The World Takaful Report 2009 The Future of Takaful - Opportunities in adversity 14 April 2009.
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Transcript of The World Takaful Report 2009 The Future of Takaful - Opportunities in adversity 14 April 2009.
The World Takaful Report 2009
The Future of Takaful - Opportunities in adversity
14 April 2009
The World Takaful Report 2009Page 2
1. Global Takaful MarketsTakaful continues to show strong growth in underpenetrated insurance markets.
2. The Financial CrisisTakaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.
3. Sustaining the FutureLatent demand will continue to fuel long-term future growth.
Key messages
The World Takaful Report 2009Page 3
1: Global Takaful MarketsTakaful continues to show strong growth in underpenetrated insurance markets.
Glo
bal T
akaf
ul P
rem
ium
s
2008-2009Previous 5-10 Years Next 5 Years
Takaful Growth Phases
Historical Growth Window of Opportunity Future Growth
► Basic product ranges.► Simple distribution channels.► Development of regulatory
frameworks.► Emergence of
standardization.
► Increased alliances.► Mergers and acquisitions. ► Cross selling and BancTakaful.► Product innovation.► Multiple distribution channels.► Emerging markets.
► Large population centres.► Expanding income.► Changing social attitudes towards
Takaful.► Growing awareness.► Economic development.► Growth of Islamic banking.
We are here
A
B
C
Economic downturn
Economic fundamentals
Business risks
Pot
ential
Sce
nari
os
Financial
ComplianceStrategicOperational
The World Takaful Report 2009Page 4
CAGR 2005-2007
* Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.
2,561 3,283
Global Gross Takaful Contributions by Year (US$m)*
Iran - Gross Takaful Contributions by Year (US$m)
4,157
Source: Ernst & Young WTR08, Ernst & Young analysis
2,164 27%
Indian Sub-Continent
Levant
Africa
South-East Asia
GCC
52%
35%
32%
32%
29%
CAGR (2005-2007) = 30%
Global gross Takaful contributions have grown with contributions in 2007 reaching US$ 3.4 billion
770
1,2381,579
2,046474
544
692
951
121
181
215
14
17
21
32
5
317
8
18
11
2004 2005 2006 2007 (e)
1,384
1,988
2,518
3,364
The World Takaful Report 2009Page 5
The Takaful industry has been expanding by tapping into large Muslim markets globally
Source: CIA World Fact book; Global Insight; Middle East Insurance Review; World Islamic Insurance Directory 2009; Ernst & Young analysis
3000+
1000 - 3000
100 - 1000
10 - 100
Under 1 – 10
2007 Estimated Gross Contribution Income (US$m)
September 2008January 2009 ~124 ~143
3
15*
Indonesia: 3 Takaful Operators + 27 Shari'a DivisionsIran’s insurance companies are governed by Shi’ite law and their products have been approved as halal.
Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators
Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition.
~143
Takaful Companies (+38 Windows) Takaful Companies
Takaful operators present but norecord of contributions
Global Takaful Operators and Contributions in 2008
2
7
2
12
3
3
415
3
1
12
61
1
41 3
7
1
1
2
1
37
2
1 1
1
4
1
1
15*
KSA
~37
Malaysia
~12
Sudan
~15
Indonesia
~3
Bahrain
~7
Kuwait
~12
UAE
~6
3
The World Takaful Report 2009Page 6
But significant untapped markets in Asia and MENA exist
Source: CIA World Fact book; Global Insight; Ernst & Young analysis
100m +
50 - 100m
10 – 50m
5 – 10m
1 – 5m
Estimated Muslim Populations in 2008
India
~151m
Indonesia
~207m
Pakistan
~160m
Bangladesh
~132m
Turkey
~71m
Egypt
~71m
Nigeria
~64m
Algeria
~33m
Morocco
~32m
Iran
~64m
Global Estimated Muslim Populations in 2008
Under 1m
Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data.
The World Takaful Report 2009Page 7
2: The Financial CrisisTakaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.
Glo
bal T
akaf
ul P
rem
ium
s
2008-2009Previous 5-10 Years Next 5 Years
Takaful Growth Phases
Historical Growth Window of Opportunity Future Growth
► Basic product ranges.► Simple distribution channels.► Development of regulatory
frameworks.► Emergence of
standardization.
► Increased alliances.► Mergers and acquisitions. ► Cross selling and BancTakaful.► Product innovation.► Multiple distribution channels.► Emerging markets.
► Large population centres.► Expanding income.► Changing social attitudes towards
Takaful.► Growing awareness.► Economic development.► Growth of Islamic banking.
