The uptake of takaful (Islamic insurance) is based around the concept of risk-sharing and has been growing at an exponential rate since the first provider of the product opened shop in Egypt in 2003. Plans to develop product-specific regulations as well as for the creation of other Islamic investment vehicles are likely to further boost segment growth, though opinions within the segment as to the utility of the takaful concept and its long-term prospects vary.
ISLAMIC MODEL: Takaful is based around the concept of sharing risks rather than transferring the risk to an insurance company. Rather than hand over premiums to an insurance company, takaful contributors pay into a pool that implicitly agrees – in principle the donation is voluntary – to reimburse them should the event against which they are insuring themselves take place. The pool nominally belongs to the subscribers rather than the takaful company, and at the end of the insurance period if there is still money left over in the pool, some or all of this may be divided among the contributors and returned to them; this potential for contributions to be returned is often marketed as one of the product’s main advantages in addition to its compliance with religious edicts. Takaful providers’ revenues come from a fee paid by the contributors for the management of the pool and/or from a share of the return on investments made using the fund (which must be in sharia-compliant vehicles).
TAKAFUL IN EGYPT: The first provider of Islamic insurance in Egypt opened its doors in 2003 and there are now eight takaful companies operating in the country, comprising five non-life firms and three life companies. The segment is growing rapidly, both in absolute terms and as a proportion of the Egyptian insurance market as a whole. Total turnover in the non-life takaful segment in the financial year 2011/12 stood at LE591m ($84.1m), accounting for 9.1% of total non-life insurance premiums in Egypt. This represented growth of 17.8% on turnover the previous year, when takaful premiums represented 8.6% of total non-life insurance industry turnover. The segment has expanded at a compound annual growth rate of more than 100% since 2007/08, when it accounted for just 0.8% of the Egyptian non-life insurance market. The company with the highest turnover in the takaful non-life segment in 2011/12 was Egyptian Takaful (non-life), with total written premiums of LE221m ($31.4m), representing a non-life takaful market share of 37.4%, according to figures provided by the Insurance Federation of Egypt (IFE).
The next largest firm in the segment was Egyptian Saudi Insurance House (ESIH), with a market share of 21.5%, followed by Arab Orient Takaful Insurance, with 20.9%. The newest entrants to the nonlife Islamic segment, Nile General Takaful and Arab Orient Takaful, had shares of 7.1% and 20.9%, respectively. The life takaful segment – or family takaful, as it is often known – is much smaller as a proportion of total life business in Egypt but is also growing rapidly. Group life takaful contributions accounted for 1.5% of total life premiums in force and 2.6% of new life premiums in 2010/11 according to data from the IFE; the individual market is smaller. The largest firm in the segment by contributions in 2010/11 was Egyptian Takaful-Life; the other two players in the life business are Nile Family Takaful Insurance and Solidarity for Family Insurance.
GULF INVESTMENT: A number of players in the market are backed by companies from Gulf Cooperation Council (GCC) states, which in many ways form the centre of the global takaful industry and together account for the bulk of worldwide takaful contributions. The first Islamic insurance company to establish itself in Egypt was ESIH, whose current main shareholder, with a 51.15% stake in the firm, is SALAMA Islamic Arab Insurance of the UAE. Other GCC players in the market include Gulf Insurance Company (GIC) of Kuwait, via a majority stake in Egyptian Takaful - Life that it acquired in 2011, with the GIC’s current stake in the Egyptian firm 59.5%, and Orient Insurance Group of Dubai, through its Egyptian affiliate Orient Takaful Insurance Company.
Another GCC firm active in the Egyptian takaful market, Wethaq Takaful Insurance (WTI) of Kuwait, as of late March 2013 was reported to be in negotiations to sell its 60% stake in local affiliate WTI Company Egypt. Investment from the Gulf into Egypt is also helping to drive the development of the segment, as many companies from the region often demand takaful, industry players say.
PROSPECTS: Many industry figures expect growth to continue to outstrip wider insurance expansion in the coming years and for Egypt to emerge as one of the major players in the global segment. In February, Abd Al Ruf Qutb, president of the IFE, predicted local takaful premiums would grow by between 20% and 25% annually over the coming years.
Ahmed Arafin, managing director of Egyptian Takaful Company, told press he expected Egypt to account for half of the global takaful market within 10 years. However, some expect growth to be moderate in the medium term. “The high growth rate of the takaful sector in recent years is likely a result of the fact that it remains a new niche; it will likely slow to normal market growth levels within two or three years,” said Adel Moneer Rabeh, vice-chairman for operations and insurance at Misr Insurance.
REGULATION: Currently, there are no specific industry rules covering takaful providers who are regulated as conventional insurance firms; however this may be about to change, with a planned new law set to allow the authorities to issue separate regulations for the segment. “At the moment the Egyptian Financial Supervisory Authority (EFSA) board of directors is able to make changes such as setting capital requirements and introducing new products in most financial sectors without the need for new laws but this is not the case in insurance. However, a new law is being worked on that will allow us to do so and once it is passed we will be able to set specific requirements for takaful,” Ashraf Kadry El Sharkawy, former chairman of EFSA, told OBG.
Among takaful-specific rules and conditions that industry players have called to be introduced are regulations that establish a clear distinction between funds belonging to company shareholders and those belonging to customers. Ahmed Moawad, insurance researcher at the IFE, told OBG that one conventional insurer in Egypt is seeking to offer takaful products of its own, along the lines of Islamic product windows in conventional banks; however, as of March 2013 he said they were still waiting for a decision from EFSA on whether or not they could do so.
INVESTMENT VEHICLES: A development that could further boost the segment’s long-term prospects is a law approved in May 2013 allowing the government to issue sukuk (Islamic bonds) based on profit-sharing rather than interest. At present, takaful firms are forbidden from investing in interest-bearing instruments or in other investments that are not halal, for example the shares or bonds of hospitality companies whose outlets sell alcohol, or casinos. The issuance of sukuk could therefore increase the availability of permissible investment opportunities for takaful firms in the country, though the freezing of their issuance may have had a direct impact on investment opportunities for takaful firms.
PROSPECTS: Views on the segment’s prospects in Egypt vary. Amani Tawfiq, professor of risk management and insurance at the faculty of commerce at Mansoura University, said that she believed the segment would not grow at the rate that had been expected under the former Muslim Brotherhood government, which was favourable to products deemed Islamic. “In many ways takaful is about image and marketing; the essence is the same as conventional insurance. It is not any cheaper than normal insurance and in practice it is rare for money to be returned to policyholders,” Tawfiq argued. “Takaful can survive in the absence of the Muslim Brotherhood government but firms will now have to compete on their merits just like any other company.”
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