KUALA LUMPUR Etiqa Takaful, Malaysia's largest Islamic insurer, expects its contributions to rise faster than the broader industry's this fiscal year, as interest in takaful grows and reinsurers provide more capacity.
Etiqa sees contributions, or the Islamic equivalent of premiums, rising a fifth this year, versus the industry's 12 percent, but slower than last year's 40 percent, its chief Shahril Azuar Jimin said on Thursday.
The growth rate in the previous year was driven by an aggressive hiring of agents which was aimed at rapidly expanding its sales force.
The company's contributions totaled 1.4 billion ringgit ($413.5 million) in the financial year ending June 2009.
Takaful's profit-sharing concept has helped to increase the popularity of Islamic insurance, Shahril said.
"That is seen as part of a greater business proposition so we're not selling compulsion or religion," he said at the Reuters Islamic banking summit.
"The shift from conventional insurance into takaful (is) primarily because... (of) more public understanding that it is not seen as a religious thing but it is also a financial tool."
Under the takaful model, participants contribute a sum to a takaful fund. Contributions are separated from the takaful operator's assets and participants have an ownership interest in the fund.
When the fund makes money, the surplus is shared between the participants and, in some cases the takaful operator. When there is a loss, participants could be asked to contribute to the fund but the takaful operator will typically provide an interest-free loan.
Etiqa is owned by Mayban Fortis, a joint-venture between Malaysia's largest lender Malayan Banking (MBBM.KL) and financial group Fortis FOR.BR. It is one of eight takaful operators in Malaysia and has a 43 percent share of the market.
"The market is still very much untapped," Shahril said. "For takaful the penetration rate is only less than 8 percent in Malaysia. For insurance overall it is about 43 percent."
This insurance rate compares with about 120 percent in Hong Kong and over 200 percent in Japan, he said.
Total takaful contributions could reach $7.7 billion a year by 2012, Ernst & Young has forecast. But global takaful contributions are less than 1 percent of the total insurance premium spend annually, industry lawyers Clyde & Co have said.
Global interest in takaful has risen in recent years, as sharia finance experiences a growth spurt, but Islamic insurance is struggling to equal the growth rates logged by sharia banking.
A shortage of long-term Islamic investments, a lack of sharia reinsurance capacity and the absence of consistency on the sharia compliance of products have been cited as restraining factors.
Some takaful operators' profit margins have also been under pressure due to volatility in equities and the real estate sector.
Still, low insurance penetration in the Middle East have fueled optimism about the prospects of sharia insurance, leading conventional insurers such as Allianz (ALVG.DE) and AIG (AIG.N) to enter the market.
($1=3.386 Malaysian Ringgit)