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Sunday, December 14, 2008

Swiss Re sigma Report Analyzes Emerging Markets, Takaful

Swiss Re's newly released sigma study explores the latest developments in the insurance sector of emerging market economies, with a special focus on the growing market for takaful, a form of Islamic insurance.

Swiss Re said, "the first half of the study covers the latest developments in the insurance industry in the emerging markets. The second half is devoted to a discussion of takaful, a form of financial protection based on mutual assistance and joint risk bearing that is widely accepted by Islamic scholars."

In the non-life sector, Swiss Re reported that "in real terms, emerging market premiums in the non-life sector grew by 11.6 percent in 2007. Premium volume in 2007 amounted to $199 billion. South and East Asia (+13 percent), Eastern Europe (+12 percent) and the Middle East (+12 percent) grew the fastest."

According to Daniel Staib, one of the study's co-authors, "The non-life sector benefited from the strong economic environment and the introduction of new compulsory lines in the Middle East." He added that the "motor and property businesses continued to dominate the emerging markets insurance landscape in 2007, with motor insurance outperforming the non-life market as a whole."

In the life insurance sector, Swiss Re noted that growth in emerging markets had "slowed from 18 percent to 14 percent in 2007. Premium volume in 2007 amounted to $223 billion."

Co-author Prudence Ho noted: "The strong performance of the stock markets in the first three quarters of 2007 led to increased sales of investment-linked life products. The launch of new products and the increasing market share of bancassurance, the provision of insurance services by banks, also contributed significantly to the sector's results."

Most of the regions decelerated only marginally from their record high levels of the previous year. In South and East Asia, Indonesia (+57 percent) grew the fastest in 2007. In India, the second-largest market, growth of new business fell from 145.7 percent in 2006 to just 9.6 percent in 2007.

In discussing current trends and the outlook for emerging markets, Swiss Re noted that some regulators have decided to "push for the introduction of more stringent capital requirements. Another development is the expansion of microinsurance, which extends coverage to low-income individuals. Finally, bancassurance has continued to grow in importance as a distribution channel.

"The financial crisis in industrialized countries has clouded the near-term economic outlook. Demand for products exported from emerging economies will shrink," the bulletin continued. "Commodity prices have already fallen significantly and are expected to continue their slide, leading to lower inflation."

Staib indicated: "Insurance in the emerging markets is expected to grow at a slower pace in 2008 and 2009, but its longer term growth prospects remain positive. Factoring in these considerations, average annual growth is likely to drop from the 2002 to 2007 levels of 11.4 percent in life and 10.6 percent in non-life to 7-10 percent in life and 3-8 percent in non-life between 2008 and 2013."

Swiss Re's report also covers the growth of takaful type coverage in Islamic countries. The report notes that "various Islamic insurance models that comply with the shariah, the body of Islamic religious law, have been adopted in Muslim countries. Takaful, the focus of the sigma study, is the most accepted model.

"Takaful is a system based on the principle of mutual assistance (ta'awun) and voluntary contribution (tabarru), where risk is shared collectively and voluntarily by a group of participants," Swiss Re explained. "Through payment of a voluntary donation and the clear definition of the type of loss, impermissible elements such as uncertainty (gharar) and excessive risk taking (maisir) are removed from the contract.

Takaful involves the following:
-- the creation of a shariah supervisory board that oversees insurance operations and compliance with the shariah;
-- the separation of shareholder funds from policyholder funds;
-- the commitment to distribute technical profits to policyholders;
-- the avoidance of investment in non-shariah-compliant assets.

The study also includes an analysis of the requirements for takaful types of coverage and its future prospects. In addition the report offers a breakdown of the fastest insurance growth sectors in emerging markets and the types of coverage that are most in demand.

Swiss Re said the "English, German, French, Italian and Spanish versions of the sigma study No 5/2008, "Insurance in emerging markets: overview and prospects for Islamic insurance" are available electronically on our sigma section. The versions in Chinese and Japanese will appear in the near future."

For further details, and information on obtaining a copy of the study got to the Group's web site at:

Source: Swiss Re

For your takaful solutions within Malaysia, please contact Ahmad Sanusi (mobile: +6019 234 8786 email:

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Consulting and Training - Islamic Finance and Management

Consulting and Training - Islamic Finance and Management