Takaful Providers in Malaysia Report Growth
By Marius | Published February 28, 2012
Malaysian insurance company Syarikat Takaful Malaysia Bhd (STMB) has posted another year of strong business growth in their most recent financial statement, providing further evidence of the rapid development of the Islamic finance sector in South Asia
In their annual report released last week, Syarikat Takaful Malaysia revealed that pre-tax profits grew by 55 percent during 2011 to MYR101.4 million (US$33.6 million) by year-end, surpassing the MYR100 million (US$33 million) profit threshold for the first time since the company was founded in 1984. The insurer further detailed that after tax profits increased by a considerable 204 percent year-on-year to MYR78.5 million (US$26 million), while operating revenue increased by 17 percent to MYR1.4 billion (US$460 million) in 2011.
Syarikat Takaful Malaysia attributed these promising returns to improved shariah-compliant investment results, underwriting discipline, the continued expansion of their provider network and the introduction of new updated family and general takaful insurance products in the Malaysian market. The insurer also noted a significant improvement in their bancatakaful and group employee benefit lines, which grew by almost 75 percent last year on the back of stronger corporate client and bank partner relationships. STMB found success in South Asia’s Islamic business community last year by streamlining its systems and working to improve operational efficiency to serve their growing client base better. Datuk Mohamed Hassan Kamil, STMB group managing director, explained further in the annual report that the company’s return on equity (ROE) had grown from just over 10 percent in 2010 to 19 percent by year end 2011, and that total asset size had also risen by about 20 percent from MYR4.9 billion (US$1.62 billion) to MYR5.9 billion (US$1.96 billion) during this period. As a result of this the company board declared an interim dividend of 7 percent.
STMB’s takaful operations in Indonesia have also begun to rebound following a corporate restructuring effort in 2011. This has been a particularly welcome development because, in the long term, STMB will look to Indonesia to match or even improve upon performance of its home market. Mohamed Hassan further added that “we believe the potential for growth in Indonesia is significant and we are well positioned to capture this majority Muslim market.”
Looking ahead into 2012, Takaful Malaysia plan on stepping up their research and development efforts to create innovative new Islamic insurance products, which will enable them to remain competitive on the fore of a growing but still relatively untapped business sector. “We aim to continue outpacing the market to grow our market share. The task ahead of us is to capture a sizable portion of the expanding market as the takaful industry is expected to grow between 20 percent and 30 percent,” Mohamed Hassan said. If Malaysia’s takaful insurance market does indeed continue to post annual double-digit growth rates it will surely attract the attention of conventional insurance companies and prominent multinationals, which is why establishing a significant presence in the market now is key for a local group like Takaful Malaysia.
Malaysia’s takaful insurance market was established almost 30 years ago following the ratification of the Takaful Act 1984. The Malaysian central government has played quite an active role in driving the development of takaful through public awareness campaigns and by encouraging domestic insurers to accelerate their expansion plans across the South Asian country in order to meet the sizeable coverage needs of both the growing urban and rural Muslim populations. These efforts began to reap more pronounced returns in recent years following the central bank’s decision to issue takaful licenses to four established financial consortiums in 2006, with HSBC, Malaysia’s Hong Leong Bank and Prudential included amongst them. The government allowed these more establish foreign and local firms into the market due to the Islamic insurance sector’s previous inability to develop cost-effective takaful products on its own which would meet the Malaysian market’s specific demands.
The Malaysian Islamic insurance sector has reported a compound average growth rate of 27 percent per anum in terms of net contributions over the past 5 years, with sales of family takaful policies leading the way. Family takaful lines grew by 28 percent between 2005 and 2010 and now represents more than 80 percent of Malaysia’s total takaful market.According to a recent central bank report, Malaysia is now the world’s largest Islamic insurance market, with over one quarter of total international takaful assets being held in the country. There is still much work to be done however. While the overall insurance penetration rate is roughly 40 percent in Malaysia, coverage is insufficient and takaful penetration remains only 10 percent despite the large Muslim population (61 percent).
This correspondence between greater foreign professional involvement and pronounced industry success has not gone unnoticed. More international takaful partnerships are now expected to enter the Malaysian insurance market in the coming years. The Malaysian government is committed to the gradual financial liberalization of its Islamic finance sector. Four new takaful licenses were granted to the international insurers AIA, Friends Provident, ING, and Great Eastern by the Malaysian central bank in 2010. These new entrants brought the total number of takaful providers in Malaysia up to 12.
The Malaysian Takaful Association (MTA) expects the country’s Islamic insurance sector to build upon its strong growth momentum and improve on its 10 percent market penetration in 2012 due to rising affluence, untapped rural customer bases and Malaysia’s strong economic fundamentals. The MTA is currently drafting a new risk-based financial framework to further aid the development of the industry by raising capital adequacy standards in line with other conventional insurance lines and fixing previously inadequate investment instruments. These new guidelines, expected sometime in the next 2 years, together with the government’s Financial Sector Blueprint (2011-2020), is expected to drive the takaful industry onwards by promoting access to other financial services sectors and introducing best international practices to the market that will no doubt further facilitate and drive its growth.
The international takaful insurance market has fast become an important business line for multinational insurers who are looking for new emerging sectors and opportunities for growth. Key takaful markets are often characterized by low insurance penetration rates, rising income and savings levels and comparatively high rates of economic growth. Major foreign insurers are taking note of the huge growth potential in Islamic insurance products. While the outlook in mature Western insurance markets remains quite static, demand for takaful insurance products amongst Muslim populations in the Middle East, North Africa, Gulf and South Asia, has remained quite strong, with the likes of Malaysia, Indonesia and the UAE leading the way.
Insurance Company Mentioned
Syarikat Takaful Malaysia Berhad
Syarikat Takaful Malaysia is a Malaysia-based family and general takaful insurance company. The Company operates out of Malaysia and Indonesia. Takaful Malaysia’s subsidiaries include Asean Retakaful International, Syarikat Takaful Indonesia, and P.T. Asuransi Takaful Keluarga.