Malaysian Takaful Insurance Industry to Benefit from Rising per Capita Income and New and Innovative Products, Expects Timetric

09 Jan 2013 • by Natalie Aster

Malaysia’s takaful insurance industry is considered one of the largest in the Islamic capital market space and has emerged as one of the leading takaful industries in the world, accounting for a 10% share of the global total. The industry recorded robust growth during the review period. According to the report “Market Attractiveness and Future Prospects of the Malaysian Takaful Insurance Industry” by Timetric gross written premium value registered a CAGR of 20.77% over the review period. Low penetration rates, high per capita annual disposable income, and favorable demographics present a significant business opportunity and positive growth potential over the forecast period. With improved standards of living and increasing awareness of takaful, the industry is expected to record steady growth in per capita spending on specialized insurance premiums and attain a greater market share in comparison with conventional products.

Report Details:

Market Attractiveness and Future Prospects of the Malaysian Takaful Insurance Industry
Published: November, 2012
Pages: 69
Price: US$ 1,950.00

The outlook for the industry remains positive for the life, non-life, and personal accident and health insurance segments. Premiums in all the segments are expected to increase at respectable rates in line with economic growth. The industry will benefit from the rising per capita income of the population as well as new and innovative products introduced by insurance companies. Given the healthy growth rate, the takaful market offers opportunities for insurance companies such as AIA AFG Takaful Bhd., AmFamily Takaful Berhad, CIMB Aviva Takaful Berhad and Etiqa Takaful Berhad.

Strong macroeconomic fundamentals and favorable demographics

Malaysia maintained steady economic growth during the review period, a situation which is expected to continue over the forecast period. The country’s GDP at current prices grew at a CAGR of 7.35% during the review period, although it declined to -8.4% in 2009 due to the global financial crisis. The country’s economy started to recover in 2010, and its GDP recorded impressive CAGRs of 12.7% and 11.3% in 2010 and 2011, respectively. According to an IMF projection, the country is expected to record a CAGR of 8.07% over the forecast period. The growing economy is expected to attract higher foreign capital inflows that will subsequently have a larger impact on the country’s financial services industries. As a consequence, takaful insurance business is expected to rise significantly over the forecast period. The favorable demographics offer tremendous growth potential for takaful insurance with the Muslim population accounting for more than 60% of the country’s overall population. However, this demographic has been underrepresented and penetration rates remain low. Takaful presents the positive growth potential because it provides the Muslim population with alternative protection and investment opportunities.

Government regulations to change the dynamics of the Malaysian takaful insurance industry

Malaysia’s insurance industry recorded a significant change in the regulatory environment during the review period. The government’s role and its continued support in developing the industry has been a critical factor in encouraging industry growth. The government has been able to provide a conducive business environment for both domestic and foreign takaful insurance companies and has adjusted the regulatory environment to facilitate the integration of takaful. The Takaful Operational Framework came into effect in January 2012, with the objectives of enhancing operational efficiency, ensuring healthy and sustainable funds, safeguarding participants’ interest and promotion of uniformity in business practices.

Bank Negara Malaysia issued a draft of its risk-based capital (RBC) framework for takaful operators in December 2010, with the aim of addressing solvency requirements described in the IFSB ‘Standard for Solvency Requirements in Takaful Undertakings’. This is expected to be finalized by 2013. Under the conventional framework, insurance companies are required to have a minimum 130% supervisory capital-adequacy ratio. The framework aims to ensure that takaful operators maintain an adequate capital level which is sufficient to facilitate their operational risks and act as a financial defense against any such exposure to risks. Takaful insurance companies have been following the accounting standards and guidelines created by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Malaysian Accounting Standards Board (MASB) and the Central Bank of Malaysia (BNM). However, the MASB completed the convergence of International Financial Reporting Standards 4 (IFRS 4) for the takaful insurance industry in January 2012.

More information can be found in the report “Market Attractiveness and Future Prospects of the Malaysian Takaful Insurance Industry” by Timetric.

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