Takaful Worldwide Report by Ernst and Young 2009

2009
THE WORLD TAKAFUL REPORT
Opportunities in Adversity - the Future of Takaful

THE WORLD TAKAFUL REPORT 2009
4th Annual
Dear Insurance Industry Leader,
It is with great pleasure that we introduce the second annual edition of the EY World Takaful Report 2009, a ground-breaking original research project and
an industry-first initiative launched last year at the World Takaful Conference. With new and meaningful strategic insights into changing market directions
becoming increasingly vital as industry leaders seek to navigate unprecedented economic challenges, the EY World Takaful Report 2009 could not be launched
at a more opportune time as the CEOs of leading international Takaful players tackle the challenges of steering profitable growth for their institutions – a task
made even more challenging by the continuing fall-out from the global economic crisis.
Notwithstanding the effects of the crisis in the international financial markets, major opportunities continue to exist in the international arena for Takaful
products. The market still remains under-penetrated with large untapped potential still to be realised in key countries. The EY World Takaful Report offers
detailed insights into these markets and opportunities. This year’s Report will probe how the Islamic insurance industry can catalyse the next phase of growth,
providing industry leaders with new insights as they seek to renew their business strategies in a challenging global economic climate.
Our gratitude goes to leading audit and business advisory firm, Ernst & Young and their Islamic Financial Services Group led by Sameer Abdi, who have invested
their considerable international talent and resources in leading the research project and in developing the insights contained in this Report.
The Report is exclusively launched at the 4th Annual World Takaful Conference and has rapidly established itself as an indispensable strategic resource for
insurance industry leaders as they seek to strengthen their market position and adapt their strategies in the global Takaful industry.
We hope that the content of this second annual edition of the EY World Takaful Report will be useful in your own strategic planning activities and will assist your
organisation in its quest for success in this dynamic industry.
Yours sincerely,
David McLean
Managing Director
The 4th Annual World Takaful Conference
A MEGA Brand
Shaping the Future of the Islamic Finance Industry Since 1993

P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003
www.megaevents.net
MEGA Brands. MEGA Clients. Market Leaders.
1
The World Takaful Report 2009
Opportunities in adversity - the future of Takaful
14 April 2009
Disclaimer
The contents of the World Takaful Report 2009 are based on qualitative comments and hence provide a subjective assessment of the current
market. All quantitative comments are based on published information wherever possible. Where published reliable data was not available,
qualitative comments were made which may or may not reflect the true state of affairs. Information has been assimilated from secondary sources,
including published country, industry and institutional information, and primary sources, in the form of interviews with industry executives.
We are not expressing any assurance on the accuracy or completeness of the information obtained. Although this report has been documented
based on our understanding of Islamic financing activities to include only such activities that are deemed Shari’a compliant, no Shari’a opinion
whatsoever has been taken on this report. Hence, the contents of this report, in terms of the activities to be carried out, might not necessarily be
consistent with Shari’a in all cases, and the opinion of a Shari’a scholar(s) should be taken before any further steps are made to implement
suggestions made in the report.
Whilst every care has been taken in the preparation of this report, no responsibility is taken by Ernst & Young as to the accuracy or completeness
of the data used or consequent conclusions based on that data, due to the respective uncertainties associated with any assumptions that have
been made.
This report is documented for the World Takaful Conference. No part of this document may be republished, distributed, retransmitted, cited or
quoted to anyone without prior written permission from MEGA and Ernst & Young.
3
Dear Takaful Executive,
On behalf of Ernst & Young, I would like to take this opportunity to introduce to you the Ernst & Young World Takaful Report 2009. We are honored
to produce the second edition of this report, which we believe sets a benchmark for the Takaful industry and is essential reading for anyone
interested in Islamic financial services.
The Takaful industry has strong foundations

The fundamental principles of Takaful have remained the same since the inception of Islam: mutual assistance and Shari’a compliance. Takaful
markets now span much of the globe with a particular concentration in underpenetrated Islamic markets, the largest of which are Saudi Arabia and
Malaysia. Gross Takaful contributions have grown from US$ 1.4 billion in 2004 to over US$ 3.4 billion in 2007. There still exists a large, expanding
and untapped Muslim population on almost every continent. Based on research interviews and estimates, the likely size of the global Takaful
market could be as high as US$ 8 billion by the end of 2012.
Risk management in adverse times is essential … to make the most of opportunities for accelerated growth
The financial crisis has severely impacted financial institutions - over the last year the top 10 US and European banks and insurance companies
have seen a US$ 1.5 trillion drop in market capitalization. The ensuing recession has tempered growth forecasts in almost every region and sector,
including major Takaful markets. As a consequence, Takaful operators are especially wary of the strategic, operational, compliance and financial
risks they face today.
Takaful operators who can successfully adapt their business models and mitigate against changing business risk will have opportunities to expand
through acquisition activity and benefit in the long-term from strong demographic growth, rising income levels and a growing desire to consume
Shari’a compliant products.
I hope that this report will allow market participants to better understand the growth factors underpinning the industry as well as encouraging new
market entrants. I trust that you will find this report informative and helpful in many different ways, allowing you to identify and exploit the various
opportunities that exist in the Takaful market today.
Sameer Abdi
Partner
Ernst & Young
Page 3 The World Takaful Report 2009

Contents
Contents
1. Introduction to Takaful
2. Global Takaful Markets
2. Global
TakafulTakaful Markets
continues to show strong growth in underpenetrated insurance markets.
Takaful continues to show strong growth in underpenetrated insurance markets.
3. The Financial Crisis
3. The Financial
Takaful Crisis
operators that successfully manage their business risks will be well placed to take
advantage of emerging
Takaful operators opportunities.
that successfully manage their business risks will be well placed to take
advantage of emerging opportunities.
4. Sustaining the Future
4. Sustaining thewill
Latent demand Future
continue to fuel long-term future growth.
Latent demand will continue to fuel long-term future growth.
5. Conclusions
5. Conclusion
Historic growth is now being affected by the economic downturn - a window of opportunity
6. Appendix
has materialized for those Takaful operators that can manage their risks and sustain future
growth.
6. Appendix
5
Contemporary execution of Takaful has existed for less than three decades
National Company for

