Takaful Is Sustainable

Malaysia's takaful industry appears to be more healthy and sustainable compared to its peers in other countries as its development is underpinned by strong fundamentals, says Standard & Poor's Ratings Services.

The ratings agency said on Wednesday it was more positive on the developments in Malaysia, which is the largest takaful market in southeast Asia.

"They are supported by more-sophisticated regulatory oversight and the stronger investment profile of the industry," it said in a statement issued from Dubai.

S&P said it was concerned about the sector's lack of global standards in areas such as accounting standards and Sharia compliance.

It said the global takaful sector was becoming an increasingly significant niche within the wider insurance industry. Hence, it pointed out the growing need for insurance that complies with Sharia law. "We expect to see generally strong growth in contributions, which act as premium income, and greater use of insurance in Islamic states," it said.

It pointed out takaful has developed most in the Gulf Cooperation Council (GCC) region and southeast Asia, but it highlighted that the individual countries in each region had taken different routes to develop the sector.

S&P said business lines that predominate in these two regions were distinctly different, as are the sources of growth and the investment models.

"We remain concerned by widespread use of high-risk investment strategies by takaful providers, and by the sector's lack of global standards in areas such as accounting standards and Sharia compliance," it said.

"In our view, it is unclear how many of the companies involved will sustain their profitability over the longer term, particularly in the GCC region," it said.

S&P said however, developments in Malaysia -- the largest takaful market in Southeast Asia -- appear much more healthy and sustainable.