Posted on Sep 12, 2011 by Sergio Ulloa
South Africa's ABSA Insurance Company (AIC) has acquired Takafol SA, the first and only Islamic insurance provider operating throughout Africa's largest economy. The transaction was announced last week for an undisclosed amount and is subject to regulatory approval.
Islamic insurance products, otherwise known as takaful, are mutually beneficial coverage policies that cater specifically to Muslim communities looking for Shariah-compliant savings and investment solutions. Currently the takaful industry comprises only around one percent of the cumulative global insurance market but that will soon improve as highly populated Muslim markets such as Indonesia, Saudi Arabia and Malaysia begin to spend more on protection policies. In April, Ernst & Young's World Takaful Report
forecast the takaful market would likely be worth US$12 billion in 2011, growing 31 percent from US$9.15 billion in 2010. Key takaful markets are characterized by low insurance penetration rates and comparatively high rates of economic growth. Major foreign insurers have duly taken note of the huge growth potential from this brand of products. For example, Standard Chartered and Allianz Takaful in Qatar entered into a 5 year agreement to distribute Alliaz Takaful's insurance services through Standard Chartered Bank in 2010
. The two insurers then quickly partnered again to allow Standard Chartered SME insurance products to be sold through Allianz Takaful in Bahrain
Takafol SA was established in 2003 to tap into South Africa's emerging Islamic insurance market, which now brings in an estimated ZAR 3 billion (US$419 million) in annual premiums. The company found success in being South Africa's sole firm providing short-term takaful insurance for business, vehicle, personal and household cover. In 2008, Takafol made AIC their underwriting partner and this relationship contributed to Takafol SA's further development, with personal lines and commercial business growing by more than 66 percent over the next two years.
Due to their successful partnership, Absa Group, parent company of AIC, decided to acquire Takafol SA and merge their operations into Absa's own developing Islamic financial services sector. After the transaction in completed, Takafol SA will become part of Absa Islamic Banking and operate as the new brand Absa Takafol. The integration of Takafol SA's Islamic product portfolio into AIC will enable greater control over the company's underwriting, pricing and administrative efforts. Through AIC meanwhile, the newly-rebranded Absa Takaful will enjoy a greater capitol position and be better able to respond to customer needs in a dynamic international environment. The group will also maintain that Absa's new range of takaful insurance products will continue to meet global standards of Shari'ah governance.
Speaking on the transaction, Edwyn O'Neill, AIC Managing Director, told reporters that the acquisition of Takafol SA would make Asba the leading provider of Islamic financial solutions in South Africa, with a look towards developing the takaful market on the rest of the continent. "This deal demonstrates Absa's commitment to provide the Islamic community with a holistic financial services offering that is Shari'ah compliant. Today, we cement our relationship with the Islamic community and recognize that there is a need for similar products in the rest of Africa."
Uwaiz Jassat, Takafol SA's CEO who will head the new unit, confirmed that incorporation into Absa would enable their company to further develop their specialized Islamic portfolio for clients and provide the necessary means to expand their presence further in Africa. "The global Takaful and Re-Takaful industry is experiencing significant growth. The principles of mutual or joint guarantee are the foundations of Takaful and play a significant role in the economic and social development of societies. By integrating into the Absa Group, Takafol South Africa will be well positioned to expand Absa's Takafol offering into the African continent," Mr. Jassat told reporters.
Absa, majority owned by Britain's Barclays, has embarked on an ambitious expansion strategy, titled 'One Absa', which plans to increase insurance awareness and business opportunity through organic and acquisitive growth in South Africa and throughout the rest of the continent. Growing earnings on the African continent has become a key priority for the banking group. The purchase of Takafol SA has followed the acquisition of a life insurer in Mozambique earlier this month, and the establishment Absa Life Botswana in February. The Islamic insurance market in particular has been an important target for the group and remains one of the best mechanisms to gain a foothold on the African continent. It is estimated that over 40 percent of Africa's population is Muslim. East Africa in particular has a large Muslim base and approximately half of Nigeria's 150 million population, long recognized as an African country with significant insurance business potential, practices Islam. Formulating products to cater to these new emerging market clients
will be a challenge but necessary to sustaining long term premium growth in Africa.
Other South African insurers are casting their net further a field. This week it emerged that Sanlam Ltd, South Africa's largest insurance company, plan to spend ZAR 1.9 billion (US$266 million) to purchase 26 percent of India's Shriram Capital, as they expand operations outside their home market. Sanlam has been looking to spend ZAR 3.2 billion worth of excess capital on purchases in emerging markets in Africa and India. Funds not spent on expansion will be returned to investors, the company said. Sanlam's Indian investment will help the company expand its presence in the world's largest democracy, where incomes are rising but insurance penetration remains low
. The ability of South African-based insurers to now compete on an international level reflects the maturity of their own market but also the necessity to expand abroad to maintain profitability in a dynamic marketplace.
Insurance Companies Mentioned
The Absa Group Limited (Absa) is one of South Africa's largest financial services conglomerates, providing a comprehensive range of banking, insurance and wealth management products and services. Absa is a subsidiary of Barclays Bank PLC (who hold a majority 55.5%) and serve 11.8 million customers, with 36,000 permanent employees throughout Africa.
Takafol South Africa
Takafol South Africa (Pty) Ltd. provide Shariah compliant insurance products and services both in South Africa and globally.