The World Takaful Report 2009

The World Takaful Report 2009

The Future of Takaful - Opportunities in adversity

14 April 2009

The World Takaful Report 2009Page 2

1. Global Takaful MarketsTakaful continues to show strong growth in underpenetrated insurance markets.

2. The Financial CrisisTakaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.

3. Sustaining the FutureLatent demand will continue to fuel long-term future growth.

Key messages


1: Global Takaful MarketsTakaful continues to show strong growth in underpenetrated insurance markets.

Glo

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2008-2009Previous 5-10 Years Next 5 Years

Takaful Growth Phases

Historical Growth Window of Opportunity Future Growth

► Basic product ranges.► Simple distribution channels.► Development of regulatory

frameworks.► Emergence of

standardization.

► Increased alliances.► Mergers and acquisitions. ► Cross selling and BancTakaful.► Product innovation.► Multiple distribution channels.► Emerging markets.

► Large population centres.► Expanding income.► Changing social attitudes towards

Takaful.► Growing awareness.► Economic development.► Growth of Islamic banking.

We are here

A

B

C

Economic downturn

Economic fundamentals

Business risks

Pot

ential

Sce

nari

os

Financial

ComplianceStrategicOperational


CAGR 2005-2007

* Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.

2,561 3,283

Global Gross Takaful Contributions by Year (US$m)*

Iran - Gross Takaful Contributions by Year (US$m)

4,157

Source: Ernst & Young WTR08, Ernst & Young analysis

2,164 27%

Indian Sub-Continent

Levant

Africa

South-East Asia

GCC

52%

35%

32%

32%

29%

CAGR (2005-2007) = 30%

Global gross Takaful contributions have grown with contributions in 2007 reaching US$ 3.4 billion

770

1,2381,579

2,046474

544

692

951

121

181

215

14

17

21

32

5

317

8

18

11

2004 2005 2006 2007 (e)

1,384

1,988

2,518

3,364


The Takaful industry has been expanding by tapping into large Muslim markets globally

Source: CIA World Fact book; Global Insight; Middle East Insurance Review; World Islamic Insurance Directory 2009; Ernst & Young analysis

3000+

1000 - 3000

100 - 1000

10 - 100

Under 1 – 10

2007 Estimated Gross Contribution Income (US$m)

September 2008January 2009 ~124 ~143

3

15*

Indonesia: 3 Takaful Operators + 27 Shari'a DivisionsIran’s insurance companies are governed by Shi’ite law and their products have been approved as halal.

Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators

Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition.

~143

Takaful Companies (+38 Windows) Takaful Companies

Takaful operators present but norecord of contributions

Global Takaful Operators and Contributions in 2008

2

7

2

12

3

3

415

3

1

12

61

1

41 3

7

1

1

2

1

37

2

1 1

1

4

1

1

15*

KSA

~37

Malaysia

~12

Sudan

~15

Indonesia

~3

Bahrain

~7

Kuwait

~12

UAE

~6

3


But significant untapped markets in Asia and MENA exist

Source: CIA World Fact book; Global Insight; Ernst & Young analysis

100m +

50 - 100m

10 – 50m

5 – 10m

1 – 5m

Estimated Muslim Populations in 2008

India

~151m

Indonesia

~207m

Pakistan

~160m

Bangladesh

~132m

Turkey

~71m

Egypt

~71m

Nigeria

~64m

Algeria

~33m

Morocco

~32m

Iran

~64m

Global Estimated Muslim Populations in 2008

Under 1m

Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data.


2: The Financial CrisisTakaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.

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standardization.




We are here

A

B

C

Economic downturn


Business risks

Pot

ential

Sce

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Financial



17 Jan: US$11.5b Q4 loss

12 May: US$3.2b

Q1 loss 7 Sept: Nationalized by the

US Treasury

14 Sept: Files for bankruptcy and stock markets plummet

16 Sept: Loan of US$85b approved by

the Fed

3 Oct: US Congress passes US$700b bailout

13 Oct: UK bails out RBS, HBOS and Lloyds TSB at a cost of US$63b

10 Oct: G7 Finance Ministers meet and issue a 5-point plan

16 Jan: US Treasury invests US$20b in Bank of America

Jan

uary

2

00

9

19 Jan: UK announces a new bank rescue program

S&P 500 Average 2007: 1,477

Jan

uary

2

00

8

Q4 loss: US$14b

15 Jan: US$18.1b Q4 loss 16 March:

Taken over by JP Morgan

US$3.9b Q1 loss

8 April: Receives

US$7b from TPG Capital

22 July: US$3.3b loss

The financial landscape has experienced significant turmoil

Source: Factiva; Bloomberg; Ernst & Young analysis

March: US Federal Reserve buys almost US$1.4t in debt

18 Sept: Federal Bank and other central banks inject billions into the global markets

UBSWAMU

AIG

Deutsche Bank

Merrill Lynch

WAMU Lehman

Fannie Mae/Freddie Mac

RBS; HBOS; Lloyds TSB

Bank of America

Bear Stearns

HSBCCiti


USA South East AsiaEurope

Market Capitalization of top 10 Financial Institutions by Region

920

449

-51%

455

793

-42%

89

160

-44%

93

176

-47%

456

-78%

7

-41%

601

-70%

GCC

595

-42%

Banks

Insurers

% of change

% of change

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

Market capitalization between1st June 2007 and 20th Nov 2008

Market capitalization between31st Dec 2007 and 02nd Feb 2009

Market capitalization between1st June 2007 and 20th Nov 2008

100183 261

4

Bank Capitalization in US$b

Insurer Capitalization in US$b

13th Mar 2009

13th Mar 2009

1st Jan 2008 (unless stated otherwise)1st Jan 2008 (unless stated otherwise)

Surviving financial institutions have lost significant value


Short-term performance of Takaful operators has been impacted

Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis

Average ROE for a Sample of GCC and Malaysian Takaful Operators

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.

