The CEO of Munich Re Retakaful used the  World Takaful Conference: Family Takaful Summit to issue a call for the market to address the disparity in growth between non life takaful and the re-takaful to support  the expected growth in the next five years.

Mr Tobias Frenz was taking part in a panel discussion with  with  Takaful Re Limited’s Assistant Director – Family and Medical Retakaful Mr Tamer Saher. The focus of the session was to address three points; what role does the Retakaful industry play in the development of Takaful, what were the key trends and progress in the international Retakaful market, and how has the Retakaful market progressed in Malaysia.

One of the major points, as addressed by Prof Alhabshi in his opening keynote plenary, was brought up by Mr. Frenz.

In his remarks, Mr. Frenz highlighted the importance of the ReTakaful industry’s development to further the Takaful industry. He cited the Malaysian Economic Transformation Programme (ETP), which clearly states the need for in tandem development of both the Takaful and ReTakaful industries, a point he insists was misquoted in the general press release.

Also mentioned in the ETP, Mr. Frenz states, is the necessity to strengthen general (non-life) ReTakaful capacity since Family ReTakaful has much capacity available, supplied by big giants such as Munich Re, Swiss Re and such.

When asked if the ReTakaful industry is, at current, growing in tandem with the Takaful industry, Mr Frenz clearly states that it hasn’t been as such since 2008.

“There is too much family ReTakaful capacity for a rather modest Family Takaful market. Almost all international life reinsurers plus a few local/regional players now have a ReTakaful operations and are serving a market that is currently only a fraction of the life insurance market.”

In commenting on the challenges faced by the Takaful and ReTakaful market, Mr Frenz coined the term ‘ReTakaful leakage’.

Held at the Istana Hotel on 23 and 24 June 2011, the World Takaful Conference: Family Takaful Summit for 2011 grouped together the major industrial players with the lure that the Islamic financial sector is gaining momentum. In the opening statements by Azleena Idris of the Malaysian central bank, Bank Negara Malaysia, she highlighted the need for cohesive efforts throughout the Islamic finance industry in order to achieve greater potential:

“Combined efforts by industry players and market participants are important in charting the strategic direction for the industry and in maximising its potential. For family Takaful, being the segment that is envisioned to form the new growth paradigm for Takaful business, vast growth potential exists and it is opportune for Takaful operators to seize the opportunities that would lead to expansion of Takaful market share and increased Takaful penetration.”

Azleena also mentioned that “the Takaful industry is envisaged to have an active role as an enabler for the growth of other components of the Islamic financial market, in particular the growth of the sukuk market.”

During the same session, INCIEF’s Chief Academic Officer Prof. Datuk Dr Syed Othman Alhabshi opened by stating the facts with regards to the growth of the Malaysian Takaful market: “The Malaysian takaful market has proven to be the most vibrant in the region. It is growing at double digit rate of 23% pa and is well penetrated compared to the market in MENA regions. The family takaful is doing much better growing at 31 percent per annum.”

In addressing the growing interest in the Takaful market, Prof Alhabshi stated that the industry has potential, stating: “There is a growing participation of major conventional global players in the Takaful and ReTakaful industry. More ReTakaful players are emerging in the market, which helps to increase the capacities of Takaful operators.”

Subsequently, he also stated the need for increased capacity through ReTakaful operators.

“We are still in need of more prudent but business friendly rules for ReTakaful in order to further increase the capacity of the operators”

Concluding his address, Prof. Alhabshi stated that all the key ingredients were there to bring the Family Takaful industry to the next level, with focus needed in the creation of more meaningful products that would be attractive to the customers. With regards to the ReTakaful industry, he stated that operators must develop the ability to operate cross borders in order to be compared to the giant, conventional reinsurance conglomerates.

