Malaysia Islamic Insurance

KUALA LUMPUR (October 25, 2010) : Malaysia's Islamic insurance industry will surpass its conventional counterpart in 10 years with the entry of new players but it needs more assets to expand further, an Islamic insurer said. The Islamic insurance market has expanded due to more interest in Sharia-compliant investments, and the issuance of four new family takaful licences in September would further drive growth, HSBC Amanah Takaful Malaysia said.

"The takaful industry always outpaced the conventional growth," HSBC Amanah Takaful Malaysia chief executive Zainudin Ishak said in an interview.

He added that takaful's penetration rate, defined as insurance premiums as a ratio of gross domestic product, will overtake that of the conventional market in a decade.

"The conventional industry will have its market because their channels are everywhere. Takaful's tentacles are still small that's why we need the four new players," Zainudin added.

But Zainudin said a challenge in growing the business was to ensure the continued expansion of the Islamic banking and capital markets, which would ensure a sufficient supply of instruments that insurers can invest in,

The Malaysian takaful industry witnessed a growth spurt after the central bank issued licences in 2006 to four consortiums, including HSBC, Malaysia's Hong Leong Bank and Prudential Holdings.

Islamic insurance has a penetration rate of less than 10 percent in Malaysia. The overall insurance industry's penetration rate is 43 percent, according to industry estimates.

Takaful assets accounted for about 8 percent of the insurance industry's assets, below Sharia banking's 20 percent share of the Malaysian banking sector, industry data showed.

Malaysia has eight takaful operators, including CIMB Aviva Takaful, Syarikat Takaful Malaysia Bhd and Prudential BSN Takaful Bhd. Last month, the central bank awarded family takaful licenses to American International Assurance Berhad and Alliance Bank Malaysia Berhad; AMMB Holdings Berhad and Friends Provident Group (UK); ING Management Holdings (Malaysia) Sdn Bhd, Public Bank Berhad and Public Islamic Bank Berhad; and Great Eastern Life Assurance Company Limited and Koperasi Angkatan Tentera Malaysia Berhad.

"If we grow takaful and I have funds to invest but sukuk are not available, then I can't invest," he said. "If you really want to have a quantum leap growth, then a broad strategy for these three industries is needed."

Takaful companies can only invest in assets that comply with Islamic law, ruling out investments involving excessive speculation, gambling, pork and alcohol.

An illiquid sukuk market and a shortage of Islamic assets, especially long-term paper, have generated an over-reliance on regional equity and real estate markets, rendering the $14 billion takaful industry vulnerable to sudden shocks in those markets.

Islamic bond issues are regularly oversubscribed, as there is more demand than supply of sharia-compliant assets, and long term investors such as pension funds tend to hold them until maturity.

HSBC Insurance (Asia Pacific) Holdings Limited owns 49 percent of HSBC Amanah Takaful Malaysia. Jerneh Asia Berhad holds 31 percent and Malaysia's Employees Provident Fund has the remaining 20 percent.