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.


Oil prices ‘likely to remain static despite output cuts’

Updated 01 October 2020

Oil prices ‘likely to remain static despite output cuts’

  • Survey points to uneven recovery with demand under threat from rising coronavirus cases

BENGALURU: Oil prices will stay near current levels this year as rising novel coronavirus cases threaten to slow the pace of demand recovery and counter output curbs by top producers, a Reuters poll showed on Wednesday.

The survey of 40 analysts and economists forecast benchmark Brent crude averaging $42.48 a barrel in 2020. That compares with an average of $42.54 this year and last month’s forecast of $42.75. Brent is projected to average $50.41 in 2021.

The 2020 US crude price outlook was at $38.70 per barrel versus $38.82 predicted in August. It has averaged $38.20 this year.

“As long as there is no working vaccine available, the main risk for oil prices is lower-than-expected demand,” Hans van Cleef, senior energy economist at ABN Amro said.

Global demand was seen contracting by 8 million-9.8 million bpd (barrels per day) this year, slightly less bleak than the 8 million-10 million bpd consensus last month.

“Demand recovery should still continue in our view, although at a slower pace with the easiest demand gains behind us,” said UBS analyst Giovanni Staunovo.

The recovery “will remain uneven”, he added.

Brent prices are on track for their first monthly decline in six as rising coronavirus infections across many regions, including Europe and the US brought new restrictions, while global cases surpassed 33 million.

The International Energy Agency this month cut its 2020 demand forecast by 200,000 bpd to 91.7 million bpd.

But production cuts led by the Organization of Petroleum Exporting Countries (OPEC) and its allies will offer some support to prices, analysts said, with the group curbing output by 7.7 million bpd.

“We suspect compliance with the OPEC+ deal will remain patchy but doubt that this will prevent the group from extending or even deepening its output cuts later this year,” Capital Economics analyst Caroline Bain said.