The global Takaful market could be as high as $7.7 billion by the end of 2012, ‘' Ernst & Young's World Takaful Report 2009 revealed. “Takaful markets now span much of the globe but there still exists a large, expanding and untapped Muslim population on almost every continent. We estimate that the global Takaful market could be as high as $7.7 billion by the end of 2012,'' Sameer Abdi, head of Ernst & Young's Islamic Financial Services Group said. In a copy of the report sent to the Saudi Gazette on Tuesday, it showed that global Takaful contributions have risen to $3.4 billion in 2007 as compared to $2.5 billion in 2006. Saudi Arabia, with contributions totaling $1.7 billion in 2007, and Malaysia, with $797 million, are the top two Takaful markets worldwide. The report was unveiled at the Annual World Takaful Conference 2009. Takaful, or Shariah-compliant cooperative insurance, has been expanding by tapping into large Muslim markets globally. However, there are still significant untapped markets in Asia and the MENA region. The GCC, Malaysia and Sudan are the top three markets for Takaful while the Indian Subcontinent, Indonesia, Egypt and Turkey, remain the least penetrated Muslim markets. Compared to the reported losses of almost $350 billion of conventional insurers and government supported enterprises in the Americas, Europe and Asia, the Takaful market has largely shown resilience in the current economic downturn. However, the last quarter of 2008 has seen a decline in the returns-on-equity of major Takaful operators. As a consequence, Takaful operators are increasingly concerned with the strategic, operational, compliance and financial risks they face today. However, there are also new challenges and new risks confronting the market. “The ensuing recession has tempered growth forecasts in almost every region and sector, including major Takaful markets. Takaful operators who can successfully adapt their business models and mitigate against changing business risk will have opportunities to expand through acquisition activity. They will benefit in the long-term from strong demographic growth, rising income levels and a growing desire to consume Sharih-compliant products,” Sameer noted. Omar Bitar, managing partner, Advisory Services, Ernst & Young Middle East, said “the global downturn has affected everyone and Takaful is not immune. Takaful operators now need to better manage their costs in a more challenging market as the risk landscape has changed substantially. Investment portfolios, human resource expertise and competition will be their most pressing business risks over the coming 12 months. Operators will also need to reassess their core business, move away from a reliance on high-risk investment returns, and focus on achieving underwriting profit.” Ernst & Young's report recommends that to counter high-risk investment portfolios, Takaful operators need to enhance their portfolio management capabilities and improve risk-adjusted returns. This risk for the operators is an opportunity for asset managers, who need to address the unique risk-return profile of Takaful operators. To deal with human resource expertise risk, operators are advised to focus on developing local talent and partnering for quick market entry. Hiring indigenous talent and providing structured internal training programs helps to create a development culture and reduces turnover. For conventional insurers, partnering with established local operators can provide existing infrastructure and access to Shariah-compliance expertise. For local Takaful operators, international insurers provide expertise in risk management and specialist lines of business. Favorable demographics, increased income earnings, the propensity to consume and changing social attitudes towards insurance are the fundamental long-term demand drivers of Takaful. A young population in core Takaful markets will need more coverage as government subsidies decrease and more families require private coverage. Regulatory support and framework, insurance legislation and compulsory coverage will facilitate its growth in the medium term. The window of opportunity in the coming 12 months rests on operators capitalizing on increased alliances, cross selling and BancTakaful, product innovation, multiplying their distribution channels, mergers and acquisitions and expansion in underpenetrated emerging markets. __