Retu

rn on

Equit

y (pe

rcen

tage

)

9.0%

7.4%

11.0%

-6.3%

4%6.6%

3.8% 5.0%

6.3% 5%

-10%

-5%

0%

5%

10%

15%

2005 2006 2007 2008 2009e

Year

GCC Malaysia

Cost Perspective

Income Perspective

High Operational Cost

Rising Claims Ratios

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 Compliance

Strategic Operational

1

5

6

4

3

2

Investment Portfolios

Enterprise Risk Management

RegulatoryRegimes

Global Economic Downturn

Competition Human

Resources

Global Takaful Risk in 2009

► Lack of skilled HR and increasing competition for resources.

► Limited pool of scholars with suitable knowledge.

► Lack of operational expertise in certain lines of business.

► Low barriers to entry (minimum capital requirements).

► Increasing competition and aggressive pricing.

► Competitive pressures reducing safety margin in premiums.

► Varying regulatory requirements - business models requirements.

► Young and inexperienced regulatory regimes.

► Evolving capital requirements (risk based capital).

► Reputational risk from varying business models.

► Controls, risk management and reporting framework.

► Obtaining an independent rating.► Conflict between motives of the

Takaful fund and the shareholders’ fund.

► Decrease in new premium growth.► Increase in defaults and claims.► Market risk and resulting negative

effect on investment portfolios.► Economic crisis caused by the

collapse of the banking sector.

► Restricted investment universe and unbalanced investments.

► High equity exposures.► High counterparty risks.► Reduced Sukuk issuance is further limiting

fixed income equivalents.


High Risk Investment Portfolios

Human Resource Expertise

Global Economic Slowdown

Competition

Enterprise Risk Management

Varying Regulatory Regimes

Key Risk Key Consideration

1

2

3

4

5

6

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

Key considerations exist for each of the business risks

Prioritize risk management Seek ratings Implement effective ERM policy and

incorporate into strategy

Proactively increasing corporate transparency to all stakeholders

Boost collaboration with industry groups and regulators

Prepare and participate in change


3: Sustaining the FutureLatent demand will continue to fuel long-term future growth.

Glo

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standardization.




We are here

A

B

C

Economic downturn


Business risks

Pot

ential

Sce

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Financial



TakafulIndustryTakafulIndustry

Long term growth of Takaful is predicated on strong underlying factors

TakafulIndustryF

undam

enta

ls

Facilitators

Marke

t Conditio

ns

► Favorable demographics► Increased income earnings

and propensity to consume ► Changing social attitudes

towards insurance

► Available Shari’a compliant projects

► Equity markets► Investment opportunities► Institutional growth

► Regulatory support and framework

► Insurance legislation ► Compulsory coverage

Source: Ernst & Young analysis


Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis

Low insurance penetration levels in Muslim countries suggests considerable latent Takaful demand

Current OIC member states (2008)

Insurance Penetration and GDP per Capita for Select Countries (2007)

Nominal GDP per Capita in 2007 at PPP Exchange Rates

(US$ per person)

Insu

ran

ce P

en

etr

ati

on

–

Pre

miu

ms

as

a %

of

Nom

inal G

DP in

2

00

7

0 5,000 10,000

Algeria

India

World

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

ThailandMorocco

TunisiaJordan

NigeriaPakistan

IndonesiaBangladesh

Egypt20,000

Malaysia

RussiaTurkey

15,000

Canada

France

GermanyItaly

Singapore

UK

USA

25,000 30,000 35,000 40,000 45,000 50,000 55,000

KSA KuwaitOman Qatar

UAE

Early Development

Mature Markets

Growth markets

Nascent Markets


Global Gross Takaful Contributions by Year (US$m)

By 2012, total Takaful contributions could reach US$ 7.7 billion

Assumes unabated demand growth with no significant impact from the global economic crisis and continued growth in supply.

Source: World Islamic Insurance Directory 2008; Ernst & Young analysis

Potential Scenarios

2,046

5,0193,792

2,673951

1,778

1,457

1,142

317

769

583

413

32

63

5327

18

43

40

67

2007e

2012 Potential Projections

Indian Sub-Continent

Levant

Africa

South East Asia

GCC

Optimistic US$7,696m CAGR: 18%

Balanced US$5,929m CAGR: 12%

ConservativeUS$4,293m CAGR: 5%

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.

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.

Optimistic Balanced Conservative

Optimistic

Balanced

Conservative

7,696

3,364

A

B

C

A B C

5,929

4,293


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A window of opportunity has emerged for Takaful operators

Source: Ernst & Young analysis


Global Takaful Markets The Financial Crisis Sustaining the Future

We are here

A

B

C

Business risks

Pote

nti

al

Sce

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Financial


Thank you

The World Takaful Report 2009

Documents

world takaful report

future of takaful

takaful windows

takaful operatorsnote

takaful industry

global takaful marketstakaful

number of takaful operators

year us