The World Takaful Report 2009
The Future of Takaful - Opportunities in adversity
14 April 2009
Key messages
1.
Global Takaful Markets
Takaful continues to show strong growth in underpenetrated insurance markets.
2.
The Financial Crisis
Takaful operators that successfully manage their business risks will be well placed to take
advantage of emerging opportunities.
3.
Sustaining the Future
Latent demand will continue to fuel long-term future growth.
Page 2
The World Takaful Report 2009
1: Global Takaful Markets
Takaful continues to show strong growth in underpenetrated insurance markets.
►
Global Takaful Premiums
►
►
►
Basic product ranges.
Simple distribution channels.
Development of regulatory
frameworks.
Emergence of
standardization.
Window of Opportunity
►
►
►
►
►
►
Future Growth
Increased alliances.
Mergers and acquisitions.
Cross selling and BancTakaful.
Product innovation.
Multiple distribution channels.
Emerging markets.
Economic
downturn
A
Economic
fundamentals
B
Business risks
Potential Scenarios
Historical Growth
C
We are here
►
Strategic
Compliance
Operational Financial
►
►
►
►
►
Previous 5-10 Years
2008-2009
Takaful Growth Phases
Page 3
The World Takaful Report 2009
Large population centres.
Expanding income.
Changing social attitudes towards
Takaful.
Growing awareness.
Economic development.
Growth of Islamic banking.
Next 5 Years
Global gross Takaful contributions have grown with
contributions in 2007 reaching US$ 3.4 billion
Global Gross Takaful Contributions by Year (US$m)*
317
2,518
1,988
181
1,384
121
215
8
17
CAGR 2005-2007
3,364
CAGR (2005-2007) = 30%
11
21
18
32
951
Levant
52%
35%
692
544
5
14
Indian SubContinent
474
2,046
1,579
Africa
32%
South-East Asia
32%
GCC
29%
1,238
770
2004
2005
2006
2007 (e)
Iran - Gross Takaful Contributions by Year (US$m)
2,164
2,561
Source: Ernst & Young WTR08, Ernst & Young analysis
Page 4
3,283
4,157
* Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.
The World Takaful Report 2009
27%
The Takaful industry has been expanding by
tapping into large Muslim markets globally
~124
Global Takaful Operators and Contributions in 2008
January 2009
~143
Takaful Companies (+38 Windows)
1
14
1 3
1
1
2
1 2
3000+
1
3
37
15
15*
12
7
36
4
Malaysia
~12
7
1
1
4
1
2
1000 - 3000
Sudan
~15
100 - 1000
10 - 100
Under 1 – 10
Takaful operators present but no
record of contributions
KSA
~37
Kuwait
~12
Bahrain
~7
UAE
~6
Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators
Indonesia: 3 Takaful Operators + 27 Shari'a Divisions
15* Iran’s insurance companies are governed by Shi’ite law and their products have been approved as halal.
~143
Source: CIA World Fact book; Global Insight; Middle East
Insurance Review; World Islamic Insurance Directory 2009;
Ernst & Young analysis
3
Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition.
Page 5
Takaful Companies
1
1
2007 Estimated
Gross Contribution Income
(US$m)
September 2008
The World Takaful Report 2009
Indonesia
~3
12
3
2
3
But significant untapped markets in Asia and MENA
exist
Global Estimated Muslim Populations in 2008
Turkey
~71m
Iran
~64m
Egypt
~71m
Estimated
Muslim
Populations
in 2008
Algeria
~33m
Morocco
~32m
Indonesia
~207m
100m +
50 - 100m
Nigeria
~64m
10 – 50m
5 – 10m
Pakistan
~160m
Bangladesh
~132m
1 – 5m
Under 1m
Source: CIA World Fact book; Global Insight; Ernst
& Young analysis
Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data.
Page 6
The World Takaful Report 2009
India
~151m
2: The Financial Crisis
Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.
►
Global Takaful Premiums
►
►
►
Basic product ranges.
Simple distribution channels.
Development of regulatory
frameworks.
Emergence of
standardization.
Window of Opportunity
►
►
►
►
►
►
Future Growth
Increased alliances.
Mergers and acquisitions.
Cross selling and BancTakaful.
Product innovation.
Multiple distribution channels.
Emerging markets.
Economic
downturn
A
Economic
fundamentals
B
Business risks
Potential Scenarios
Historical Growth
C
We are here
►
Strategic
Compliance
Operational Financial
►
►
►
►
►
Previous 5-10 Years
2008-2009
Takaful Growth Phases
Page 7
The World Takaful Report 2009
Large population centres.
Expanding income.
Changing social attitudes towards
Takaful.
Growing awareness.
Economic development.
Growth of Islamic banking.
