Saudi Arabia accounts for 77% of GCC takaful contribution

Updated 09 September 2014

Saudi Arabia accounts for 77% of GCC takaful contribution

GCC gross takaful contribution is estimated to reach around $8.9 billion in 2014 from an estimated $7.9 billion in 2013, according to EY’s latest report, Global Takaful Insights 2014.
The report forecasts a continued double-digit growth momentum of the global takaful market of approximately 14 percent from 2013 to 2016 and expects the industry to reach $20 billion by 2017. This is against a backdrop of continued buoyancy in the estimated $2 trillion global Islamic finance markets. The Gulf Cooperation Council (GCC) countries and Association of Southeast Asian Nations (ASEAN) markets are likely to maintain their current growth path in the next five years, subject to their economic growth.
The global takaful industry continues to gain market share across several high value rapid-growth markets, which still show significant untapped potential. Within the Gulf region, Saudi Arabia accounts for the majority of the total gross takaful contribution at 77 percent, followed by UAE, which accounts for 15 percent. The rest of the Gulf countries account for just 8% of gross takaful contributions.
Saudi Arabia will likely remain the core market of Islamic insurance business, commanding approximately half (48 percent) of the global contributions while UAE, Qatar and more recently, Oman, continue to set the pace for the development of takaful products in the Middle East and West Asian markets. Turkey and Oman are new entrants to the takaful industry, offering strong first mover advantage to takaful operators, whereas established takaful markets in Africa like Sudan, offer great prospects for efficient replication across new African markets endorsing Islamic finance.
Abid Shakeel, senior director of EY’s Global Islamic Banking Center, says: “The continued strong growth of the much larger Islamic banking sector will help sustain the progress of the takaful industry. The rapid-growth markets, particularly UAE, Malaysia and Indonesia, are key markets to watch as they improve on market practices, widen distribution channels and strengthen the regulatory front. The low insurance penetration rates, on average just 2%, across key Muslim rapid-growth markets signify a huge opportunity and growth potential for takaful products, particularly in the areas of family takaful and medical insurance.”
Given the strong underlying market opportunities, a competitive market environment and strategic regulatory reforms, it is vital that the takaful industry addresses key challenges to achieve a sustainable takaful ecosystem.
Among the GCC countries, competition, operational issues and the lack of qualified talent continue to be impediments. Profitability of takaful companies has been threatened not just by undifferentiated strategies but also by the lack of uniform regulations that will allow them to operate across different models. Undifferentiated business strategies mean most takaful operators are competing intensely and this is likely to squeeze out the under-performers.
With strong competition from conventional incumbents, takaful operators are likely to continue their struggle in the medium term, although some will look at alternative customer segments and explore merger options. In striving for scale and profitability, operators are looking at structural transformation around risk, pricing and cost efficiencies.
The industry needs to re-examine its strategies, operations and regulations in order to gear itself up for further growth and a sustainable ecosystem. Success needs to be measured in profit, not market share and those who continue to do what they’ve been doing in the past will struggle with profitability.
Abid said: “To continue to grow and improve profitability, the industry needs to re-set its strategic direction according to emerging customer trends. In the face of a competitive landscape, large takaful operators are developing segmentation strategies to allow them to refine their product offerings and match them to customers with a propensity to buy. Success for smaller operators will be to accelerate their digital capabilities for sales and service with the aim of reducing their operational costs. These principles apply to both personal lines as well as commercial lines and have proven to be critical strategic decisions by the more advanced insurance industry. The industry should also gear up for new solvency, accounting and regulatory reforms. These, coupled with the support of regulators in nurturing growth through stronger focus on the standardization of regulatory and Shariah framework, will provide a strong roadmap for the industry as a whole to build a sustainable and thriving ecosystem.”
“With the high potential of the internationalization of takaful, the urgency to grow and push for regional champions within high-growth and stable regions is greater than ever. This will allow the industry to leap into the next level to realize its global market potential and position it as a strong ethical-based alternative to conventional insurance,” added Abid.

OPEC faces a critical moment in its 60-year history

Updated 28 September 2020

OPEC faces a critical moment in its 60-year history

  • Pronouncements of the Vienna-based institution can still spark major price swings

LONDON: OPEC faces a critical moment in its 60-year history with the coronavirus crushing crude demand and prices, discord among its members, and threats from a world seeking cleaner fuels.

Founded on Sept. 14, 1960, OPEC currently comprises 13 members including nations from Africa and Latin America.

The 60th anniversary “comes at a critical moment in its history,” UniCredit analyst Edoardo Campanella said in reference to the Organization of the Petroleum Exporting Countries.

“Its ability to steer the oil market in its favor has never been put in question to the extent it is now,” he noted. The Vienna-based institution convenes for regular meetings to assess the state of supply and demand in the marketplace, and its pronouncements can still spark major price swings.

That ability has dimmed in recent years however, prompting it to join forces with ten non-OPEC producers including Russia to curb their collective output.

OPEC+ essentially wanted to counter surging energy supplies from shale rock in the United States and help clear a stubborn supply glut on world markets.

Today, OPEC pumps about one-third of global oil — but OPEC+ accounts for almost 50 percent, giving it greater clout.

Carlo Alberto de Casa, trader at Activtrades, insisted that the cartel retains a “relevant” function in the market, dismissing talk the organization was a “has-been.”

“They are slightly less influential compared to the past, also due to production of non-OPEC countries and new extraction techniques. But I still see a role for OPEC,” he told AFP.

The price war, in tandem with the worsening Covid-19 pandemic, sent oil prices off a cliff — and even caused New York’s light sweet crude contract to briefly turn negative in April — meaning producers paid buyers to take the oil off their hands.

After the unprecedented market crash, OPEC+ in May slashed up to a fifth of its output — a move that triggered a sharp rebound in crude prices to current levels around $40 per barrel.

Added to the supply backdrop, the United States, now the world’s biggest oil producer, curbed the pace of costly shale extraction.

Rystad Energy analyst Paola Rodriguez-Masiu, while noting that OPEC has lost market share in recent years, said the cartel still has an important role to play because it possesses the largest amount of accessible crude. This meant that extracting its oil resulted in fewer carbon emissions, she said.

“I would argue that OPEC would become more and more important” in the future, she concluded.