Takaful Malaysia Unfazed By New Players

Syarikat Takaful Malaysia Bhd, the largest and oldest takaful company in the country, is undeterred by the fact that more new players are emerging into the market as it believes it will eventually lead the pack in the growing Islamic insurance industry.  

The company, which started operations in 1985, currently commands 50% share of the local takaful market and has assets worth close to RM3bil.  

“We have the expertise and are the pioneer in the takaful business. We have a full range of comprehensive products that the new or existing competitors do not have. Many of them generally lack the expertise in the business. Apart from being the oldest, we also have operations abroad,” chief executive officer Md Azmi Abu Bakar said in an interview.  

“Takaful Malaysia has been in the country long enough, understands what customers want and has the competitive edge based on its long track record in profits paid to participants. We have the advantage as our business model is based on profit sharing or Al-Mudharabah.'' 

Under this model, he added, participants would get a higher share of profits at the end of the policy period as management expenses would have been deducted after the sharing of the surplus between the company and them.  

Furthermore, takaful funds are used solely for claims and investment purposes and not for payment of commissions and other management expenses. As a result, he said, the balance to be shared with the participants would be higher.  

According to Azmi, for several years the company has been issuing not less then 25% in profits to participants under the general takaful business such as motor, accident and fire takaful.  

He believed the company would be able to maintain the rate as it had built up enough reserves to cover any fluctuations in claims.  

He also urged the public to consider buying Takaful Malaysia insurance policies in view of the recent fuel price hike. By issuing at least 25% profits every year based on the Al-Mudharabah model, consumers would not really feel the oil price pinch, he noted.  

With strong knowledge and expertise in Islamic insurance, he said the company would continue to develop innovative takaful products to meet the growing demand.  

At present, the contribution to premiums from family (life) and general takaful is 60:40, and Azmi said he hoped to maintain the ratio. He said although emphasise would be given to family takaful, it would still look into growing the general business. 

The life and general insurance segments recorded premiums of RM367mil and RM264mil respectively for the financial year ended June 30, 2005. Total premiums stood at RM635mil. 

For this financial year, the company is targeting a 20% growth in total premiums, he said. 

Profit before zakat and taxation for the financial year hit RM37.4mil, up by 77.2% from RM21.1mil posted in the same period last year. This was the highest growth in its 20 years of operations.  

At the group level, it registered a higher net profit after zakat, taxation and minority interests of RM27.6mil compared with the previous year's. The improved result was due to low claims in the non-motor class business, which managed to maintain its composition of 80% of the actual total gross takaful contributions.  

On expansion plans, he said Takaful Malaysia would continue to look for new markets, locally and abroad. 

It currently has a presence in Sri Lanka, Indonesia, Bahrain and Saudi Arabia, and the company has plans to expand to other countries in the Middle East and West Asia.  

Bancassurance or bancatakaful, he said, was an important distribution channel and he expected at least a 25% growth in bancassurance premiums this year. 

“We are basically in all the major banks' panels for takaful and will further enhance our bancatakaful business. We have 120 branches nationwide and have specialised marketing executives who promote and directly sell family and general takaful.  

“The company will also tie up with suitable partners to further promote its products. There is good potential for more Islamic insurance in the country as the penetration rate is still very low at 5.2%,'' he said.  

Takaful Malaysia, which has a customer base of 7.3 million, early this month secured Bank Islam as its bancatakaful partner, whereby the bank's 88 branches throughout the country would sell takaful products.

DALJIT DHESI

Takaful Ikhlas Eyes RM220m Premiums

Focusing on the retail market, Takaful Ikhlas Sdn Bhd aims to achieve contributions of RM220mil for its 2007 financial year. 

Contributions, which are equivalent to gross premiums in conventional insurance, reached RM133mil up to February this year and are expected to hit RM150mil by the financial year-end to March 31, 2006.  

The company had lined up various strategies to tap the retail market, especially in rural communities, said Takaful Ikhlas managing director Syed Moheeb Syed Kamarulzaman. 

“We will be focusing on the rural market in the next financial year, as that is where protection is lacking.  

“The penetration rate is about 5.4% in rural areas compared with 37.6% that we see in urban areas,” Moheeb said at a cheque presentation ceremony to TH Plantations Bhd yesterday. 

Currently, Ikhlas' business areas are split 60:40 between life and general coverage. 

In the next financial year, the company will focus more on life coverage, specifically individual life that currently makes up 40% of the company's life coverage business. 

Ikhlas intends to increase the number of policyholders to half a million from its current 200,000 by financial year 2007. 

“We are looking at ways and means to enhance and improve our distribution channels,” Moheeb said.

Strategic tie-ups for insurers

Although the local insurance industry has seen some form of consolidation of late, it is not likely to see any merger soon.  