Next 5 Years
The financial landscape has experienced significant
turmoil
18 Sept: Federal Bank and other
central banks inject billions into
the global markets
UBS
WAMU
Q4 loss: US$14b
Bank of America
8 April: Receives US$7b
from TPG Capital
3 Oct: US Congress passes US$700b
bailout
AIG
Citi
15 Jan: US$18.1b
Q4 loss
16 Sept: Loan of US$85b approved by
the Fed
Bear
Stearns
HSBC
16 March: Taken over
by JP Morgan
12 May: US$3.2b
Q1 loss
S&P 500
Average 2007:
1,477
Fannie Mae/
Freddie Mac
7 Sept: Nationalized by the US
Treasury
16 Jan: US Treasury
invests US$20b in Bank
of America
RBS; HBOS;
Lloyds TSB
19 Jan: UK
announces a new
bank rescue
program
13 Oct: UK bails out RBS,
HBOS and Lloyds TSB at a
cost of US$63b
Deutsche Bank
Merrill Lynch
17 Jan: US$11.5b Q4 loss
US$3.9b
Q1 loss
WAMU
Lehman
22 July: US$3.3b loss
14 Sept: Files for
bankruptcy and stock
markets plummet
January 2008
10 Oct: G7 Finance
Ministers meet and issue a
5-point plan
Source: Factiva; Bloomberg; Ernst & Young analysis
Page 8
The World Takaful Report 2009
January 2009
March: US Federal
Reserve buys almost
US$1.4t in debt
Surviving financial institutions have lost significant
value
Market Capitalization of top 10 Financial Institutions by Region
USA
Europe
% of change
South East Asia
176
160
93
89
-47%
-44%
920
793
Banks
GCC
455
449
-42%
-51%
Market capitalization between
31st Dec 2007 and 02nd Feb 2009
601
456
7
Insurers
183
100
% of change
-78%
-70%
Bank Capitalization in US$b
261
4
-41%
Market capitalization between
1st June 2007 and 20th Nov 2008
Market capitalization between
1st June 2007 and 20th Nov 2008
Insurer Capitalization in US$b
595
13th Mar 2009
1st Jan 2008 (unless stated otherwise)
13th Mar 2009
1st Jan 2008 (unless stated otherwise)
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks: Reuters MENA Insurance: Zawya, One Source
Page 9
The World Takaful Report 2009
-42%
Short-term performance of Takaful operators has
been impacted
Average ROE for a Sample of GCC and Malaysian Takaful Operators
Cost Perspective
Ret ur n on Equit y (per cent age)
High Operational Cost
15%
11.0%
9.0%
10%
5%
7.4%
6.6%
2005
5%
5.0%
3.8%
0%
-5%
6.3%
2006
2007
2008
2009e
-6.3%
-10%
Year
GCC
Malaysia
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In Malaysia,
4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate interviews.
Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis
Page 10
Rising Claims Ratios
4%
The World Takaful Report 2009
Income Perspective
Dropping equity markets are
negatively impacting earnings on
overly equity exposed investment
portfolios
Lack of short-term and/or fixed
income instruments is resulting in
low yields and rising cash
reserves
Investment portfolios and human resource
expertise are the most pressing risks in 2009
Financial
Global Takaful Risk in 2009
► Decrease
Compliance
in new premium growth.
► Increase in defaults andRegulatory
claims.
► Restricted investment universe and unbalanced
Regimes
investments.
► Market risk and resulting
negative
6
Global Economic
effect on investment portfolios.
► High equity exposures.
Downturn
► Economic crisis caused by the
► High counterparty risks.
► Varying regulatory requirements 4
collapse of the banking sector.
► Reduced Sukuk issuance is further limiting
business models requirements.
Enterprise Risk
fixed income equivalents.
► Young
and
inexperienced
5
Management regulatory
regimes.
Investment Portfolios
1
►
capital
► Evolving
Reputational
riskrequirements
from varying (risk
based
capital).
business
models.
►
Controls, risk management and
Human
2
Competition
reporting framework.
Resources
► Obtaining an independent rating.
3
►
Lack
of
skilled
HR
and increasing
► Low barriers to entry (minimum
► Conflict between motives of the
competition for resources.
capital requirements).
Takaful fund and the shareholders’
► Limited pool of scholars
► Increasing competition and
fund. with
suitable knowledge.
aggressive pricing.
► Lack of operational expertise in
► Competitive
pressures reducing
Strategic
Operational
certain
lines
of
business.
safety margin in premiums.