Dubai Islamic Bank Legal & General
National Company
Cooperative for
Insurance
Dubai Islamic Bank Legal & General
The world’s first fully fledged Cooperative Insurance
Established in Saudi Arabia by Royal To set-up
TheIslamic bank
world’s is fully
first established
fledged Sudanese Islamic decree National
under the Company for and is
Dubai Islamic Bank Established in captive framework
Saudi Arabia by Royal Takaful
Legal entity
To&set-up
Generalin
Islamic bank is established Insurance
Sudanese Islamic decree Cooperative
100% owned
under Insurance
by the government
the captive framework and is
Allianz Takaful Bahrain
Takaful entity in
The world’s first fully fledged
“Charter of Medina” Company
Insurance 100% owned by theArabia
government Allianz Takaful Bahrain
Established in Saudi by Royal Launches first Islamic To set-up
Al-diyah/Al
“Charter aqila
of Medina” Sudanese
Company Islamic
Islamic bank is established Established as the world’s 1st decree under the captive framework Aseanand ReTakaful
is Takaful entity in
micro-insurance
Launches first Islamic
Fidyahaqila
Al-diyah/Al TakafulInsurance
Established company
as the by Faisal
world’s 1st International
100% owned by the governmentAsean ReTakaful Ltd Allianz Takaful
products in Indonesia
micro-insurance Bahrain
Cooperatives
Fidyah
“Charter of Medina” Takaful
Company
Islamic Bank of by
company Sudan
Faisal International Ltd
The first active Islamic products infirst
Launches Indonesia
Islamic
Cooperatives
Al-diyah/Al aqila Islamic Bank
Established of world’s
as the Sudan 1st Aseanreinsurer
ReTakaful
The first active Islamic micro-insurance
FidyahFirst Islamic Takaful company by Faisal Takaful International Ltd
reinsurer
International Council of
Salaam
products in Indonesia
Cooperatives
banks Islamic Bank of Sudan Malaysia
Takaful
Firstestablished
Islamic The first active Islamic Insurance
Salaam
Fatwa issued by the Fiqh Academy issues
International Council of
banksinestablished
Egypt Malaysia
The Malaysian Takaful reinsurer Insurance
Fiqh Council of Muslim Fiqhruling on health
Academy issues First British
in Egypt
First Islamic Fatwa issued by the Takaful
ActThe
comes into effect
Malaysian and the
Takaful insurance
ruling oncontracts
health of Salaam
banks established FiqhWorld League
Council in
of Muslim first Malaysia
Takaful company is
International Council Takaful firm
First British
favour of
Worldissued Islamic
League Act comes into effect and the insurance contracts
Fiqh Academy issues Insurance
approved by
in Egypt Fatwa by in
the established Takaful firm
insurance
favour of Islamic first
The Takaful
Malaysiancompany is
Takaful ruling on health the FSA
Fiqh Council of Muslim approved by
First British
insurance Act comes established
into effect and the insurance contracts
World League in the FSA
Takaful firm
favour of Islamic first Takaful company is
approved by
insurance established
the FSA
622 1963 1975 1975 1979 1984 1985 1997 2005 2008 2009
622 1963 1975 1975 1979 1984 1985 1997 2005 2008 2009
Arab Islamic Swiss Re; Hannover Re