We are here
A
B
C
Economic downturn
Economic fundamentals
Business risks
Pot
ential
Sce
nari
os
Financial
ComplianceStrategicOperational
The World Takaful Report 2009Page 8
17 Jan: US$11.5b Q4 loss
12 May: US$3.2b
Q1 loss 7 Sept: Nationalized by the
US Treasury
14 Sept: Files for bankruptcy and stock markets plummet
16 Sept: Loan of US$85b approved by
the Fed
3 Oct: US Congress passes US$700b bailout
13 Oct: UK bails out RBS, HBOS and Lloyds TSB at a cost of US$63b
10 Oct: G7 Finance Ministers meet and issue a 5-point plan
16 Jan: US Treasury invests US$20b in Bank of America
Jan
uary
2
00
9
19 Jan: UK announces a new bank rescue program
S&P 500 Average 2007: 1,477
Jan
uary
2
00
8
Q4 loss: US$14b
15 Jan: US$18.1b Q4 loss 16 March:
Taken over by JP Morgan
US$3.9b Q1 loss
8 April: Receives
US$7b from TPG Capital
22 July: US$3.3b loss
The financial landscape has experienced significant turmoil
Source: Factiva; Bloomberg; Ernst & Young analysis
March: US Federal Reserve buys almost US$1.4t in debt
18 Sept: Federal Bank and other central banks inject billions into the global markets
UBSWAMU
AIG
Deutsche Bank
Merrill Lynch
WAMU Lehman
Fannie Mae/Freddie Mac
RBS; HBOS; Lloyds TSB
Bank of America
Bear Stearns
HSBCCiti
The World Takaful Report 2009Page 9
USA South East AsiaEurope
Market Capitalization of top 10 Financial Institutions by Region
920
449
-51%
455
793
-42%
89
160
-44%
93
176
-47%
456
-78%
7
-41%
601
-70%
GCC
595
-42%
Banks
Insurers
% of change
% of change
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks: Reuters MENA Insurance: Zawya, One Source
Market capitalization between1st June 2007 and 20th Nov 2008
Market capitalization between31st Dec 2007 and 02nd Feb 2009
Market capitalization between1st June 2007 and 20th Nov 2008
100183 261
4
Bank Capitalization in US$b
Insurer Capitalization in US$b
13th Mar 2009
13th Mar 2009
1st Jan 2008 (unless stated otherwise)1st Jan 2008 (unless stated otherwise)
Surviving financial institutions have lost significant value
The World Takaful Report 2009Page 10
Short-term performance of Takaful operators has been impacted
Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis
Average ROE for a Sample of GCC and Malaysian Takaful Operators
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate interviews.
Retu
rn on
Equit
y (pe
rcen
tage
)
9.0%
7.4%
11.0%
-6.3%
4%6.6%
3.8% 5.0%
6.3% 5%
-10%
-5%
0%
5%
10%
15%
2005 2006 2007 2008 2009e
Year
GCC Malaysia
Cost Perspective
Income Perspective
High Operational Cost
Rising Claims Ratios
Dropping equity markets are negatively impacting earnings on overly equity exposed investment
portfolios
Lack of short-term and/or fixed income instruments is resulting in
low yields and rising cash reserves
The World Takaful Report 2009Page 11
Investment portfolios and human resource expertise are the most pressing risks in 2009
Financial Compliance
Strategic Operational
1
5
6
4
3
2
Investment Portfolios
Enterprise Risk Management
RegulatoryRegimes
Global Economic Downturn
Competition Human
Resources
Global Takaful Risk in 2009
► Lack of skilled HR and increasing competition for resources.
► Limited pool of scholars with suitable knowledge.
► Lack of operational expertise in certain lines of business.
► Low barriers to entry (minimum capital requirements).
► Increasing competition and aggressive pricing.
► Competitive pressures reducing safety margin in premiums.
► Varying regulatory requirements - business models requirements.
► Young and inexperienced regulatory regimes.
► Evolving capital requirements (risk based capital).
► Reputational risk from varying business models.
► Controls, risk management and reporting framework.
► Obtaining an independent rating.► Conflict between motives of the
Takaful fund and the shareholders’ fund.
► Decrease in new premium growth.► Increase in defaults and claims.► Market risk and resulting negative
effect on investment portfolios.► Economic crisis caused by the
collapse of the banking sector.
► Restricted investment universe and unbalanced investments.
► High equity exposures.► High counterparty risks.► Reduced Sukuk issuance is further limiting
fixed income equivalents.
