The World Takaful Report 2009

1. The World Takaful Report 2009 The Future of Takaful - Opportunities in adversity 14 April 2009

2. Key messages • Global Takaful Markets Takaful continues to show strong growth in underpenetrated insurance markets. • The Financial Crisis Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities. • Sustaining the Future Latent demand will continue to fuel long-term future growth.

3. 1: Global Takaful MarketsTakaful continues to show strong growth in underpenetrated insurance markets.

4. Global gross Takaful contributions have grown with contributions in 2007 reaching US$ 3.4 billion CAGR 2005-2007 Global Gross Takaful Contributions by Year (US$m)* 3,364 CAGR (2005-2007) = 30% 18 32 317 Indian Sub-Continent 52% 2,518 11 951 21 215 Levant 1,988 35% 8 17 692 181 1,384 Africa 32% 544 5 14 121 474 2,046 South-East Asia 32% 1,579 1,238 770 GCC 29% 2004 2005 2006 2007 (e) Iran - Gross Takaful Contributions by Year (US$m) 2,164 4,157 27% 2,561 3,283 Source: Ernst & Young WTR08, Ernst & Young analysis * Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.

5. Malaysia UAE KSA Sudan Kuwait Bahrain Indonesia ~12 ~6 ~37 ~12 ~7 ~3 ~15 The Takaful industry has been expanding by tapping into large Muslim markets globally Global Takaful Operators and Contributions in 2008 January 2009 September 2008 ~143 ~124 Takaful Companies (+38 Windows) Takaful Companies 1 1 15* 1 4 1 12 1 3 4 2007 Estimated Gross Contribution Income (US$m) 1 7 1 3 6 37 3 7 1 1 2 15 1 4 1 2 3000+ 1000 - 3000 100 - 1000 10 - 100 Under 1 – 10 1 2 12 3 2 3 Takaful operators present but norecord of contributions Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators Indonesia: 3 Takaful Operators + 27 Shari'a Divisions 3 Source: CIA World Fact book; Global Insight; Middle East Insurance Review; World Islamic Insurance Directory 2009; Ernst & Young analysis Iran’s insurance companies are governed by Shi’ite law and their products have been approved as halal. 15* Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition.

6. Iran Nigeria India Indonesia Egypt Pakistan Algeria Bangladesh Morocco Turkey ~33m ~132m ~64m ~32m ~151m ~160m ~71m ~64m ~71m ~207m But significant untapped markets in Asia and MENA exist Global Estimated Muslim Populations in 2008 Estimated Muslim Populations in 2008 100m + 50 - 100m 10 – 50m 5 – 10m 1 – 5m Under 1m Source: CIA World Fact book; Global Insight; Ernst & Young analysis Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data.

7. 2: The Financial CrisisTakaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.

8. The financial landscape has experienced significant turmoil 18 Sept: Federal Bank and other central banks inject billions into the global markets UBS Q4 loss: US$14b WAMU Bank of America 8 April: Receives US$7b from TPG Capital 16 Jan: US Treasury invests US$20b in Bank of America 3 Oct: US Congress passes US$700b bailout AIG 16 Sept: Loan of US$85b approved by the Fed Citi RBS; HBOS; Lloyds TSB HSBC Bear Stearns 15 Jan: US$18.1b Q4 loss 12 May: US$3.2b Q1 loss Fannie Mae/ Freddie Mac 19 Jan: UK announces a new bank rescue program 16 March: Taken over by JP Morgan 13 Oct: UK bails out RBS, HBOS and Lloyds TSB at a cost of US$63b 7 Sept: Nationalized by the US Treasury S&P 500 Average 2007: 1,477 March: US Federal Reserve buys almost US$1.4t in debt 14 Sept: Files for bankruptcy and stock markets plummet 22 July: US$3.3b loss WAMU Lehman Deutsche Bank 17 Jan: US$11.5b Q4 loss US$3.9b Q1 loss Merrill Lynch 10 Oct: G7 Finance Ministers meet and issue a 5-point plan January 2009 January 2008 Source: Factiva; Bloomberg; Ernst & Young analysis

9. Bank Capitalization in US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise) Insurer Capitalization in US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise) Surviving financial institutions have lost significant value Market Capitalization of top 10 Financial Institutions by Region USA Europe GCC South East Asia 920 793 160 176 Banks 449 89 455 93 -42% -51% -47% -44% % of change Market capitalization between31st Dec 2007 and 02nd Feb 2009 601 595 456 7 Insurers 261 183 4 100 -78% -70% -41% -42% % of change Market capitalization between1st June 2007 and 20th Nov 2008 Market capitalization between1st June 2007 and 20th Nov 2008 Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks: Reuters MENA Insurance: Zawya, One Source

10. Short-term performance of Takaful operators has been impacted Average ROE for a Sample of GCC and Malaysian Takaful Operators Cost Perspective High Operational Cost Rising Claims Ratios Income Perspective Dropping equity markets are negatively impacting earnings on overly equity exposed investment portfolios Lack of short-term and/or fixed income instruments is resulting in low yields and rising cash reserves Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate interviews. Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis

