M&As for takaful industry remain unlikely for now, says RAM Ratings
KUCHING: While the ‘takaful’ segment is poised to take centrestage in the development of Islamic finance here, it remains a premature notion for the industry to engage in any consolidation exercise, similar to that of the banking sector.
“It is too early to think about consolidation for the takaful industry here, given that most takaful companies are still new with the exception of a few larger players,” said RAM Rating Services Bhd’s (RAM Ratings) head of financial institution ratings Promod Dass in an e-mail interview with The Borneo Post.
He added that unlike conventional insurers, who would mainly distribute their products via the agency force, takaful players had generally grown from a ‘bancatakaful’ model.
“Currently, eight out of the 13 takaful players are partly- or wholly-owned by banking groups. As such, any merger of these banking groups could see consolidation of the related takaful players as well,” he explained.
Last month, two of the nation’s banking giants – Maybank Bhd (Maybank) CIMB Group Holdings Bhd (CIMB) – called off their separate negotiations with RHB Capital Bhd (RHB Capital) on a possible merger.
Maybank, in a filing to Bursa Malaysia, said the decision was taken in the light of recent developments and following further deliberations. CIMB, on the other hand, believed that it would not be able to arrive at a value-creating merger based on its various discussions and assessment of the present expectations of key stakeholders, said its group chief executive officer Datuk Seri Nazir Tun Razak in a separate statement.
Notably, the merger exercise of RHB Capital – parent of the nation’s fifth largest bank RHB Bank – with either bank could have created what might have been the biggest bank in Southeast Asia, overtaking Singapore’s DBS Group.
In relations to this, OSK Research Sdn Bhd in its recent research note believed that more merger and acquisition (M&A) exercises for the insurance industry should be in store going forward.
“We believe that there will be more moves for consolidation in the insurance sector, which may possibly lead to a re-rating of the whole industry,” the research house stated.
Notwithstanding this, Dass did not dismiss that takaful, within the whole Islamic financial services sector, would continue to grow exponentially going forward.
“Islamic banking and takaful will be taking centrestage in the development of Islamic finance in Malaysia, given their combined potential to position the country as a strategically unique global Islamic financial hub.
“The current low penetration rate (number of certificates over total population) of nine per cent further signifies the potential for growth in the takaful industry. We have a positive outlook for the sector and expect the double-digit growth trend to continue,” he underlined.
He further said the attraction of the nation’s takaful industry had also prompted both global and regional insurers such as AIA Group, UK-based Friends Provident Group plc, ING Group and Great Eastern Life Assurance Company Ltd to establish a footing in the family takaful arena. Together with their local joint-venture partners, these foreign players were granted family takaful licences last year.
Overall, RAM Ratings had observed that takaful companies in Malaysia had been advancing rapidly in the last five years. On this note, the five-year compounded annual growth rate of 16 per cent for assets of takaful funds had been double to that of conventional insurers. Last year, the takaful industry’s assets expanded 17 per cent to RM14.7 billion, accounting for 8.7 per cent of combined asset base of the insurance and takaful industries.
Moreover, these encouraging statistics were underscored by various initiatives implemented by Bank Negara, with the objective of moulding Malaysia into a global hub for Islamic finance.