Savings, Financial industry & Business :: World finance

Takaful industry faces slower growth, unstable returns study

Oct 21 Expansion of the takaful (Islamic insurance) industry is slowing as firms struggle for scale and face growing competition, but the sector is still poised to sustain double-digit growth, according to a report by Ernst & Young. Takaful, an industry which attracted $10.9 billion in gross contributions worldwide last year, has its core markets in the Gulf and southeast Asia and serves as a bellwether of consumer appetite for Islamic finance products. Driven largely by Saudi Arabia and Malaysia, takaful globally is expected to grow by 16 percent annually in coming years compared to an average 22 percent rate between 2007 and 2011, said Ashar Nazim, Islamic financial services leader at consultants Ernst & Young. That would see the industry edge close to $17 billion in annual gross contributions by 2015, with Saudi Arabia making up almost half of that figure, the report showed. But firms have expanded in narrow product segments such as auto insurance which are saturated by competitors, sparking price competition to gain market share, Nazim added."Unless serious thinking goes into strategising the model and structures, you'll grow your market share at the expense of profitability."A shift from general insurance to more profitable life business remains unlikely in the Gulf because of comfortable government-funded safety nets, with general business commanding a market share of as high as 96 percent in Saudi Arabia. Takaful firms have struggled to control costs because of expanding workforces, and they have lost business to conventional rivals which can underwrite larger risks more efficiently.

Lopsided portfolio allocation is a key problem, especially in the Gulf outside Saudi Arabia where firms invest 25 percent in equities but just 2 percent in the more stable sukuk asset class, the report showed. Saudi takaful firms allocate more to sukuk, 25 percent, but 44 percent is held in low-yielding cash deposits because of regulatory requirements. This means profits can swing widely. Return on equity for a sample of Gulf firms reached 0.4 percent in 2012, up from minus 7 percent in 2011 and minus 4 percent in 2010, the report said. In Saudi Arabia, return on equity jumped to 4 percent last year from minus 6 percent in 2011 and minus 1 percent in 2010. Such volatility requires greater use of reinsurers, which in turn erodes profits: reinsurance ratios for takaful firms are as high as 38 percent in the Gulf and 31 percent in Saudi Arabia, with Malaysian firms at 14 percent.

CROSS-BORDER Geographical expansion is one way out, but this is difficult because of expensive regulatory requirements and the lack of a standard approach to sharia-compliance across the world - two major barriers which remain unadressed, Nazim said."Unless there is regulatory clarity across borders, and a certain level of convergence, we believe this is holding back the internationalisation of the industry."Aside from a few operators in Saudi Arabia and Malaysia, most takaful firms lack the balance sheets necessary to explore markets such as Indonesia, Turkey, Egypt and Qatar, which offer strong potential because of their demographics.

Although scale is a priority and there are 77 operators in the Gulf and 36 in Africa, consolidation looks unlikely."We do not see consolidation as a major theme in the near future. For this to happen there needs to be good value in the business. It's still a very young industry and it needs to be given the room to proliferate and grow in a more entrepreneurial way," Nazim added. Clearer distinctions between takaful firms and conventional insurers are poised to change the sector in countries such as Malaysia and Indonesia. Malaysia's Islamic Financial Services Act, introduced in July, requires the separation of life and general business lines; firms with composite licences that cover both sectors have five years to separate them. Indonesia, which has 46 takaful operators, is poised to move away from allowing takaful windows, through which takaful services are offered by conventional insurers, Nazim said."This will create greater clarity and focus in business models, a good thing for the industry. In the near term, it'll require some operators doing composite business to reposition themselves," said Nazim."Only once there is clarity, then operators can understand what kind of consolidation can create or destroy value."

Total money market mutual funds rose by $1220 billion in latest week ici

The Investment Company Institute on Thursday issued the following money market mutual fund assets report:"Total money market mutual fund assets increased by $12.20 billion to $2.613 trillion for the week ended Wednesday, May 29, the Investment Company Institute reported today. Taxable government funds increased by $6.85 billion, taxable non-government funds increased by $6.24 billion, and tax-exempt funds decreased by $900 million.

Retail: Assets of retail money market funds increased by $1.52 billion to $895.16 billion. Taxable government money market fund assets in the retail category decreased by $20 million to $193.43 billion, taxable non-government money market fund assets increased by $990 million to $513.86 billion, and tax-exempt fund assets increased by $550 million to $187.87 billion.

Institutional: Assets of institutional money market funds increased by $10.68 billion to $1.718 trillion. Among institutional funds, taxable government money market fund assets increased by $6.87 billion to $717.89 billion, taxable non-government money market fund assets increased by $5.26 billion to $929.61 billion, and tax-exempt fund assets decreased by $1.45 billion to $70.68 billion.

ICI reports money market fund assets to the Federal Reserve each week. Revisions are due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." var $relatedItems = $('lia "/article/us-new-york-corruption-pensionfund-idUSKBN14O1S8"N. Y. pension fund manager pleads not guilty to pay-to-play scheme/a/lilia "/article/us-investment-funds-trimtabs-idUSKBN14O1OE"U.S. stock ETFs collect record cash in December: TrimTabs/a/li'), $relatedItems = $relatedItems.slice(0,10), relatedBlockLimit = Number('6'), relatedItemsTotal = $relatedItems.length, $paragraphTags = $('#article-text p'), contentParagraphs = 0, minParagraphs = Number("8"); for (i=0; i $paragraphTags.length; i++) { if ($paragraphTags[i].innerText.trim().length 0) { contentParagraphs = contentParagraphs + 1; } } if (contentParagraphs minParagraphs) { setTimeout(function(){ if (relatedItemsTotal relatedBlockLimit) { $('.first-article-divide').append('div class="related-content group-one"h3 class="related-content-title"Also In Money/h3ul/ul/div'); $('.second-article-divide').append($('.slider.slider-module')); $('.third-article-divide').append('div class="related-content group-two"h3 class="related-content-title"Also In Money/h3ul/ul/div'); var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $(' ul'); var $relatedContentGroupTwo = $(' ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Money/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Money Investors hold fewest net shorts on U.S. Treasuries since November: JPM NEW YORK The margin on bearish bets on longer-dated U.S. Treasuries over bullish positions shrank to its smallest since late November as bargain-minded investors emerged after the recent bond market selloff, a J. P. Morgan survey released on Wednesday showed. BlackRock's U.S.-based active funds post record 2016 withdrawals: Morningstar NEW YORK Investors pulled $19.3 billion from BlackRock Inc's U.S.-based actively managed mutual funds in 2016, Morningstar Inc estimates showed on Tuesday, a record high as the investment industry struggles to restrain an exodus to lower-cost investments. DoubleLine Total Return bleeds $3.5 billion, biggest monthly outflow ever NEW YORK The DoubleLine Total Return Bond Fund posted a net outflow of $3.5 billion in December, its biggest one-month withdrawal ever, data from research firm Morningstar showed on Tuesday. MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push