11. Investment portfolios and human resource expertise are the most pressing risks in 2009 Financial Global Takaful Risk in 2009 Compliance • Decrease in new premium growth. • Increase in defaults and claims. • Market risk and resulting negative effect on investment portfolios. • Economic crisis caused by the collapse of the banking sector. • Restricted investment universe and unbalanced investments. • High equity exposures. • High counterparty risks. • Reduced Sukuk issuance is further limiting fixed income equivalents. RegulatoryRegimes 6 Global Economic Downturn • Varying regulatory requirements - business models requirements. • Young and inexperienced regulatory regimes. • Evolving capital requirements (risk based capital). 4 Enterprise Risk Management 5 Investment Portfolios 1 • Reputational risk from varying business models. • Controls, risk management and reporting framework. • Obtaining an independent rating. • Conflict between motives of the Takaful fund and the shareholders’ fund. 2 Human Resources Competition 3 • Lack of skilled HR and increasing competition for resources. • Limited pool of scholars with suitable knowledge. • Lack of operational expertise in certain lines of business. • Low barriers to entry (minimum capital requirements). • Increasing competition and aggressive pricing. • Competitive pressures reducing safety margin in premiums. Strategic Operational

12. Key considerations exist for each of the business risks Key Risk Key Consideration High Risk Investment Portfolios • Enhance investment portfolios • Improve risk adjusted returns • Seek professional asset management 1 Human Resource Expertise • Develop local talent • Introduce structured internal training • Partner with established players 2 Global Economic Slowdown • Diversify income and exposures • Diversify across geographies • Improve core business function • Enhance underwriting capability 3 Competition • Specialize in specific lines • Partner and develop alliances • Improve distribution and service 4 Enterprise Risk Management • Prioritize risk management • Seek ratings • Implement effective ERM policy and incorporate into strategy • Proactively increasing corporate transparency to all stakeholders • Boost collaboration with industry groups and regulators • Prepare and participate in change 5 Varying Regulatory Regimes 6

13. 3: Sustaining the FutureLatent demand will continue to fuel long-term future growth.

14. Long term growth of Takaful is predicated on strong underlying factors TakafulIndustry • Favorable demographics • Increased income earnings and propensity to consume • Changing social attitudes towards insurance • Available Shari’a compliant projects • Equity markets • Investment opportunities • Institutional growth TakafulIndustry TakafulIndustry Fundamentals Market Conditions Facilitators • Regulatory support and framework • Insurance legislation • Compulsory coverage Source: Ernst & Young analysis

15. Current OIC member states (2008) Low insurance penetration levels in Muslim countries suggests considerable latent Takaful demand Insurance Penetration and GDP per Capita for Select Countries (2007) 18% 16% UK 14% Mature Markets 12% Early Development France 10% Insurance Penetration – Premiums as a % of Nominal GDP in 2007 USA 8% Singapore World Canada Germany Morocco Italy 6% Thailand Growth markets India Malaysia 4% Jordan Russia Tunisia 2% UAE Turkey Oman Qatar KSA Kuwait Algeria 0% Egypt Indonesia 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 Nigeria Bangladesh Pakistan 0 5,000 10,000 Nominal GDP per Capita in 2007 at PPP Exchange Rates(US$ per person) Nascent Markets Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis

16. By 2012, total Takaful contributions could reach US$ 7.7 billion Potential Scenarios Global Gross Takaful Contributions by Year (US$m) Indian Sub-Continent A Optimistic Levant 7,696 Assumes unabated demand growth with no significant impact from the global economic crisis and continued growth in supply. Africa 63 Optimistic US$7,696m CAGR: 18% 5,929 67 769 South East Asia 43 GCC 4,293 583 53 27 1,778 413 40 Balanced B 1,457 Assumes moderate impact from the global economic crisis and short-term reduction in economic growth, reduced premiums in personal general lines but also increased market share in corporate and group. 1,142 Balanced US$5,929m CAGR: 12% 3,364 18 5,019 32 3,792 Conservative C 317 2,673 951 Assumes significant impact from the global economic crisis and prolonged reduction in economic growth. Reduced demand for personal general lines and investment-linked family products, together with aggressive pricing in the corporate segment, will slow premium growth. ConservativeUS$4,293m CAGR: 5% 2,046 2007e A B C Optimistic Balanced Conservative 2012 Potential Projections Source: World Islamic Insurance Directory 2008; Ernst & Young analysis

17. A window of opportunity has emerged for Takaful operators Global Takaful Markets The Financial Crisis Sustaining the Future Historical Growth Window of Opportunity Future Growth A Potential Scenarios B Global Takaful Premiums Business risks C We are here Compliance Strategic Operational Financial Previous 5-10 Years 2008-2009 Next 5 Years Takaful Growth Phases Source: Ernst & Young analysis

18. Thank you