What the industry would probably witness is more strategic tie-ups between insurers and the acquisition of shareholdings in existing players by foreign insurers entering the local market in line with the growing competition in the industry. 

Life Insurance Association Of Malaysia (Liam) president Ng Lian Lu said looking at the trend over the past few years, there had not been many mergers and acquisitions (M&A) but most corporate exercises were in the form of strategic alliances with foreign players. 

“To date, the presence of foreign players in the local market is quite strong. Seven companies have more than 50% foreign shareholding. They are AIA Malaysia, ING Insurance, Allianz, Great Eastern Life, Prudential Assurance, Asia Life and Hannover Re. 

“Seven other companies have foreign affiliation. They are MCIS Zurich, Tahan Insurance (to be renamed AXA Life Insurance Bhd), Mayban Life Assurance, Uni.Asia Life, AmAssurance, Manulife and Malaysian Life Re,” he said in an interview. 

Barring any unforeseen circumstances, Liam felt any further consolidation in the industry in the near future would be driven by market forces, he added.  

Nonetheless, he said corporate exercises in the form of strategic alliances or new foreign players acquiring existing local players would likely happen. 

Mergers have taken place between Sime Axa Assurance and Malaysia National Insurance, Great Eastern Life with Overseas Assurance Corp, Malaysia National Insurance with Mayban Life Insurance and Tahan Insurance with Axa Group.  

Some acquisitions that involved foreign parties are the Allianz Group acquiring MBA Life, Manulife acquiring John Hancock globally and Zurich buying into MCIS Insurance. 

AXA Affin General Insurance Bhd president and CEO Giles R. Ward said a “prescriptive” approach to insurance mergers seemed unlikely.  

“Consolidation has to move in line with appropriate regulatory developments to ensure, in particular, pricing and reserving practices are professionally managed. Bank Negara's forthcoming introduction of Risk-Based Capital requirements is an important step in this direction.  

“From a consumer perspective, consolidation should produce benefits beyond greater stability. However, this can only happen if there is greater deregulation of products and pricing such that the efficiencies generated can be translated into consumer benefits,” he said. 

Uni.Asia Life Assurance Bhd CEO Ooi Say Teng said the company foresaw M&A activity along the line of vertical integration. For example, a banking group adding an insurance arm in view of bancassurance becoming an attractive distribution channel for banks. “In addition, there is a strong possibility of integration between the different insurance lines, such as life, non-life and takaful operators joining up either through M&A or strategic alliances to improve on their profitability.  

“This strategic move is more desirable in view of the more intense competition taking place with the entrance of new players in the market,'' he said. 

Allianz Life Insurance Malaysia Bhd CEO Chris James said with the introduction of liberalisation measures under the Ninth Malaysia Plan, the company expected to see more competition in the insurance industry and this might lead to consolidation.  

“Under the Financial Services Masterplan, Bank Negara expects the financial landscape for the insurance sector to be more dynamic and competitive, and consolidation will be inevitable as size will be the key factor for survival. Consolidation will result in fewer and bigger players in the market and more professionalism.  

“Competition will focus more on customer service and proper advice. Consumers will benefit from the competition in terms of more attractive and diverse products, better advice and service and an increase in distribution through alternative channels.” 

DALJIT DHESI

Bank Negara Malaysia has approved the applications from Munich Re and MNRB Holdings Berhad to establish the first retakaful companies under the Takaful Act 1984, to conduct both general and family retakaful businesses in the Malaysian takaful industry. 

Munich Re is one of the largest reinsurance companies in the world with offices in more than 60 countries. 

MNRB Holdings Bhd is the holding company of Malaysian Reinsurance Berhad, a national reinsurance company conducting reinsurance business.  

The approval is part of Bank Negara's measures to develop the takaful industry in Malaysia, said a statement from the bank.

Bank Negara Statement

Bank Negara Malaysia announces today that it has approved the applications from Munich Re and MNRB Holdings Berhad to establish the first retakaful companies under the Takaful Act 1984, to conduct both general and family retakaful businesses in the domestic takaful industry.

Munich Re is one of the largest reinsurance companies with global presence in more than 60 countries. MNRB Holdings Bhd is the holding company of Malaysian Reinsurance Berhad, a national reinsurance company conducting reinsurance business.

This initiative is one of Bank Negara Malaysia's continuous measures to develop the institutional infrastructure to support the development of the takaful industry. The takaful sector has been growing at 25% annually for the recent five years and the industry total assets stand at RM6.5 billion.

The establishment of these retakaful companies will also promote Malaysia as the centre for international currency retakaful business, which is one of the measures taken to promote Malaysia as an international Islamic financial centre.

[back to top]