January 2010

The 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. 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.

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.

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.

For more details please click here to access the complete version of the Takaful Industry report.