622 1963 1975 1975 1979 1984
The Fiqh Council 1985of the 1997 Takaful; 2005 2008 2009 Services
Islamic Financial
Insurance
Arab Islamic Hannover Re Takaful;
Organization of
The Fiqh Council the of
Islamic
the Munich Re Board (IFSB)
Islamic Financial releases
Services
Company
Insurance (AIIC) Conference (OIC) approves Munich Re exposure draft on
Organization of the Islamic Worldwide re-insurance operators Board (IFSB) releases
Arab
Company Islamic
Established in (AIIC)
Dubai by Takaful as(OIC)
the correct Hannover Re Takaful; governance for Islamic
Conference
The Fiqh Council approves
of the enter the Re-Takaful market: Swiss exposure
Islamic Financialdraft on
Services
Insurance
the Dubai Islamic Bank alternative
Takaful to the
as conventional
correct
Worldwide re-insurance
Munich Re operators insurance (Takaful)
governance
Established in Dubai by Organization of the Islamic Re, Switzerland; Hannover Re
enter the Re-Takaful market: Board (IFSB)forreleases
Islamic
Company (AIIC) insurance
alternativeintofull compliance
conventional operations
insurance
the Dubai Islamic Bank Conference (OIC) approves Takaful, Bahrain;
Hannover Munich
Re Takaful, Re,
Bahrain; exposure (Takaful)
draft on
insurancewith Shari'a Worldwide re-insurance operators
Established in Dubai by Takafulinasfull
thecompliance
correct MunichMalaysia
Re, Malaysia
Central Bank of Pakistan releases
operations
governance for Islamic
instructions
withtoShari'a enter the Re-Takaful market:
the Dubai Islamic Bank alternative conventional insurance (Takaful)
Hannover Re Takaful, to IslamicBank
Bahrain;
Central banksof stating
Pakistanthat Takaful,
releases wherever
instructions
insurance in full compliance feasible, should be used to insure operations
their assets
Munich Re, Malaysia
to Islamic banks stating that Takaful, wherever
with Shari'a
Source: Factiva; Literary Search; IFSB; Central Bank Annual Reports; Ernst & Young analysis feasible,Bank
Central should be used to
of Pakistan insure their
releases assets
instructions
Source: Factiva; Literary Search; IFSB; Central Bank Annual Reports; Ernst & Young analysis to Islamic banks stating that Takaful, wherever
feasible, should be used to insure their assets
Source: Factiva; Literary Search; IFSB; Central Bank Annual Reports; Ernst & Young analysis 7
Takaful
Takafulcan
can be
be considered
considered aa Shari’a compliant form
Shari’a compliant form of
of conventional
conventionalcooperative
cooperative
Takaful can be considered a Shari’a compliant form of conventional cooperative
insurance
insurance
insurance
The
Thecompany
The companyaccepts
company acceptspremiums
accepts
accepts premiums from
premiums
premiums from
from the
from the
the insured
theinsured
insuredat
insured at
ataaaalevel
at level which
whichititititanticipates
levelwhich
level which anticipates
anticipateswill
anticipates will cover
willcover
will claims
coverclaims
cover and
claimsand
claims result
andresult
and result
result inin
in aaaprofit.
in profit.
aprofit.
profit.
This
This
Thisprocess
process
processof
of
ofanticipation
anticipation
anticipation
anticipation is
is
is
is akin
akin
akin
akin to
to
to
to Maysir
Maysir
Maysir
Maysir (speculation).
(speculation).
(speculation).
(speculation).
The
The company
company accepts
accepts premiums
premiums from from the
the insured
insured at at aa level
level which
which itit anticipates
anticipates willwill cover
cover claims
claims and
and result
result inin aa profit.
profit.
Conventional This
This process
process of
of anticipation
anticipation is is akin
akin to Maysir (speculation).
to Maysir (speculation).
Conventional
Conventional
Conventional The
Insurance
Insurance Theinsured
The insuredpays
insured payspremiums
pays premiumsto
premiums
premiums to the
the company exchange
companyininexchange
exchangefor
exchange for
for indemnity
forindemnity against
indemnityagainst
indemnity risks
againstrisks
against that
risksthat
risks may
thatmay
that not
maynot
may occur.
notoccur.
not occur.
occur.
Insurance
Conventional
Insurance
Conventional This process of
of ambiguity
ambiguity isis akin to Gharar (uncertainty).
(uncertainty).
This
This
The process
process of ambiguity
ambiguity akin to Gharar (uncertainty).
(uncertainty).
(non-mutual)
(non-mutual)
(non-mutual)
(non-mutual)
Insurance The insured
insured pays
pays premiums
premiums to to the
the company
company in in exchange
exchange for for indemnity
indemnity against
against risks
risks that
that may
may not
not occur.
occur.
Insurance This
This process
process of
of ambiguity
ambiguity isis akin akin to Gharar (uncertainty).
to Gharar (uncertainty).
(non-mutual)
(non-mutual) The
Thecompany
The companyengages
company engagesin
engages
engages ininvestments
in
in investments that derive
that derive
derive their
derivetheir
their income
theirincome
incomefrom
income from interest
frominterest
from and/or
interestand/or
interest prohibited
and/orprohibited
and/or industries.
prohibitedindustries.
prohibited industries.
industries.
This
This
Thisprocess
process
processis
is
isakin
akin
akin to
to
to
to Riba
Riba
Riba
Riba (usury)
(usury) and/or
and/or relates
relates
relates
relates to
toto
to Haram
Haram
Haram
Haram (prohibited)
(prohibited)
(prohibited)
(prohibited) activities.
activities.
activities.
activities.
The
The company
company engages
engages in in investments
investments that that derive
derive their
their income
income fromfrom interest
interest and/or
and/or prohibited
prohibited industries.
industries.
This
This process
process is
is akin
akin to Riba (usury)
to Riba (usury) and/or
and/or relates
relates to Haram (prohibited)
to Haram (prohibited) activities.
activities.
Takaful
Takaful
Takafulis
Takaful is
is based
isbased
basedon
based on
on principles
onprinciples
principlesof
principles Ta-awun(mutual
of Ta-awun (mutualassistance)
(mutual
(mutual assistance)that
assistance)
assistance) thatisis
that Tabarru(voluntarily)
isTabarru
Tabarru
Tabarru (voluntarily)provided.
(voluntarily)
(voluntarily) provided.Takaful
provided.
provided. Takaful
Takaful
Takaful is
isissimilar
similar
similar
is similar to
toto
to
Takaful
Takaful
Takaful
Takaful conventional
conventional
conventional
conventional cooperative
cooperative
cooperative
cooperative insurance
insurance whereby
whereby participants
participants
participants
participants pool
pool
pool their
their
theirfunds
funds
funds together
together
together
together toto
to insure
to insure
insure
insure one
one
one
one another.
another.
another.
another.
Takaful is based on principles of Ta-awun (mutual assistance) that is Tabarru
