Takaful Model May ‘Stimulate Growth’ But ‘Is Unproven,’ Says S&P
Standard & Poor’s Ratings Services has published “Takaful: A New and Viable Insurance Business Model or Just A Marketing Opportunity?” The study examines the potential $4 billion market in the Middle East for the coverage, which adheres to principles of Islamic law. S&P noted that “based on current growth rates” takaful “could be the key to increasing insurance awareness among retail customers in the Gulf Cooperation Council (GCC), capitalizing on the positive economic dynamics of the region.”
“The opportunities for increased uptake of takaful in the GCC are positive because the considerable economic growth in the region, coupled with a sizable, underinsured population, means that there are substantial prospects for further development of personal lines cover,” explained S&P credit analyst Jelena Bjelanovic. “The ability of the industry to demonstrate the need for and benefits of insurance, as well as to successfully meet customer demands, remains unproven, however.”
The report also indicates that “if the world average insurance premium of $550 per capita is achieved and applied to the Gulf states, the GCC insurance market has a potential size of $20 billion (currently $4.6 billion).
“Taking as an example Malaysia, where the takaful market is expected to contribute 20 percent to the overall market in the medium term, the GCC takaful market has the potential to reach $4 billion at the current level of development (currently $170 million).
“The GCC takaful market is currently growing at about 40 percent per year, which is impressive relative to world markets, which experienced average premium growth of 2.5 percent in 2005.How much actual premium the takaful sector generates and how quickly it will do so remains to be seen, however, and will depend on the industry’s ability to deliver on policyholder expectations.”
Bjelanovic indicated that “in terms of credit ratings for the takaful sector, we will apply the same analytical process as for the traditional market, but will also take into account the sector’s positive growth dynamics and high execution risk.”
S&P also noted: “The outlook for the GCC insurance markets and increasing involvement of international insurers in the region will be discussed in greater detail by Kevin Willis, credit analyst, at Standard & Poor’s inaugural conference, “Supporting The Development Of Middle East Financial Markets,” in Dubai on April 24, 2007. The complementary, full-day event will feature presentations on a range of activities and issues critical to the future of markets, investors and issuers in the region.”
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