The need for in tandem growth for the Retakaful market was later brought up again during the session focused on the Malaysian and International Developments of the ReTakaful Market. Speaking for the session were Munich Re Retakaful Chief Executive Officer, Mr Tobias Frenz and Takaful Re Limited’s Assistant Director – Family and Medical Retakaful Mr Tamer Saher. The focus of the session was to address three points; what role does the Retakaful industry play in the development of Takaful, what were the key trends and progress in the international Retakaful market, and how has the Retakaful market progressed in Malaysia.

One of the major points, as addressed by Prof Alhabshi in his opening keynote plenary, was brought up by Mr. Frenz.

In his remarks, Mr. Frenz highlighted the importance of the ReTakaful industry’s development to further the Takaful industry. He cited the Malaysian Economic Transformation Programme (ETP), which clearly states the need for in tandem development of both the Takaful and ReTakaful industries, a point he insists was misquoted in the general press release.

Also mentioned in the ETP, Mr. Frenz states, is the necessity to strengthen general (non-life) ReTakaful capacity since Family ReTakaful has much capacity available, supplied by big giants such as Munich Re, Swiss Re and such.

When asked if the ReTakaful industry is, at current, growing in tandem with the Takaful industry, Mr Frenz clearly states that it hasn’t been as such since 2008.

“There is too much family ReTakaful capacity for a rather modest Family Takaful market. Almost all international life reinsurers plus a few local/regional players now have a ReTakaful operations and are serving a market that is currently only a fraction of the life insurance market.”

In commenting on the challenges faced by the Takaful and ReTakaful market, Mr Frenz coined the term ‘ReTakaful leakage’.

“(ReTakaful leakage) is where Takaful operators ceded some of their business to conventional reinsurers under the so-called darurah or necessity rule. This is questionable under the Shari'a as there is plenty of ReTakaful capacity available.”

In pointing out the areas where these leakages occur, Mr Frenz points to non-life Takaful operators, stating: “This is a problem primarily for general Takaful, not so much for family. In Malaysia almost all family Takaful is properly ceded to family ReTakaful operators; in some parts of the Middle East we still have some family ReTakaful leakage.”

In moving forward, Mr Frenz states that these leakages have to be addressed: “Where the Takaful industry can improve on is stopping the ReTakaful leakage, which probably requires a stronger involvement of the Shari'a boards in the selection of the ReTakaful operators/reinsurers.”

However, with all these issues highlighted, Mr Frenz was still adamant that the outlook for growth in the ReTakaful market was better off in comparison to that of their conventional counterpart.

“Industry growth for conventional insurance and reinsurance is expected to remain stable at 6%, whereas Takaful and ReTakaful will register stronger growth at 20% over 2010 to 2014.”

A main highlight of the conference was the unveiling of the Ernst & Young World Takaful Report for 2011 on the second day of the conference. The report starts off detailing the differences of the Takaful industry in a geographical sense, comparing the industry in the GCC and Malaysia. The report states that the Takaful industry in the GCC cedes more to reinsurers than Malaysia Takaful operators, causing excessive reliance on investment returns to generate profitability. In Malaysia, however, Ernst & Young states:

“On average, operators cede between 5 to 15 per cent of gross premiums to ReTakaful entities, retaining a larger proportion of business on their books and converting this into better technical results. This strategy requires greater underwriting competence and track record (using historical data) to build a quality book.”

Another point brought forward in the report, particularly on the ReTakaful industry, was mentioned in the detailing of the Takaful Business Risks. The report points out that the lack of rated ReTakaful operators was one of the major issues facing the industry in 2010; a point that is contrary to Mr Frendz statement beforehand. However, for 2011, the ReTakaful industry is mentioned as a limitation to financial flexibility of the Takaful industry. Quoting the report:

“ReTakaful is a key source of financing for Takaful, especially for GCC-based operators. Its prudent use requires standard review and acceptance of all providers, thorough creditworthiness and the use of brokers with a solid track record.”

The report also states that in addressing key strategic issues, maintaining stakeholder confidence will rely on the technical ability of Takaful operators, or as the report states, “Develop technical capability to maximize underwriting profit and retain rather than cede to ReTakaful companies.”