Page 11
The World Takaful Report 2009
Key considerations exist for each of the business
risks
Key Risk
Key Consideration
1
High Risk Investment Portfolios
2
Human Resource Expertise
3
Global Economic Slowdown
4
Competition
5
Enterprise Risk Management
6
Varying Regulatory Regimes
Page 12
 Enhance investment portfolios
 Improve risk adjusted returns
 Seek professional asset management
 Develop local talent
 Introduce structured internal training
 Partner with established players
 Diversify income and exposures
 Diversify across geographies
 Improve core business function
 Enhance underwriting capability
 Specialize in specific lines
 Partner and develop alliances
 Improve distribution and service
 Prioritize
risk
management
Proactively
increasing
corporate
 Seek
ratings
transparency to all stakeholders
 Implement
effective with
ERMindustry
policy and
Boost collaboration
groups
incorporate
into strategy
and regulators
 Prepare and participate in change
The World Takaful Report 2009
3: Sustaining the Future
Latent demand will continue to fuel long-term future growth.
►
Global Takaful Premiums
►
►
►
Basic product ranges.
Simple distribution channels.
Development of regulatory
frameworks.
Emergence of
standardization.
Window of Opportunity
►
►
►
►
►
►
Future Growth
Increased alliances.
Mergers and acquisitions.
Cross selling and BancTakaful.
Product innovation.
Multiple distribution channels.
Emerging markets.
Economic
downturn
A
Economic
fundamentals
B
Business risks
Potential Scenarios
Historical Growth
C
We are here
►
Strategic
Compliance
Operational Financial
►
►
►
►
►
Previous 5-10 Years
2008-2009
Takaful Growth Phases
Page 13
The World Takaful Report 2009
Large population centres.
Expanding income.
Changing social attitudes towards
Takaful.
Growing awareness.
Economic development.
Growth of Islamic banking.
Next 5 Years
Long term growth of Takaful is predicated on strong
underlying factors
►
►
►
Favorable demographics
Increased income earnings and
propensity to consume
Changing social attitudes towards
insurance
►
►
►
►
Takaful
Takaful
Takaful
Industry
Industry
Industry
Facilitators
►
►
►
Regulatory support and framework
Insurance legislation
Compulsory coverage
Source: Ernst & Young analysis
Page 14
The World Takaful Report 2009
Available Shari’a compliant projects
Equity markets
Investment opportunities
Institutional growth
Low insurance penetration levels in Muslim countries
suggests considerable latent Takaful demand
Insurance Penetration and GDP per Capita for Select Countries (2007)
18%
Insurance Penetration –
Premiums as a % of Nominal GDP in 2007
16%
UK
14%
Mature Markets
12%
France
Early Development
10%
USA
8%
World
Morocco
6%
Italy
Thailand
India
4%
Jordan
2%
0%
Nigeria
Growth markets
Malaysia
Russia
Tunisia
Turkey
Algeria
Egypt
Indonesia
Bangladesh
Pakistan
0
5,000
10,000
Current OIC
member states (2008)
KSA
15,000
20,000
25,000
UAE
Oman
Qatar
30,000
35,000
Nascent Markets
Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis
Page 15
Singapore
Canada
Germany
The World Takaful Report 2009
Kuwait
40,000
45,000
50,000
Nominal GDP per Capita in 2007
at PPP Exchange Rates
(US$ per person)
55,000
By 2012, total Takaful contributions could reach
US$ 7.7 billion
Global Gross Takaful Contributions by Year (US$m)
Potential Scenarios
Indian
Sub-Continent
Levant
A
7,696
Africa
769
South East Asia
GCC
63
67
Optimistic
US$7,696m CAGR:
18%
5,929
583
43
53
1,778
4,293
413
27
40
1,457
B
1,142
3,364
951
Balanced
US$5,929m CAGR:
12%
18
32
317
5,019
3,792
2,673
2,046
2007e
A
B
C
Optimistic
Balanced
Conservative
C
Conservative
US$4,293m
CAGR: 5%
2012 Potential Projections
Source: World Islamic Insurance Directory 2008; Ernst & Young analysis
Page 16
The World Takaful Report 2009
Optimistic
Assumes unabated demand growth with no significant
impact from the global economic crisis and continued
growth in supply.
Balanced
Assumes moderate impact from the global economic crisis
and short-term reduction in economic growth, reduced
premiums in personal general lines but also increased
market share in corporate and group.
Conservative
Assumes significant impact from the global economic crisis
and prolonged reduction in economic growth. Reduced
demand for personal general lines and investment-linked
family products, together with aggressive pricing in the
corporate segment, will slow premium growth.
A window of opportunity has emerged for Takaful
operators
Global Takaful Markets
Historical Growth
The Financial Crisis
Sustaining the Future
Window of Opportunity
Future Growth
B
Business risks
C
We are here
Strategic
Operational
Previous 5-10 Years
Compliance
Financial
2008-2009
Takaful Growth Phases
Source: Ernst & Young analysis
Page 17
The World Takaful Report 2009
Next 5 Years
Potential Scenarios
Global Takaful Premiums
A
Thank you