Allianz Malaysia Sees Takaful Openings Through Government Policies

Although Islamic Shariah law has strict limitations on the use of premiums from takaful sales, Allianz Malaysia said it is open to tapping the market, with its estimated annual growth of up to 20% under positive government support.

"We are interested in takaful business as it is an attractive and promising segment with a lot of potential for growth," Alexander Ankel, chief executive of Allianz Malaysia, told BestWeek Asia/Pacific.

The emergence of the takaful sector is "broadening" the competitive horizon of the insurance industry, and customers now have access to a variety of options, said Ankel. "We believe takaful will help the insurance industry to grow further as Malaysia is set to emerge as a leader in Islamic finance."

With the enactment of the Takaful Act 1984, the first takaful company in Malaysia was established in 1985. Since then, Malaysia's takaful industry has been "gaining momentum" and increasingly recognized as a "significant" contributor to Malaysia's overall Islamic financial system, said the Bank Negara Malaysia, the central bank of Malaysia, in a statement.

Takaful Opening

Globally, the takaful industry has been growing rapidly, and appeals to both Muslims and non-Muslims. "The industry is expected to grow by 15% to 20% annually, with contributions expected to reach US$7.4 billion by 2015," according to the Institute of Islamic Finance and Insurance and Investor Offshore Review in February 2006, said the central bank.

Consultancy Ernst & Young recently said the global takaful market grew 29% to US$5.3 billion in contributions in 2008, and it is expected to surpass US$8.8 billion in 2010 (BestWire, May 4, 2010).

There are more than 110 takaful operations worldwide. In Malaysia, there are eight licensed takaful operations and an international takaful operator. They are CIMB Aviva Takaful Berhad, Etiga Takaful Berhad, Hong Leong Tokio Marine Takaful Berhad, HSBC Amanah Takaful (Malaysia) Sdn Bhd, MAA Takaful Berhad, Prudential BSN Takaful Berhad, Syarikat Takaful Malaysia Berhad, Takaful Ikhlas Sdn. Bhd and AIA Takaful International Bhd, according to the central bank.

The country has three licensed retakaful operators, including MNRB Retakaful Berhad, ACR Retakaful SEA Berhad and Munich Re Retakaful.

As at Dec, 31, 2009, Malaysia's total takaful fund assets amounted to 12.45 billion ringgit (US$3.9 billion), up 17.8% from 10.57 billion ringgit in 2008. Net contributions income from the takaful sector was 3.52 billion ringgit, up 16.1% from 3.03 billion ringgit the previous year, according to the central bank.

Malaysia has been at the "forefront" of the takaful business, said Allianz in a report. "Takaful insurers in Malaysia, a country of only 27 million, held assets worth some US$2 billion in 2008. Their counterparts in Indonesia, with nearly 10 times the population, only managed assets worth US$95 million."

Insurance in its conventional, Western form, is forbidden by Shariah law as Islamic scholars said it resembles gambling and includes interest rates, which are shunned by the Koran. Allianz said while conventional insurers charge money to cover the risks of the insured, takaful policies spread the risk and eventual rewards among all participants, creating a system of mutual insurance, which is "basically a different way of risk transfer."

"With the takaful approach, the insurer is becoming more like a facilitator and administrator for this risk sharing," said Allianz. The German insurance group opened its takaful subsidiary in Bahrain in 2009 to capture this fast growing market by targeting high net worth individuals and providing tailor-made products for women and youths.

The global financial crisis in 2008 opened opportunities for the company, while its investors in the Middle East region are considering takaful as "an alternative to conventional products that have suffered from the downturn," said Abdulrahman Tolefat, CEO of Allianz Takaful BSC, in a statement.

Malaysian Markets

While further studying the feasibility of operating takaful businesses in Malaysia, Ankel said that in 2010 the group will continue focusing on profitable growth, further enhancing its distribution channels, streamlining life and general insurance business on a common sales and service platform to improve both product and service standards.

In April, Allianz Malaysia proposed to sell irredeemable convertible preference shares to entitled shareholders under a plan to raise 611 million ringgit in capital. Of that, Ankel said 490 million ringgit will be used to repay credit facilities granted by the majority shareholder Allianz SE for the acquisition of Commerce Assurance Berhad, which is now known as Bright Mission, in a transaction that was completed in August 2007.

The raised funds will also be used to increase the capital base in Allianz Malaysia's subsidiaries, Allianz Life Insurance Malaysia Berhad and Allianz General Insurance Company (Malaysia) Berhad. "This will be used to meet their respective capital requirements under the risk-based capital framework imposed by the BNM," Ankel said.

Allianz Malaysia recorded total gross written premiums of 2.07 billion ringgit in 2009, up 17% from 1.77 billion ringgit in 2008. Among the total, ALIM accounted for 868.7 million ringgit and AGIC accounted for 1.2 billion ringgit.

The combined ratio of AGIC in 2009 stood at 87 as compared to 88 in the previous year. The general insurance unit recorded underwriting profit of 102.4 million ringgit, up 29% from 2008. Its market share in Malaysia was 10.35% as at Sept. 30, 2009.

ALIM reported 31% growth in new business premiums in 2009, pushing up its market share to 7.3%. Its total assets were 2.53 billion ringgit.

Ankel said one of the key successful factors of ALIM in 2009 was its multi-distribution strategy emphasizing "agency force expansion and its productivity enhancement" under the company’s effective training and agency model.

For the nonlife segment, he said the assured result was mainly attributed to its "well diversified distribution channels comprising about 5,500 agents, corporate brokers and its bancassurance partnership with CIMB Bank."

The bancassurance partnership which began in 2008 has contributed "positively" to the group by "improving our market share and profit generated by the general insurance business side in 2009," said Ankel.

(By Rebecca Ng, Hong Kong news editor: [email protected])