Malaysian Takaful sector could reach half the size of conventional industry by 2018, says RAM

53 days to go Thursday 24th July 2014 Malaysian Takaful sector could reach half the size of conventional industry by 2018, says RAM Daily Cover MALAYSIA: Over the last five years, Takaful contributions have charted double-digit growth rates. The five-year compound annual growth rate (CAGR) for General Takaful contributions were recorded at 16% while Family Takaful contributions had a CAGR of 14%. “Optimistically, if the industry continues on its high-growth trajectory of about 15% to 20% per annum, it could reach half the size of the conventional industry by 2018, making the sector potentially much more lucrative to investors,” said RAM. In a report released today, the ratings agency expounded that the Takaful landscape is currently evolving at a quick pace; with the main changes revolving around capital requirements. This is due to the implementation of the Risk-based Capital Framework for Takaful Operators (RBCT) which came into effect on the 1st January 2014. The RBCT requires Takaful operators to maintain capital-adequacy levels that are in line with the risk profiles of their operations – which could mean additional capital injections or borrowings to shore up capital bases. Additionally, the other significant regulatory change is the requirement by the Islamic Financial Services Act 2013 for composite Takaful operators to legally separate their general and family businesses by 2018. According to RAM, the additional capital and resource requirements imposed by these changes could drive the sector’s consolidation over the next few years. This would most likely involve smaller Takaful operators with insufficient scale to justify the additional investment in separate licences, particularly with respect to the General Takaful segment. As it is, the size (and penetration rate) of the Malaysian Takaful industry is about a fifth of that of conventional insurance, with the three leading Takaful companies collectively commanding 70% of the industry’s contributions. Evidently the sector bears tremendous growth potential. Supported by the country’s developed Islamic finance industry, it is not impossible for Malaysian Takaful operators to be in equal competition with its conventional peers. 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