Bank Negara Malaysia, the central bank and insurance regulator, last week issued the licenses to joint ventures to be established by i) American International Assurance Berhad (70 percent) and Alliance Bank Malaysia Berhad (30 percent); ii) AMMB Holdings Berhad (70 percent) and Friends Provident Group plc, UK (30 percent); iii) ING Management Holdings (Malaysia) Sdn Bhd (60 percent), Public Bank Berhad (20 percent) and Public Islamic Bank Berhad (20 percent); iv) and The Great Eastern Life Assurance Company Limited (70 percent) and Koperasi Angkatan Tentera Malaysia Berhad (30 percent).
This brings the number of Takaful operators in Malaysia to 12. The other Takaful operators include CIMB Aviva Takaful Berhad, Etiqa Takaful Berhad, Hong Leong Tokio Marine Takaful Berhad, HSBC Amanah Takaful (Malaysia) Sdn Bhd, MAA Takaful Berhad, Prudential BSN Takaful Berhad, Syarikat Takaful Malaysia Berhad and Takaful Ikhlas Sdn. Bhd.
In addition, Malaysia also has four Retakaful operators, namely, ACR Retakaful SEA Berhad, MNRB Retakaful Berhad, Munchener Ruckversicherungs-Gesellschaft (Munich Re Retakaful) and Swiss Reinsurance Company Ltd. (Swiss Re Retakaful); and one International Takaful Operator in AIA Takaful International Bhd.
Malaysian Takaful industry has seen impressive growth over the last five years although compared with the conventional sector it still lags far behind in terms of total insurance market penetration and share. Takaful Fund Assets, according to the latest figures from Bank Negara Malaysia, comprise only 8 percent of the total assets of the Malaysian insurance and Takaful industry. This figure is up from 5.7 percent in 2005 and 7.5 percent in 2008.
Total Takaful Funds, however, have more than doubled in this same period from RM5,878.4 million in 2005 to RM1 0,569.4 in 2008 and RM1 2,445.4 million in 2009. Similarly, Takaful net contributions income has increased from RM1,333.7 million in 2005 to RM3,025.1 million in 2008 to RM3,521.8 million in 2009.
The above licenses must be seen in the context of the announcement made on 27 April 2009 by Mohd Najib Abdul Razak on further measures in the liberalization of the Islamic finance industry in the country. "These liberalization measures which will be implemented over the period 2009 to 2012," explained Premier Najib, "are in line with the government's initiative to promote structural change within the economy and diversify sources of growth to further drive economic expansion. The financial services sector is an integral component of the economy."
The measures are also in line with the provisions and timetable set out in the Financial Sector Master Plan (FSMP) announced in 2001. Bank Negara stressed that the new measures is aimed at enhancing "interlinkages to leverage on global developments in Islamic finance and reinforce Malaysia's position as an international Islamic financial hub."
Under the new liberalization measures Bank Negara will issue:
• up to two new Islamic banking licenses in 2009 under the Islamic banking Act 1983 to world class foreign players to establish new Islamic banks
• these banks can be 100 percent foreign owned
• they must have a paid-up capital of at least $1 billion
• and up to two new family Takaful (Islamic insurance) licenses in 2009 to players that can offer significant value proposition to Malaysia to spur the development of the Takaful industry.
Malaysia is giving priority to those market players "who have the capacity to contribute in areas where there are gaps in our financial system and in which there are new areas of growth in the financial system, as well as that which will reinforce Malaysia's position as an international Islamic financial hub."
The government has also changed the ceilings for foreign equity ownership in onshore Malaysian Islamic banks, investment banks, insurance companies and Takaful operators from the current 49 percent to 70 percent. Such alliances, stress the government, would strengthen business potential and enhance growth prospects of financial institutions through the international expertise and global networks of foreign shareholders.
Bank Negara confirmed that since the above announcement is received several strong applications for the family Takaful licenses. "Given the more favorable prevailing economic conditions since the announcement and the vast potential to further enhance the insurance penetration rate in Malaysia and in the region," explained Bank Negara in a statement last week, "there are tremendous growth opportunities for the insurance and Takaful industry in supporting the requirements of the economy. In view of these considerations and the strength of many of the applicants, there is an opportunity to allow more players in the Malaysian Takaful sector. In relation to this, the Minister of Finance has approved the granting of two family Takaful licenses in addition to the two licenses that have been announced earlier".
In assessing the applications, Bank Negara said it took into consideration the applicants' financial soundness and resilience, track record, expertise, business plan and contribution towards financial sector development in Malaysia. The new family Takaful operators, stressed the Malaysian Takaful regulator, "have strong value propositions that will further enhance the development of the family Takaful industry in Malaysia, in particular in penetrating untapped areas of business within the family Takaful industry including micro-Takaful, medical and retirement products. They will also contribute strongly towards reinforcing Malaysia's position as an international Islamic financial hub".
The Malaysian Takaful industry received a further boost recently when the Shariah Advisory Council (SAC) of Bank Negara Malaysia resolved that the payment of Takaful benefits from Participants' Risk Fund (which pools participants' Tabarru' (donations) contributions to meet claims by participants), can be made contingent upon specific events beyond those arising from a defined financial loss or a misfortune. This, says the SAC, is allowed subject to the agreement by the contracting parties i.e. the participants.
The decision is made in line with the feature of the Takaful contract which is established based on concept of Tabarru' and Ta'awuni amongst the participants. These two concepts, according to the ruling, allow participants to agree on the events leading to payment of the Takaful benefits. The terms and conditions outlining the respective events must be made transparent to all the contracting parties in the Takaful contract. Thus, with the agreement from the participants, the scope of events prompting payment of Takaful benefits from the Participants' Risk Fund is not only limited to death, disability or calamity, but can also be extended to cover attainment of the contracted mandate.
