GCC Takaful industry to grow at a healthy pace says Alpen Capital
Dubai, 13th January, 2010
Alpen Capital (ME) Limited today announced the publication of its GCC Takaful Industry Report as a part of its Industry Research services. The GCC Takaful Industry report follows a similar study published in August 2009 on the UAE Insurance Industry. Other recent reports from Alpen Capital in 2009 include the GCC Cement, Retail and Healthcare industries.
Alpen Capital launched its Industry Research services at the beginning of last year to complement its existing Corporate Advisory services, including Debt advisory, Mergers & Acquisitions advisory, Equity advisory and Credit Ratings advisory. Alpen Capital is the investment banking associate of Bank Sarasin-Alpen, a subsidiary of the Swiss private bank, Bank Sarasin & Co Ltd.
"Our GCC Takaful industry report focuses on the opportunities and challenges for growth of the Takaful industry, industry trends, financial performance, valuations, stock liquidity and governance & transparency" says Mahboob Murshed, Managing Director at Alpen Capital. "The report covers eight of the largest GCC Takaful firms as well as comparative statistics on GCC conventional insurance companies and an international peer group", he adds.
Takaful Industry: Growth Potential
The GCC Takaful industry is bucking the trend in the broader economy and continues to growth at a healthy pace.
While there are reasons to remain cautious about economic growth in the near term, we expect the Takaful industry to continue to grow faster than GDP (non-oil) for the foreseeable future. The key factors underpinning the growth potential are regulation, favorable demographics, growing affluence, growth in organized savings and Islamic finance, greater availability of Takaful and Islamic finance products and changing consumer habits. Despite Muslims constituting approximately one quarter of the world population, Takaful contributions account for less than half a percent of total insurance premiums.
The key challenge for the industry is to improve efficiency and reach critical mass. The largest GCC Takaful firms are doing precisely that. In the period from 2006 to the third quarter of 2009, they registered CAGR of 26.5% compared to 19.2% for their conventional peers. Consequently, the average combined ratio of the top GCC Takaful firms fell below 90% for the first time in 2009 - a good level by international standards, but still below the local conventional comparable in the 70% range. The Takaful firms recorded good profitability with an average return on equity of 16.1% in the first nine months of 2009, compared to 21.1% for their conventional peers.
Like their conventional peers, the Takaful players are highly exposed to asset risk, with equities and real estate accounting for about 72% (median) of investments. Consequently, earnings of the sector are largely driven by the performance of local equity and real estate markets, very much at odds with norms and practices in more developed and regulated insurance markets. Insurance regulation is gradually being enhanced across the GCC and we believe this will result in significant changes in how insurance companies are run, particularly in terms of investment strategy, enterprise risk management and governance." says Tommy Trask, Executive Director and Head of Industry Research services at Alpen Capital.
The trend is for the conventional insurers to retain a larger portion of risk, while we see the opposite trend in Takaful. We think this is a sign of the Takaful players increasingly moving into more complex risk categories that requires reinsurance, but could also signal lesser constraint in Re-Takaful capacity.
Please click here for a copy of the GCC Takaful Industry Report.