Takaful is based on principles of Ta-awun (mutual assistance) that is Tabarru (voluntarily) provided. Takaful is similar to (voluntarily) provided. Takaful is similar to
Takaful
Takaful conventional
conventional cooperative
cooperative insurance insurance wherebywhereby participants
participants pool pool their
their funds
funds together
together to to insure
insure oneone another.
another.
Mutual
Mutual
Mutual Guarantee
Guarantee ----The
MutualGuarantee
Guarantee The
Thebasic
The objectiveof
basic objective of Takaful
Takafulis
Takaful
Takaful isto
is topay
to payaaadefined
pay definedloss
defined lossfrom
loss
loss fromaaaadefined
from
from definedfund.
defined
defined fund.The
fund.
fund. Theloss
The
The loss
loss
loss is
isiscovered
is covered
covered
covered byby
bybyaaafundfund
afund
fund
created
created
created
created by
by
by
by the
the
the
the donations
donations
donations
donations ofof policyholders.
policyholders. Liability
Liability
Liability
Liability is
is
is spread
spread
spread amongst
amongst the
the policyholders
policyholders
policyholders and
and
and all
all
all losses
losses
losses divided
divided
divided between
between
between them.
them.
them. In
InIn
Mutual
Mutual
effect,
effect,
Guarantee
Guarantee
the
the policyholders
policyholders
- The
- The are
are
basic
basic
both
objective
objective
the
of
insurer
Takaful
of and
Takaful
the
the
is
is to pay a defined loss from a defined fund. The loss is covered by a fundIn
to
insured.
pay
insured.
amongst
a defined the
loss policyholders
from a defined and all
fund. losses
The lossdivided
is between
covered by them.
a fund
effect,
effect,
created the
the policyholders
policyholders are both the insurer and
and the
the insured.
created by by the
the donations
donations of of policyholders.
policyholders. Liability Liability is is spread
spread amongst
amongst the the policyholders
policyholders and and allall losses
losses divided
divided between between them. them. In In
effect,
effect, the
the policyholders
policyholders are are both
both thethe insurer
insurer andand the
the insured.
insured.
Ownership
Ownership
Ownershipof
Ownership of
of the
ofthe
the Fund
Fund----Donating
theFund
Fund Donating
Donating their
Donating their
their contributions
their contributionsto
contributions
contributions tothe
to theTakaful
the Takafulfund,
Takaful fund,policyholders
fund, policyholdersare
policyholders
policyholders areowners
are
are ownersof
owners
owners ofthe
of
of the
the
the fund
fund
fund
fund and
and
and
and entitled
entitled
entitled
entitled to
totoits
toitsits
its
profits
profits
profits (this
profits(this
(this varies
(thisvaries
varies slightly
variesslightly
slightly between
slightlybetween
between the
between the
the adopted
the adopted
adopted
adopted models
models
models
models which
which
which are
are
are described
described
described
described later).
later).
later).
later).
Ownership of the Fund - Donating their contributions to the Takaful fund, policyholders
Ownership of the Fund - Donating their contributions to the Takaful fund, policyholders are owners of the fund and entitled to its are owners of the fund and entitled to its
profits
profits (this
(this varies
varies slightly
slightly between
between the the adopted
adopted models
models which which are are described
described later). later).
Five
Five Key
FiveKey
Five Key Elements
KeyElements
Elements
Elements Elimination
Eliminationof
Elimination
Elimination
of
of
Uncertainty
Uncertainty----Donations,
ofUncertainty
Uncertainty
Donations,
Donations, causing
Donations, causing
causing transfer
transfer
causing transfer
transfer of
of ownership
ownershipto
of ownership
to the
tothe
fund,
thefund,
the are
fund,are
fund, voluntary
arevoluntary
are voluntaryto
voluntary totomutually
tomutually
mutuallyhelp
mutually help in the
helpinin
help inthe
case
thecase
the of aaa
caseofof
case of a
policyholder’s
policyholder’sloss
policyholder’s loss without
losswithout
withoutany any pre-determined
pre-determined monetary
anypre-determined monetary
monetary benefit.
benefit.
Five
Five Key
Key Elements policyholder’s
Elimination of loss without
Uncertainty any pre-determined monetary benefit.
Elements Elimination of Uncertainty - Donations, causing transfer of ownership to the fund, are voluntary to mutually help in the case of aa
- Donations, causing transfer of ownership to the fund, are voluntary to mutually help in the case of
policyholder’s
policyholder’s loss loss without
without any any pre-determined
pre-determined monetary monetary benefit. benefit.
Management
Managementof of
ofthethe Takaful
theTakaful
TakafulFund Fund
Fund ---- Management
Management is by the operator who, depending on the adopted model, utilises either (or(oraaa
Management
Management of the Takaful Fund Management
Management is is by
by the operatorwho,
the operator who,depending
dependingon
depending onthe
on theadopted
the adoptedmodel,
adopted model,utilises
model, utiliseseither
utilises either(or
either (or a
combination)
combination)of
combination) of
oftwotwo Shari'a
twoShari'a compliant
Shari'acompliant contracts,
compliant contracts,
contracts, namely
namely Mudaraba oror Wakala.
Wakala.
combination)
Management of
of two
the Shari'a
Takaful compliant
Fund contracts, namely
namely Mudaraba
Mudaraba Wakala.
orwho,
Wakala.
Management of the Takaful Fund - Management is by the operator who, depending on the adopted model, utilises either (or aa
- Management is by the operator depending on the adopted model, utilises either (or
combination)
combination) of
of two
two Shari'a
Shari'a compliant
compliant contracts,
contracts, namely
namely Mudaraba
Mudarabawhich or
or Wakala.
Wakala.
Investment Condition
Condition----All
InvestmentCondition All investments
investments must
Allinvestments must be
be Shari’a
Shari’a compliant,
compliant, prohibits investment in Haram industries and requires
Investment
Investment Condition All investments must
must be be Shari’a compliant,which
Shari’a compliant, whichprohibits
which prohibitsinvestment
prohibits investmentinin
investment Haramindustries
inHaram
Haram industriesand
industries andrequires
and requires
requires
the
the
the use
use
use of
ofof instruments
instruments
instruments that
that
that are
are
are free
free
free of
of
of Riba.
Riba.
Riba.
the use
Investment of instruments
Condition that
- All are free
investments of Riba.
must be Shari’a compliant, which prohibits investment in Haram industries and requires
Investment Condition - All investments must be Shari’a compliant, which prohibits investment in Haram industries and requires
the
the use
use ofof instruments
instruments that that areare free
free of of Riba.
Riba.
Source: Ernst & Young analysis

