1

The growth potential for Islamic Insurance (takaful) in the Arab Market

A.Rahman Tolefat Head, Licensing and Information

Manama, 21stMarch 2006

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MENA REGIO IS A SIGNIFICANT LARGE MARKET WITH HIGHER

GROWTH TREND

North Africa

Egypt

Algeria

Tunisia

Morocco

GCC countries

Bahrain

UAE

Kuwait

Oman

Qatar

Kingdom of Saudi Arabia

Other Middle Eastern countries

Lebanon

Syria

Jordan

Iran

Iraq

GDP GROWTH OF MORE THAN 5% in 2004

SECOND FASTEST GROWING REGION

AFTER CHINA

3

Attractive opportunitie

s for new international

players

THE INSURANCE MARKET IN THE REGION IS EXPECTED TO GROW SIGNFICANTLY IN THE NEAR-MEDIUM TERM

Growth expected in the premium Revenue Pool in the MENA region

US $ million

1,700

6,000

2000 2007

Source: McKinsey Team Analysis, Swiss Re, WMI

average growth of 36% per

annum

4

what Takaful?

Derive from the verb KhafelDerive from the verb Khafel

Mean in Arabic mutually joint Mean in Arabic mutually joint guarantees or Guarantees each otherguarantees or Guarantees each other

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Pact among group of Pact among group of participants who agree to participants who agree to

jointly guarantee each other jointly guarantee each other in case of any member suffer in case of any member suffer from a loss or misfortune in from a loss or misfortune in

the future.the future.

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Flow of contributions

Policyholders

funds

Contributions

(premiums) base on donation

Pay claims, reinsurance &

expenses

Investments

(Mudarabah)

Surplus

Shareholders

funds

Wakhala

fees

70%

30%

Reserves

Dividends

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Obligation of participants

Shareholders fund

Participants fund

Insurance operation

Deficit

Option(1): Qarad Hassan

Investment

Participants

Option (2):Pay additional premiums

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Issues Specific to Takaful

Conventional

An exchange contract (sale An exchange contract (sale and purchase) between and purchase) between insurer and insuredinsurer and insured

A combination of donation A combination of donation and Agency or profit and Agency or profit sharing contract.sharing contract.

Premiums owned by Premiums owned by policyholderspolicyholders

Premiums owned by Premiums owned by insurance companyinsurance company

Takaful

Premiums

Contract

PolicyholdersPolicyholders pay Policyholders pay premiums to the insurer.premiums to the insurer.

Participants mutually Participants mutually expected to share the expected to share the surplus or pay the deficitsurplus or pay the deficit

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Issues Specific to Takaful

Conventional

Insurer is liable to pay the Insurer is liable to pay the insurance benefits as insurance benefits as promised from its assets.promised from its assets.

Takaful operator act an agent. If Takaful operator act an agent. If there is a deficit in takaful funds, there is a deficit in takaful funds, the operator expected to provide the operator expected to provide interest free loaninterest free loan

Takaful

No restriction apart those No restriction apart those imposed for prudential imposed for prudential reasons.reasons.

Assets must be invested in Assets must be invested in shari’ah compliance shari’ah compliance instrumentsinstruments

Insurer

Investment

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Takaful companies

Country Number

Bahrain 14

Malaysia 8

Kuwait 4

Qatar 1

Iran 5

UAE 4

Sudan 16

other 8

Total 60

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Geographical Distribution of Takaful contributions

GPW (US$ Million)

Market share (%)

Arab Countries 580 28

Iran 777 37

Malaysia 280 13

Other Asia Pacific Countries

425 20

Other 52 2

Total 2,114 100

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Arab Countries Vs Malaysia Market

Arab countries Market

94%

6%

General Family

Malaysia Market

34%

66%

General Family

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Growth Potential for Takaful

GCC & MENA

Malaysia

Iran Why?

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Family Takaful would grow at faster rate of 20% p.a. than general takaful of

8% p.a.

Family Vs General growth?

Family General

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Enhancement of Islamic

banking and finance

huge infrastructure project (multi billion projects):

-Durrat al-Bahrain.

-Qatar energy city.

-Financial Harbor.

Growth Factors for General takaful?

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General Takaful

Enhancement of Islamic

banking and finance

Market share of Islamic banks in customer finance:

-Islamic Mortgages

-Automobiles

- Personal financing.

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Growth Factors for Family takaful?

Factors

Cost of education

Compulsory insurance

Joint family system

Social security benefit

Young populations

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Growth Factors for Family Takaful

Demographic

Young and more educated

population

- Takaful product awareness (health and financial securities).

- Demand of takaful products (housing …)

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Growth Factors for Family Takaful

Reducing Government

security benefits

Population will save more for the future (Annuity and saving plans)

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Growth Factors for Family Takaful

Cost of education

Education is greater priority for people in Arab countries

Saving plan for children education

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Growth Factors for Family Takaful

Economic Growth, per

capita income and insurance

penetration

Insurance penetration:

-Saudi 0.5%

-Malaysia 6%

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Growth Factors for Family Takaful

Diminishing of joint family

system

Force to have their own financial security

Compulsory Insurance

Open the market further for takaful products

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Survey Conducted

Saving for the future (education)?

80% with Banks

Do they understand differences between banks and insurance

91% No

Awareness campaigns are needed

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The most important factor

Branding Identity

Surplus distributed to the participants for both general

and family takaful

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Survey Conducted

Change from conventional to Takaful if a reasonable percentage of surplus distributed?

70% will move to takaful companies on a condition that the same customer services quality will be provided

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International conventional insurers

Movement of international

players to takaful

Foster growth of takaful

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Market potential for takaful worldwide – projection for 2015

US$ Billion Market share (%)

Middle East 4.2 38

South East Asia 3.7 34

America 1.3 11.7

Africa 1.1 9.6

Europe 0.39 3.5

Other 0.4 3.2

Total 11.09 100

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Market potential for takaful - projection 2015

4.2

3.7

1.3 1.1

0.39 0.23 0.13

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

MiddleEast

South EastAsia

America Africa Europe South Asia China

Region

US

$ B

illio

n

29

Thank You ..