islamic bank or a Takaful operator

Takaful ICBU:• Non-Ringgit composite Takaful and Re-Takaful business• Focus on Non-residents• International currencies other than Malaysian Ringgit• Window of opportunity to deal with residents• Tax advantages in promoting ICBU model

MIFC

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The Malaysian Takaful Journey

Special Task Force

1982

Takaful Act

1984

1984

Syarikat Takaful

1983

Bank Islam

1993

Takaful Nasional

2001

Mayban Takaful

2003

Takaful Ikhlas

Commerce Takaful

2005

2006

4 New licences

MIFC

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Takaful Growth in Malaysia

Takaful is expected to constitute some 20% of the total insurance market in Malaysia by 2010 (US$1.85 billion)

Penetration Rate- Malaysia

2.5 3.2 3.8 4.5 5.1 5.6

31.5 32.934.6

36.7 37.9 38.7

34.036.1

38.441.2

43.0 44.3

0

5

10

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005Year

Pen

etr

ati

on

rate

%

Takaful Insurance Total

MIFC

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Food for thought

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Move Takaful out of infancy stage

• Open markets

• Forward looking instead of backward looking

• Driven by co-operative nature of the business

• Brand and content recognition – young industry

• Necessary to develop a (inter)-national plan

Ambitions/opportunities!?

Food for thought

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How will Takaful Opportunities be realised?

Open Markets• Open markets agreement (similar to open skies agreement)

• Liberalization of Islamic markets• Harmonize Shariah interpretation with the objective to:

• Grow the combined Takaful market together• Allow and stimulate reciprocal business between Islamic countries

• Redefine regulatory environment• Positive discrimination such as

• Tax incentives• Additional benefits

Forward looking instead of backward looking

• Act as one , eg , MTA in Msia, or GTG globally• Growth opportunities• Number of interested parties is growing (Muslims & Institutions)• Focus still on non-life

Food for thoughtFood for thought

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How will Takaful Opportunities be realised?

Driven by co-operative nature of business

• Concept of Takaful is genuine and appealing to the masses• More even and fair compared to traditional insurance

Brand and content recognition

• Takaful brands are still relatively young• Islamic and Takaful could have the wrong connotation• Viability of Takaful operators could be questioned• Many potentially interested parties are illiterate with regards to Takaful

National and international plan

(through f.i. “Organisation of Islamic Conference” (OIC) and “The Islamic Financial Services Board” (IFSB) and the “Islamic Development Bank” (IDB)

Food for thoughtFood for thought

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Conclusion

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Est.1.7bln Muslims globally

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Muslims seeking out halal products

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Dedicated Global Takaful players

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Utilising world class insurance skills

=

Successful Global Takaful

With technology - Launch products in a month’s time...

Conclusion = Success Formula

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eTiQa

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Old and new structure

Mayban Fortis Sdn Bhd Mayban Fortis Sdn Bhd

MLA MGA

TN MNI

MTB eTiQa Takaful eTiQa Insurance

Old New

Former MTB and TN Former MLA, MGA and MNI

Fortis InsuranceMaybank Fortis InsuranceMaybank

70% 30%30% 70%

eTiQa

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VALUESCrystal clear “We like to keep things clear”Hand in hand “With diversity we create opportunity”Performance with conscience “There is care in what we do”Rock solid “We have a firm foundation to build on”

OBJECTIVESEthical approach:

• Transparency necessary• Harmonization necessary• Incentives necessary

Global approach• Partnership between Maybank and Fortis – East meets West• Technical collaboration – Takaful experts combines with Banca / investment experts

Humanization• Value adding – benefits must be clear and upfront• Localised towards the various regions

eTiQa

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Thank you!