8 MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Conventional
Conventional forms
forms of
of insurance
insurance are
are prohibited
prohibited under
under Islamic
Islamic law
law as
as they
they contain
contain
elements of
Conventional
Conventional
elements Maysir,
forms Gharar
of
forms Gharar
of Maysir, and
of insuranceRiba
insurance are
and Riba prohibited under Islamic law as they contain
under Islamic law as they contain
elements of Maysir, Gharar and
elements of Maysir, Gharar and Riba
Takaful
Takaful
Takaful Cooperative
Cooperative
Cooperative Insurance
Insurance Proprietary
Proprietary Insurance
Insurance
Takaful Cooperative Insurance
Insurance
Takaful
Takaful
Takaful
Takaful Cooperative
Cooperative
ProprietaryInsurance
Insurance
Contracts
Contracts
Contracts
Contracts Donation
Donation and
and mutual
mutual contract.
contract. Mutual
Mutual contract.
contract. Exchange
Exchange contract.
contract.
Utilised
Contracts
Utilised
Contracts
Contracts
Donation
Donation and
and mutual
mutual contract.
contract. Mutual
Mutual contract.
contract. Exchange
Exchange contract.
contract.
Utilised
Contracts
Utilised Donation and mutual
mutual contract.
Donation andmutual
Donation contract. Mutual contract.
Mutual contract. Exchange
Exchange contract.
contract.
Utilised
Utilised Donation and
and mutual contract.
contract. Mutual
Mutual contract.
contract. Exchange
Exchange contract.
contract.
Utilised
Utilised
Company
Company Pay
Pay claims
claims with
with underwriting
underwriting fund;
fund; Pay
Pay claims
claims from
from underwriting
underwriting fund
fund
Company
Company Pay
Pay claims
claims with
with underwriting
underwriting fund;
fund; Pay
Pay claims
claims with
with underwriting
underwriting fund.
fund. Pay claims
claims from
from underwriting
Payshareholders’ underwriting fund
fund
Company
Responsibility
Company
Responsibility interest
Pay
interest free
claims
Payclaimsfree
claims loans
with
loans
with in
in case
underwriting
case of
of
underwriting shortfall.
fund;
shortfall.
fund; Pay
Pay claims
claims with
with underwriting
underwriting fund.
fund. and
Pay
and
Pay claims
claims from
from equity.
underwriting
shareholders’ equity.
underwriting fund
fund
Company
Responsibility
Company
Pay
interest
Pay free
free
claims
interest free
loans
with
loans
with in
in case
underwriting
case
underwriting
loans in case
of
of
of
shortfall.
fund;
shortfall.
fund;
shortfall.
Pay
Pay claims
claims with
with underwriting
underwriting fund.
fund. and
Pay
and
Pay
and
shareholders’
claims
claims from
shareholders’
from
shareholders’
equity.
underwriting
equity.
underwriting fund
fund
Responsibility
Responsibility interest free loans in case of shortfall. Pay
Pay claims
claims with
with underwriting
underwriting fund.
fund. and
and shareholders’ equity.
equity.
Responsibility
interest free
free loans
loans in
in case
case of
of shortfall.
shortfall. and shareholders’
shareholders’ equity.
equity.
Participants’
Participants’
Participants’
Participants’ Pay
Pay contributions.
contributions. Pay
Pay contributions.
contributions. Pay
Pay premiums.
premiums.
Participants’
Responsibility
Participants’
Responsibility Pay
Pay contributions.
contributions. Pay contributions.
Pay contributions.
contributions. Pay
Pay premiums.
premiums.
Participants’
Responsibility
Participants’
Responsibility Pay
Pay contributions.
contributions. Pay
Pay contributions. Pay
Pay premiums.
premiums.
Responsibility
Responsibility Pay
Pay contributions.
contributions. Pay
Pay contributions.
contributions. Pay
Pay premiums.
premiums.
Responsibility
Responsibility
Capital
Capital Utilised
Utilised Participants’
Participants’ funds.
funds. Participating
Participating capital.
capital. Share
Share capital.
capital.
Capital
Capital Utilised Participants’ funds. Participating capital. Share capital.
CapitalUtilised
Capital Utilised
Participants’funds.
capital. Sharecapital.
Share
Share capital.
capital.
Capital
Capital Utilised
capital. Share
Share capital.
capital.
Investment
Investment
Investment
Investment
Investment
Investment Shari’a
Shari’a compliant.
compliant. No
No restrictions
restrictions except
except prudential.
prudential. No
No restrictions
restrictions except
except prudential.
prudential.
Considerations
Considerations
Investment
Shari’a
Shari’a
Shari’acompliant.
Shari’acompliant.
compliant.
compliant.
No
No
No restrictions except
restrictionsexcept
No restrictions
restrictions
prudential.
exceptprudential.
except prudential.
prudential.
No
No
No
restrictions
Norestrictions
restrictions
except
restrictionsexcept
except
prudential.
exceptprudential.
prudential.
prudential.
Considerations
Investment
Considerations
Considerations
Considerations No
Shari’a
Shari’a compliant.
compliant. No
No restrictions
restrictions except
except prudential.
prudential. No restrictions
restrictions except
except prudential.
prudential.
Considerations
Considerations