The World Takaful Report 2009Page 12
High Risk Investment Portfolios
Human Resource Expertise
Global Economic Slowdown
Competition
Enterprise Risk Management
Varying Regulatory Regimes
Key Risk Key Consideration
1
2
3
4
5
6
Enhance investment portfolios Improve risk adjusted returns Seek professional asset management Develop local talent Introduce structured internal training Partner with established players Diversify income and exposures Diversify across geographies Improve core business function Enhance underwriting capability Specialize in specific lines Partner and develop alliances Improve distribution and service
Key considerations exist for each of the business risks
Prioritize risk management Seek ratings Implement effective ERM policy and
incorporate into strategy
Proactively increasing corporate transparency to all stakeholders
Boost collaboration with industry groups and regulators
Prepare and participate in change
The World Takaful Report 2009Page 13
3: Sustaining the FutureLatent demand will continue to fuel long-term future growth.
Glo
bal T
akaf
ul P
rem
ium
s
2008-2009Previous 5-10 Years Next 5 Years
Takaful Growth Phases
Historical Growth Window of Opportunity Future Growth
► Basic product ranges.► Simple distribution channels.► Development of regulatory
frameworks.► Emergence of
standardization.
► Increased alliances.► Mergers and acquisitions. ► Cross selling and BancTakaful.► Product innovation.► Multiple distribution channels.► Emerging markets.
► Large population centres.► Expanding income.► Changing social attitudes towards
Takaful.► Growing awareness.► Economic development.► Growth of Islamic banking.
We are here
A
B
C
Economic downturn
Economic fundamentals
Business risks
Pot
ential
Sce
nari
os
Financial
ComplianceStrategicOperational
The World Takaful Report 2009Page 14
TakafulIndustryTakafulIndustry
Long term growth of Takaful is predicated on strong underlying factors
TakafulIndustryF
undam
enta
ls
Facilitators
Marke
t Conditio
ns
► Favorable demographics► Increased income earnings
and propensity to consume ► Changing social attitudes
towards insurance
► Available Shari’a compliant projects
► Equity markets► Investment opportunities► Institutional growth
► Regulatory support and framework
► Insurance legislation ► Compulsory coverage
Source: Ernst & Young analysis
The World Takaful Report 2009Page 15
Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis
Low insurance penetration levels in Muslim countries suggests considerable latent Takaful demand
Current OIC member states (2008)
Insurance Penetration and GDP per Capita for Select Countries (2007)
Nominal GDP per Capita in 2007 at PPP Exchange Rates
(US$ per person)
Insu
ran
ce P
en
etr
ati
on
–
Pre
miu
ms
as
a %
of
Nom
inal G
DP in
2
00
7
0 5,000 10,000
Algeria
India
World
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
ThailandMorocco
TunisiaJordan
NigeriaPakistan
IndonesiaBangladesh
Egypt20,000
Malaysia
RussiaTurkey
15,000
Canada
France
GermanyItaly
Singapore
UK
USA
25,000 30,000 35,000 40,000 45,000 50,000 55,000
KSA KuwaitOman Qatar
UAE
Early Development
Mature Markets
Growth markets
Nascent Markets
The World Takaful Report 2009Page 16
Global Gross Takaful Contributions by Year (US$m)
By 2012, total Takaful contributions could reach US$ 7.7 billion
Assumes unabated demand growth with no significant impact from the global economic crisis and continued growth in supply.
Source: World Islamic Insurance Directory 2008; Ernst & Young analysis
Potential Scenarios
2,046
5,0193,792
2,673951
1,778
1,457
1,142
317
769
583
413
32
63
5327
18
43
40
67
2007e
2012 Potential Projections
Indian Sub-Continent
Levant
Africa
South East Asia
GCC
Optimistic US$7,696m CAGR: 18%
Balanced US$5,929m CAGR: 12%
ConservativeUS$4,293m CAGR: 5%
Assumes moderate impact from the global economic crisis and short-term reduction in economic growth, reduced premiums in personal general lines but also increased market share in corporate and group.
Assumes significant impact from the global economic crisis and prolonged reduction in economic growth. Reduced demand for personal general lines and investment-linked family products, together with aggressive pricing in the corporate segment, will slow premium growth.
Optimistic Balanced Conservative
Optimistic
Balanced
Conservative
7,696
3,364
A
B
C
A B C
5,929
4,293
The World Takaful Report 2009Page 17
Glo
bal Takafu
l P
rem
ium
s
2008-2009Previous 5-10 Years Next 5 Years
Takaful Growth Phases
A window of opportunity has emerged for Takaful operators
Source: Ernst & Young analysis
Historical Growth Window of Opportunity Future Growth
Global Takaful Markets The Financial Crisis Sustaining the Future
We are here
A
B
C
Business risks
Pote
nti
al
Sce
nari
os
Financial
ComplianceStrategicOperational
Thank you