Amman, May, 2010: The third edition of Ernst & Young’s World Takaful Report 2010: Managing performance in a recovery, unveiled at the 5th Annual World Takaful Conference of 2010, confirms that global Takaful industry is well on course to surpass US$8.8 billion in contributions in 2010. Contributions grew by 29% in 2008 to reach US$5.3 billion. Takaful refers to Shari’a-compliant cooperative insurance.
The report shows that the top two Takaful markets in the world are Saudi Arabia, with contributions totalling US$2.9 billion in 2008, and Malaysia with US$900 million. Sudan is the most significant market outside of the GCC and SE Asia, with contributions totalling US$280 million in 2008.
The global compound annual growth rate for Takaful for the period 2005 - 2008 has been 39%; the Levant region and Africa grew at 18%, the Indian Subcontinent at 135%, SE Asia at 28% and the GCC at 45%. The UAE was the fastest growing Takaful market in the world with a compound annual growth rate of 135% from 2005-2008 while Indonesia rose quickest in SE Asia at 35%.

Comparatively high rates of real GDP growth, decreasing government safety net, coupled with low insurance penetration and favorable demographics, suggest strong future growth in the MENA region.
Commenting on the growth of Takaful market in Jordan, Mohammad Al Karaki, Partner at Ernst & Young Jordan, said: “The Takaful industry in Jordan remains relatively untapped, and I believe that the industry will in fact witness significant growth over the coming years. Similar to other countries in the region, the market will continue to grow and investors see this strong business potential.”
“Successful investors will be those who clearly understand the local market practices and choose the right Takaful model, mode of market entry and local partners,” He added.
The report further indicated that while industry growth remains strong, the challenge for operators is to balance profitability through their early years of development. Unsurprisingly, the primary challenge remains the shortage of skilled professionals across all key functions – underwriting, risk management, claims management and technology deployment. Underwriting losses remains a source of worry for most operators and specialization could be the answer. Enhancing their understanding of the customers, sectors or geographies, and therefore improving their risk analysis and pricing could yield quick results. Distressed asset values and challenging capital markets are some of the other challenges that the industry faces given the impact of the global financial crises.

The report also draws attention to the governance system. The role of Boards will become increasingly decisive in steering companies towards recovery. As a result, many operators have initiated a rigorous review of their strategies and financial plans. Capital generated internally through profitable operating performance will be critical to maintaining financial stability and funding growth.
According to Sameer Abdi, Head of Ernst & Young’s Middle East Islamic Financial Services Group: “We are entering a new and changing world, where quality of strategy execution and stronger capital planning are at the top of the management agenda. The industry has certainly shown resilience during the global financial crises. It’s about time that the industry lobbies for deeper local Islamic capital markets and diversifies its business mix in favor of areas with sustainable growth potential”. He adds: “Ernst & Young’s Islamic Financial Services team are deeply involved in assisting many Takaful businesses in GCC and international markets in building a stronger Takaful franchise.”

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