Source:
Source:Ernst
Ernst& &Young
Younganalysis
analysis
Source: Ernst & Young analysis 9
The
TheTakaful
The Takafulindustry
Takaful industrycurrently
industry currentlyemploys
currently employsthree
employs three different
three different models
different models to
models to execute
to execute its
execute its
business
business
business
The with
with
with
Takaful the
the combined
thecombined
industrycombined model
model
currentlymodelbecoming
becoming
becoming
employs the
the most
the most
three different dominant
dominant
mostmodels
dominant
to execute its
business with the combined model becoming the most dominant
1
11 WakalaModel
Wakala
Wakala Model
Model 2
22 Mudaraba Model
Mudaraba
Mudaraba Model
Model
A
1Aprincipal-agent
A
A principal-agentarrangement
principal-agent Wakala
arrangement
arrangement is
isisusedModel
used
used between
betweenthe
between thepolicyholders
the policyholdersand
policyholders andthe
and the
the 2Aprincipal-manager
A principal-manageragreement
principal-manager is
isis used
Mudaraba
agreement
agreement used between
used between the
Model
between the policyholders
the policyholders (Rab
policyholders (Rab al
al
Mal - capital
Mal- -capital
Mal providers)
capitalproviders) and
providers) and the
and the Takaful
the Takaful operator
Takaful operator (Mudarib
operator (Mudarib - entrepreneur)
(Mudarib - entrepreneur)
Takaful
Takaful operator
Takaful for
operator
operator both
forforboth underwriting
bothunderwriting and
andinvestment
underwritingand investmentactivities.
investment activities.
activities. for
Afor
for both underwriting
principal-manager
bothunderwriting
both and investment
underwritingagreement
andinvestment
and is used
investment activities.
between the policyholders (Rab al
activities.
activities.
A principal-agent arrangement is used between the policyholders and the
Mal - capital providers) and the Takaful operator (Mudarib - entrepreneur)
Takaful operator for both underwriting and investment activities.
for both underwriting and investment activities.
Policyholders
Policyholders
Policyholders
Policyholders
Policyholders Underwriting
Underwriting
Underwriting
Underwriting
Underwriting Policyholders
Policyholders
Policyholders
Policyholders
Policyholders Underwriting Policyholders
(Participants)
(Participants)
(Participants)
(Participants)
(Participants)
Contributions
Contributions
Contributions Surplus
Surplus
Surplus
Surplus
Surplus (Participants)
(Participants)
(Participants)
(Participants)
Contributions
Contributions
Contributions
(Participants) Surplus (Participants)
Policyholders
Policyholders Underwriting
Underwriting Policyholders
Policyholders
(Participants)
(Participants) Contributions Surplus
Surplus (Participants)
(Participants) Contributions
A fixed Wakalah
A fixed
A fixed fee for managing
Wakalah
Wakalah feefee
forfor managing
managing
operations
operations -- sometimes
operations - sometimes
sometimes includes a
includes
includes aa
performance based element An
Aninterest-free
An interest-freeloan
interest-free loanprovided
loan providedto
provided tothe
to the
the
performance
A fixed Wakalah
performance based element
feeelement
based for managing
Policyholders’ policyholders’
policyholders’fund
fundononevent
eventof
ofdeficit
deficit Policyholders’
operations - sometimes includes a Policyholders’
Policyholders’
Policyholders’
Policyholders’
Policyholders’
policyholders’ fund on event of deficit Policyholders’
Policyholders’
Policyholders’
Policyholders’
Policyholders’
Management
Management An interest-free loanQard
provided to the
Management
performance based element Fund
Fund
Fund
Fund
Fund Qard
Qard Fund
Fund
Fund
Fee
Fee Fund policyholders’ fund on event of deficit Fund
Fee Policyholders’
Policyholders’ Al-Hasan
Al-Hasan
Al-Hasan Policyholders’
Policyholders’
Management
Fund
Fund Qard Fund
Fund
Fee Al-Hasan
Qard
Qard
Qard
Al-Hasan
Al-Hasan Underwriting
UnderwritingSurplus
Underwriting
Underwriting
Underwriting Surplus
Surplus
Shareholders’ Fund
Shareholders’
Shareholders’
Shareholders’
Fund
Fund
Fund Al-Hasan Investment
Investment
Investment
Investment
Investment Shareholders’
Shareholders’Fund
Shareholders’
Shareholders’
Fund
Fund Underwriting Surplus
Shareholders’ Fund Qard Investment Shareholders’ Fund &
&&
(Takaful
(Takaful
(Takaful Operator)
Operator)
Operator)
(Takaful
(Takaful Operator) An
AnAninterest-free
interest-freeloan
loan Income
Income
Income
Income (Takaful
(Takaful
(Takaful
(TakafulOperator)
Operator)
Operator) &
(Takaful Operator)
Operator) interest-free
Al-Hasan
provided
loan Income
Income (Takaful
(Takaful Operator)
Operator) Management Underwriting
Investment Surplus
InvestmentIncome
Investment
Underwriting
Investment
Investment Surplus
Income
Income
Shareholders’
Fund provided to
provided totothe
thepolicyholders’
the policyholders’
policyholders’ Investment
Investment Shareholders’
Fund Management
Management Investment Income
fund
fundon
ononevent
eventof deficit
ofof deficit Fee
Fee &&
(Takaful
(Takaful Operator)
Operator) An
fundinterest-free
event loan
deficit Income
Income (Takaful
(Takaful Operator)
Operator) Fee
provided to the policyholders’ Management Investment
Investment Income
Income
Fee is
Fee
Fee is aa percentage
percentage share of
share of the
ReTakaful
ReTakaful
ReTakaful
ReTakaful fund on event of deficit ReTakaful
ReTakaful
ReTakaful
ReTakaful Feeis a percentage share of the
ReTakaful
ReTakaful ReTakaful
ReTakaful underwriting
underwriting
underwriting result --- a
result
result aa combination
combination of
combination of the
the
Operator
Operator
Operator
Operator
Operator Operator
Operator
Operator
Operator
Operator underwriting
underwriting
Fee surplus share
surplus
is a percentage
underwriting surplus and investment
and
and investment
of the
investment profits
profits
Operator Operator
ReTakaful
ReTakaful ReTakaful
ReTakaful underwriting result - a combination of the
Operator
Operator Operator
Operator underwriting surplus and investment profits
Thecombined
The combinedmodel modelutilises
utilisesboth
bothcontracts.
contracts.The
TheWakala contractis
Wakalacontract isisused
usedfor
for underwriting
underwriting activities,
activities, while
while the
the Mudaraba
Mudaraba contract
Combined
Combined
Combined The combined model utilises both contracts. The Wakala contract used for underwriting activities, while the Mudaraba contract
33
3
Model
Model
isisused
usedforforinvestment
investmentactivities.
activities.This
Thismodel
modelisisrecommended
recommendedby bycertain
certainfinancial
financialservices
services regulators
regulators (including
(including the
is used for investment activities. This model is recommended by certain financial services regulators (including the Central Bank of
the Central Bank of
Model
Combined
Bahrain).
Bahrain).
The combined model utilises both contracts. The Wakala contract is used for underwriting activities, while the Mudaraba contract
Bahrain).
3 is used for investment activities. This model is recommended by certain financial services regulators (including the Central Bank of
ofModel
Note: Critics
Note: of the Mudaraba model argue that,ininthe
the cooperativeframework,
framework, theunderwriting
underwriting surplusisisnot
not consideredaaprofit
profit andthe
the Takaful operator
operator does not
not
Note: Critics
Critics of the Mudaraba model
the Mudaraba argue
argue that,
Bahrain).
model that, in the cooperative
cooperative framework, the
the underwriting surplus
surplus is not considered
considered a profit and
and the Takaful
Takaful operator does
does not therefore
therefore have
have
any right to it. Furthermore, the Mudaraba contract entitles the Takaful operator to a share in the underwriting surplus, but not to a share in any deficit.
any
any right
right to
to it.
it. Furthermore,
Furthermore, the Mudaraba contract
the Mudaraba contract entitles
entitles the
the Takaful
Takaful operator
operator to
to a
a share
share in
in the
the underwriting
underwriting surplus,
surplus, but
but not
not to
to a
a share
share in
in any
any deficit.
deficit.
Source:
Note: Ernst
Critics
Source: Ernst &the
Young
&ofYoung analysis model argue that, in the cooperative framework, the underwriting surplus is not considered a profit and the Takaful operator does not therefore have
Mudaraba
analysis
any right to it. Furthermore, the Mudaraba contract entitles the Takaful operator to a share in the underwriting surplus, but not to a share in any deficit.
Page 9
Page The WorldTakaful
Takaful Report2009
2009
Page 9
9 The
The World
World Takaful Report
Report 2009
2. Global Takaful Markets
Takaful continues to show strong growth in underpenetrated insurance markets
Takaful continues to show strong growth in underpenetrated insurance markets
2. Global Takaful Markets 3. The Financial Crisis 4. Sustaining the Future

