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2 November 2007, London Ajmal Bhatty, SEO & Chief Operating Officer

Investment Challenges For Takaful Companies in the GCC. 2 November 2007, London Ajmal Bhatty, SEO & Chief Operating Officer Tokio Marine Middle East Limited. Scope. The economic dynamics Takaful scene generally Takaful companies in the GCC Investment instruments

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2 November 2007, London Ajmal Bhatty, SEO & Chief Operating Officer

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  1. Investment Challenges For Takaful Companies in the GCC 2 November 2007, London Ajmal Bhatty, SEO & Chief Operating Officer Tokio Marine Middle East Limited

  2. Scope • The economic dynamics • Takaful scene generally • Takaful companies in the GCC • Investment instruments • Asset-liability considerations • Regulatory considerations • Minding the Gaps

  3. GCC economic dynamics • Oil driven economic fundamentals • Non-oil diversification building solid base • Inextricable link to Shariah compliant finance • Move towards regulated markets $90 Middle East Daily Income US$500 million $30 $18 Oil Price, barrels per day KSA US$152 bn Oct 07 Daily Import US$300 million Oct 06 US + Europe Source: Newsweek

  4. Takaful scene in general • 100 to 250 takaful providers globally • Varying estimates of projected premiums by 2015: US$7.4bn to US$12 -14bn • GCC market (insurance + takaful) US$6.2bn in 2006, UAE alone: US$2.7bn (44% of GCC) • 89% general insurance

  5. GCC Insurance premiums: US$6.2bn 2006 Non-life life Source: Business Monitor & Sigma Swiss Re

  6. GCC v Other Markets Source: Business Monitor & Sigma Swiss Re

  7. Financial parameters of Takaful companies in the GCC, 2005 * 244 conventional and takaful companies in the Arab World, Source: Author’s data base

  8. Spread of Takaful companies in the GCC Source: Author's own

  9. Potential Size of Takaful: GCC • 25% market share in 5 years • KSA: US$1bn in 2003, US$2bn now, in 5 years? • US$5bn in 5 years • Total GCC: US$6.5bn in 5 years • If this is true, the global figure of US$7.4bn is low! • Family takaful in the GCC: US$0.8bn in 5 years • Family takaful: 12% of total

  10. Investment considerations for takaful companies • Driven by products and risk exposure • Competition • Regulatory requirements and limits • Localization of assets • Other factors – market price risk, credit risk, profit margin risk, currency exchange risk, liquidity risk, transaction risk, retakaful default risk, capital protection risk

  11. Considerations for young and new companies • To become secure, durable and rated companies • Become mainstream business, not a niche • Meet customer expectations • Deliver acceptable returns to shareholders

  12. General takaful : Challenges for companies in the GCC • Not many investment related challenges • There is reasonable spread of suitable Shariah compliant avenues for investment • More challenging is .. taking larger market share • Secondly to provide good customer care • Thirdly to meet expectations of customers and shareholders

  13. Family takaful : Bigger challenges in the GCC • Retailing of personal lines business offers greater opportunities • Long term business has more complex issues of pricing, profit distribution and asset liability matching. It requires continuous revision of underlying assumptions as investment and claims experience unfolds

  14. Meeting Risk appetite of customers Takaful funds: Risk Categorization Existing and future funds may be broadly placed in the following risk / reward categories to serve customer perceptions and product benefit profile SECURE Low Risk Income / capital protected low returns BALANCED Medium Risk Lower capital protection, commensurate higher returns No capital protection Blue chip security of income BALANCED Medium to high risk Potential for high returns, high volatility AGGRESSIVE HIGH RISK

  15. Conventional and Shariah Compliant instruments for asset-liability requirements Working capital Short term liabilities Longer term secure returns. Improve performance and provide liquidity for liability portfolio. Long term capital growth Improve performance in meeting known liabilities High rates of cash returns. Improve overall performance.

  16. Asset-liability considerations

  17. Asset-liability considerations

  18. Asset-liability considerations

  19. Asset-liability considerations

  20. Asset-liability considerations

  21. Asset-liability considerations

  22. Regulatory Investment Limits: Saudi Arabia This generally applies to companies regulated under the Co-operative Insurance Regulations of SAMA. Regulations permit waiver (at SAMA’s discretion) from some of these conditions by “PURE” takaful companies based on proposed investment policy requiring departure from above in compliance with Shariah guidelines .

  23. Minding the Gaps Takaful Asset classes where more funds are needed

  24. Conclusions • Projected GCC premiums: US$6.5bn? • Potential assets under management: US$12bn to 15bn (General and family takaful)? • Family takaful assets between US$4bn to 6bn • Shariah authenticity and Management knowhow is the key, starting at the Board Level in creating and supporting development of truly Shariah compliant structures and not just profit centers for Shareholders.

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