M&A deals expected in takaful industry

by **Cals** Tue 22 Oct 2013, 09:00

Posted on 22 October 2013 - 05:39am

Eva Yeong
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KUALA LUMPUR (Oct 22, 2013): The local takaful industry is expected to see some merger and acquisition (M&A) activities over the next few years due to the Islamic Financial Services Act 2013 (IFSA) which requires takaful companies holding composite licences to separate their businesses by mid-2018, said Ernst & Young (E&Y) assurance partner Brandon Bruce Sta Maria.

"The challenge is going to come in a few years as the new IFSA now requires licences to be split for general takaful and family takaful while the minimum capital requirement is going to be RM100 million," he told reporters after the launch of EY's latest report entitled "Global Takaful Insights 2013: Finding Growth Markets" here yesterday.

"We may see potentially some M&As happening over the next few years with local companies looking for joint ventures to come in. But all things said and done, that is potentially going to create stronger takaful companies with the RBC (risk-based capital) already in place by the time the licence split comes in," he said.

He said out of the 11 takaful players in Malaysia, three are sole family takaful operators and the remaining eight need to split their businesses, and quite a number of players have started considering M&As.

"There will be some M&As but we don't want to end up with only two players like how we started," he said, adding that the industry needs to be sizeable.

Sta Maria said the Malaysian takaful industry is still looking at fairly good growth with a projection of 20% growth for 2013. And although medium term issues are around the RBC framework, which will be effective Jan 1, 2014, companies seem to be coping with it to date.

"The other point to think about is the financial holding company regulations that are currently embedded in the IFSA, we're waiting to see how that is churned out by BNM (Bank Negara Malaysia) in terms of detailed guidelines and what will be the capital requirements required to be held by the financial holding companies," he said.

He added that with one of the entry point projects aimed at Malaysia being 75% insured by 2020, a key factor that will help spur growth of takaful players is the ability to provide products in micro insurance and micro takaful.

"If you're going to look at the broader market, you can't just service the middle income to higher income group, you also have to look at the lower income group and rural areas hence the ability to come up with those sort of products for the market place will be very important moving forward," he said.

According to EY's report, Malaysia has emerged as the world's largest family takaful market, securing close to three quarters of its domestic market share.

"The maturity of established regulations across all areas of Islamic finance in Malaysia, including sukuk issuance, has made Malaysia one of the top destinations for global institutions seeking to tap into the strong demand for long-term investments. It has also strengthened Malaysia's position as a regional centre of excellence for the takaful industry," said EY Malaysia country managing partner Datuk Rauf Rashid.

BNM Deputy Governor Datuk Muhammad Ibrahim who launched the report yesterday, said the takaful industry has continued to record double digit growth despite the challenging global economic climate.

"For Malaysia, the growth of takaful industry has been supported by a developed Islamic finance industry including the Islamic financial market," he said in his speech.

Globally, takaful contributions are expected to record an annual growth of between 15% and 20% with global takaful market to reach a size of US$17 billion by 2015. In Malaysia, the growth has been double digit.

"The size of takaful assets as at end of March 2013 was RM22.85 billion while the net contribution was RM7.6 billion. Another measure of success is the penetration rate which has increased from 8% in 2008 to 13% in 2012," said Muhammad.