Historical Growth Window of Opportunity Future Growth
A
Global Takaful Premiums
Potential Scenarios
Economic
A
► Takaful contributions have grown from fundamentals
Global Takaful Premiums
Potential Scenarios
Economic
US$1.4b in 2004 to over US$3.4b
Takaful contributions have grown from
►
in 2007.
fundamentals
B
Business risks
► The largestinglobal
US$1.4b 2004 markets include Saudi
to over US$3.4b in 2007. B
Arabia and Malaysia.
Business risks
Economic ► The largest global markets include Saudi C
areGlobally, Takaful continues to display rapid
downturn
We ► Arabia
here and Malaysia.
Economic
growth in newCompliance
and existing markets. C
We are hereOperations Financial continues to display rapid
Globally, Takaful
downturn Strategic
►
grow in new and
Strategic
existing markets.
Compliance
Operations Financial
Previous 5-10 Years 2008-2009 Next 5 Years
Takaful Growth Phases

Previous 5-10 Years
Source: Ernst & Young analysis 2008-2009 Next 5 Years
Page 11 Takaful
The World Growth
Takaful Report Phases
2009
MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
12 Source: Ernst & Young analysis
Global gross Takaful contributions have grown with contributions in 2007 reaching
US$ 3.4gross
Global billionTakaful contributions have grown with contributions in 2007 reaching
US$ 3.4 billion
Global Gross Takaful Contributions by Year (US$m)*

Global Gross Takaful Contributions by Year (US$m)*
3,364
CAGR 2005-2007
CAGR (2005-2007) = 30%
18
3,364 32
CAGR 2005-2007
CAGR (2005-2007) = 30% 317 18
317
32 Indian Sub- 52%
2,518 11 Continent
Indian Sub-
21
951 52%
215
2,518 11 Continent
Levant
1,988
8 21
951 35%
215
17
181
1,988
692 Levant 35%
8
1,384
5 181
544
17 692 Africa 32%
14
121
1,384
5 544
Africa 32%
474 14 2,046
121
1,579
South-East Asia 32%
474 2,046
1,238
1,579
South-East Asia 32%
770
1,238
770
GCC 29%
2004 2005 2006 2007 (e) GCC 29%
2004 2005 2006 2007 (e)
Iran - Gross Takaful Contributions by Year (US$m)

Iran - Gross Takaful Contributions by Year (US$m)
2,164 2,561 3,283 4,157 27%
2,164 2,561 3,283 4,157 27%
Source: Ernst & Young WTR08, Ernst & Young analysis * Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis.
Source: Ernst & Young WTR08, Ernst & Young analysis * Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis. 13
Saudi Arabia remains the largest Takaful market in the GCC with contributions of
US$ 1.7
Saudi billion
Arabia in 2007the largest Takaful market in the GCC with contributions of
remains
US$ 1.7 billion in 2007
Gross Takaful Contributions in the GCC (US$m)

Gross Takaful Contributions in the GCC (US$m)
CAGR Takaful
2005-2007 Penetration*
CAGR Takaful
CAGR (2005-2007) = 29% 2,046 59
76
CAGR (2005-2007) = 29% 2,046 2005 2007
59
109
76
124 Bahrain 98% 0.11% 0.32%
1,579 2005 2007
34 109
50 124 Bahrain 98% 0.11% 0.32%
1,579 65
34
90 Qatar 50% 0.04% 0.07%
1,238 15 50
34 65
1,238 42
15
90 Qatar 50% 0.04% 0.07%
83
34 UAE 62% 0.10% 0.15%
770 15 42 1,695
25 83 UAE 62% 0.10% 0.15%
31 1,340
770 15 1,695 Kuwait 22% 0.03% 0.03%
54
25 1,065
31 1,340
645 54
Kuwait 22% 0.03% 0.03%
1,065
Saudi Arabia 26% 0.76% 0.85%
645
Saudi Arabia 26% 0.76% 0.85%
2004 2005 2006 2007(e)
2004 2005 2006 2007(e)
Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis * Takaful penetration is gross contributions as a percentage of nominal GDP in the respective year
Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis * Takaful penetration is gross contributions as a percentage of nominal GDP in respective year
Malaysiaremains
Malaysia remainsthe thelargest
largestTakaful
Takafulmarket
marketininSouth-East
South-EastAsia
Asiawith
withcontributions
contributionsof
of
US$0.8
US$ 0.8billion
billioninin2007
2007
Malaysia remains the largest Takaful market in South-East Asia with contributions of
US$ 0.8 billion in 2007
Gross Takaful Contributions in the South-East Asia (US$m)
CAGR Takaful
CAGR
2005-2007 Takaful
Penetration*
CAGR Takaful
CAGR (2005-2007)= 33%
CAGR (2005-2007)= 33% 2005-2007 Penetration*
951 2005 2007
951 35 2005 2007
CAGR (2005-2007)= 33% 3535
Brunei 14.0% 0.28% 0.26%
3594
951 Brunei 14.0% 2005
0.28% 2007
0.26%
94
35
692 35
Brunei 14.0% 0.28% 0.26%
692 30
94 Thailand 8.0% 0.01% 0.01%
3032 Thailand 8.0% 0.01% 0.01%
544 3280
544 692
27 80
417 2730 30 Thailand 8.0% 0.01% 0.01%
417 24 3075 32 Indonesia 12.0% 0.05% 0.05%
2430 544 75 80 Indonesia 12.0% 0.05% 0.05%
797
3077 27
417 77 797
30
24 75 Indonesia 12.0% 0.05% 0.05%
30 534
797 Malaysia 39.0% 0.23% 0.32%
77 412
534 Malaysia 39.0% 0.23% 0.32%
343 412
343
534 Malaysia 39.0% 0.23% 0.32%
412
343
2004 2005 2006 2007 (e)
2004 2005 2006 2007 (e)
2004 2005 2006 2007 (e)
Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis * Takaful penetration is gross contributions as a percentage of nominal GDP in the respective
Source: Ernst & Young WTR08, Global Insight, Ernst & Young analysis * Takaful
year penetration is gross contributions as a percentage of nominal GDP in the respective
year
Page
Source: Ernst & Young WTR08, Global 14
Insight, Ernst & Young analysisThe World Takaful Report
* Takaful 2009is gross contributions as a percentage of nominal GDP in the respective
penetration 15
Page 14 The World Takafulyear
Report 2009
Contributions towards family and medical Takaful have become especially
significant
Contributions towards family and medical Takaful have become especially
significant
Gross Takaful Contributions by Business as a Percentage of the Total (2006)*

Gross Takaful Contributions by Business as Percentage of the Total (2006)*
MENA South East Asia
4%
16%
MENA 6%
South
9% East Asia
4% 34% 33%
9%
16% 6%
34% 33%
46% 53%
46% 53%
Gross Takaful Contributions by Business as a Percentage of the Total (2007)*

Gross Takaful Contributions by Business as Percentage of the Total (2007)*
MENA South East Asia
MENA 17%
South East Asia
30%
38% 17%
30% 16%
38%
16%
3% 65%
21% 11% 65%
3%
21% 11%
Family and Medical Marine & Aviation Property & Accident Motor
Source: World Islamic Insurance Directory 2008 and 2009

