A.M. Best discusses the market differences in The Dynamics of Takaful Markets of the Middle East and Malaysia: Similar Models, Different Approaches, Contrasting Fortunes.
“Over the last three years, Malaysian operators have generated superior margins on their family takaful portfolio compared with Middle Eastern operators. On the other hand, Middle East companies have spent considerable time and money to develop family takaful products that have not translated into significant revenue to absorb these costs,” the company notes.
The report identifies one of the key drivers of the success of takaful in Malaysia is the balance of earnings between the shareholders’ and policyholders’ funds, demonstrated by the stronger returns experienced in their family and general takaful portfolios. Salman Siddiqui, Senior Financial Analyst at A.M. Best and co-author of the report, said: "Over the last three years, Malaysian operators have generated superior margins on their family takaful portfolio compared with Middle Eastern operators. On the other hand, Middle East companies have spent considerable time and money to develop family takaful products that have not translated into significant revenue to absorb these costs."
In addition to enjoying higher family takaful margins, Malaysian companies also outperform the Middle East operators in their general takaful portfolios. Mahesh Mistry, A.M. Best Director, analytics, and co-author, added: "Overall, Middle East takaful companies produce combined ratios above 100%, whilst lower loss ratios in Malaysia help operators produce marginal yet profitable sub-100% combined ratios. This emphasises the value-added proposition that many Malaysian operators can provide clients, with the focus toward bottom-line profitability over top-line growth, allowing technical surpluses to be distributed to policyholders."
A.M. Best's report further notes that the lack of differentiation and the associated pricing pressure, along with poor distribution networks, will be the key challenges for Middle East takaful companies going forward. For the industry to tackle these challenges, the operators will need to adopt suitable strategies and appropriate structures to ensure that the takaful model employed is balanced, and that it serves the requirements of shari'ah-compliant insurance, to the benefit of all stakeholders.
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The report identifies one of the key drivers of the success of takaful in Malaysia is the balance of earnings between the shareholders’ and policyholders’ funds, demonstrated by the stronger returns experienced in their family and general takaful portfolios. Salman Siddiqui, Senior Financial Analyst at A.M. Best and co-author of the report, said: "Over the last three years, Malaysian operators have generated superior margins on their family takaful portfolio compared with Middle Eastern operators. On the other hand, Middle East companies have spent considerable time and money to develop family takaful products that have not translated into significant revenue to absorb these costs."
In addition to enjoying higher family takaful margins, Malaysian companies also outperform the Middle East operators in their general takaful portfolios. Mahesh Mistry, A.M. Best Director, analytics, and co-author, added: "Overall, Middle East takaful companies produce combined ratios above 100%, whilst lower loss ratios in Malaysia help operators produce marginal yet profitable sub-100% combined ratios. This emphasises the value-added proposition that many Malaysian operators can provide clients, with the focus toward bottom-line profitability over top-line growth, allowing technical surpluses to be distributed to policyholders."
A.M. Best's report further notes that the lack of differentiation and the associated pricing pressure, along with poor distribution networks, will be the key challenges for Middle East takaful companies going forward. For the industry to tackle these challenges, the operators will need to adopt suitable strategies and appropriate structures to ensure that the takaful model employed is balanced, and that it serves the requirements of shari'ah-compliant insurance, to the benefit of all stakeholders.
Interested?