Family and Medical Note:&MENA
Marine includes
Aviation the GCC,&Africa
Property and Levant.
Accident Motor
Source: World Islamic Insurance Directory 2008 and 2009 Note: MENA includes the GCC, Africa and Levant.
The
TheTakaful
Takafulindustry
industryhas
hasbeen
beenexpanding
expandingby
bytapping
tappinginto
intolarge
largeMuslim
Muslimmarkets
markets
globally
globally
The Takaful industry has been expanding by tapping into large Muslim markets
globally
January
January2009
2009 Global
GlobalTakaful
TakafulOperators
Operatorsand
andContributions
Contributionsinin2008
2008 September
September2008
2008
~124
~124 ~143
~143
January
Takaful
Takaful 2009
Companies (+38
Companies Windows) Global Takaful Operators and Contributions in 2008
Windows)
(+38 September
Takaful 2008
TakafulCompanies
Companies
~124 ~143
Takaful Companies (+38 Windows) Takaful Companies
11
11
1
1
11 1414 15*
15*
1 13 3 1212 44
2007 Estimated
2007 Estimated 11 11 1 3 3 14 7 15*
7 Malaysia
Malaysia
Gross
GrossContribution
Contribution 1 1 123 6
1 3 3737 36
4 77 ~12
11 ~12
2007 Estimated 22 1 1 3 7 Malaysia
Income
Income(US$m)
(US$m) 1515 37 1316
Gross Contribution 1 1 21 2
1
7 44 Indonesia
Indonesia
~12
2
Income (US$m)
3000+
3000+ 1 1 15 1 22 4
~3~3
12 1212 3 3 Indonesia
3000+
1000
1000 - 3000
- 3000 1 2 ~3
Sudan
Sudan 2
212 33
~15
~15
1000
100 - -1000
100 -3000
1000 Sudan 2
KSA
KSA Kuwait
Kuwait 3
~15
100
10 - -100
10 -1000
100 ~37
~37 ~12
~12
KSA Kuwait
10 - 100
Under
Under 1 –1 10
– 10 Bahrain
Bahrain
~37 UAE
UAE
~12
~7~7 ~6~6
Takaful
Takaful
Under – operators
1operators
10 present
present Bahrain UAE
butbut
nono ~7 ~6
record
Takaful
record of contributions
ofoperators present
contributions
but no ~143
~143 Excludes
Excludes Takaful
Takaful windows.
windows. Totalincluding
Total includingwindows
windows≈ ≈179 179Takaful
TakafulOperators
Operators
record of contributions
Indonesia:
3 3 Indonesia: 3 3 Takaful
Takaful Operators+ +2727Shari'a
Operators Shari'aDivisions
Divisions
Source:
Source: CIACIA World
World Fact
Fact book;
book; Global
Global ~143 Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators
Insight;
Insight; Middle
Middle East
East Insurance
Insurance Review;
Review;
15* Iran’s
15*Iran’s insurance
insurance companiesare
companies aregoverned
governedbybyShi’ite
Shi’itelaw
lawand
andtheir
theirproducts
productshave
havebeen
beenapproved
approvedasashalal.
halal.
3 Indonesia: 3 Takaful Operators + 27 Shari'a Divisions
World
World
Source: Islamic
Islamic
CIA Insurance
Insurance
World Directory
Directory
Fact book; 2009;
2009;
Global
Ernst
Ernst & Young
& Young
Insight; Middle analysis
analysis
East Insurance Review; Note:
Note: Due
Due to to
varying 15*
varying Iran’s insurance
definitions,
definitions, thethe companies
number
number ofof are
Takaful
Takaful governed
operators
operators by Shi’ite
differs
differs law and
depending
depending their
onon products
source.
source. have
Wehave
We been approved
haveassumed
assumed as halal.
thebroadest
the broadest definition.
definition.
World Islamic Insurance Directory 2009;
Ernst & Young analysis Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition. 17
Page1616
Page TheWorld
The WorldTakaful
TakafulReport
Report2009
2009
But there are still significant untapped markets in Asia and MENA
But there are still significant untapped markets in Asia and MENA
Global Estimated Muslim Populations in 2008
Global Estimated Muslim Populations in 2008
Turkey Iran
~71m ~64m
Egypt Turkey Iran

~71m ~71m ~64m
Estimated Algeria Egypt

Morocco
Muslim ~33m ~71m
~32m
Populations
Estimated Algeria Morocco
in 2008
Muslim ~33m ~32m
Populations Indonesia
100m + ~207m
in 2008
50 - 100m Indonesia
100m + Nigeria ~207m
10 – 50m ~64m
50 - 100m Pakistan India
Nigeria ~160m ~151m
5 – 10m
10 – 50m ~64m
Pakistan India
Bangladesh
1 – 5m
5 – 10m ~160m~132m~151m
1Under
– 5m1m Bangladesh
~132m
Under 1m
Source: CIA World Fact book;

Global Insight; Ernst & Young Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data.
analysis
Source: CIA World Fact book;
18 GlobalMEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamicbeen
Finance Industry Sinceusing
1993 estimated Muslim percentages of totals and 2008 population data.
Insight;
analysis
Ernst & Young PageNote: 17 Muslim populations have The World determined
Takaful Report 2009
2. The Financial Crisis
Takaful operators that successfully manage their business risks will be well placed
to take advantage
Takaful of emerging
operators that opportunities
successfully manage their business risks will be well placed
to take advantage of emerging opportunities
A
Premiums
Scenarios
Economic A
Premiums
fundamentals
Scenarios
Economic
fundamentals
B
Potential
Takaful
Business risks
B
Potential
Takaful
Business risks
Economic C
Global
downturn
Economic We are here C
Global
downturn
We are here Strategic
► The financial crisis has severely impacted financial institutions and the
Compliance
Operations Financial
► The financial
ensuing crisis has
recession has tempered
severely impacted
growthFinancial
Strategic
Operations financialininstitutions
forecasts
Compliance
and region
almost every the
ensuing recession
and sector, includinghasmajor
tempered growth
Takaful markets.forecasts in almost every region
► and
As asector, includingTakaful
consequence, major Takaful
operators markets.
are increasingly concerned with the
► As a consequence,
strategic, operational,Takaful operators
compliance andare increasingly
financial concerned
risks they with the
face today.
strategic, operational, compliance and financial risks they face today.
Previous 5-10 Years Takaful2008-2009
Growth Phases Next 5 Years
20 MEGA
Source: ErnstBrands.
& YoungMEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
analysis
The financial landscape has experienced significant shifts with many institutions
collapsing or landscape
The financial requiring government capital
has experienced support shifts with many institutions
significant
collapsing or requiring government capital support
18 Sept: Federal Bank 3 Oct: US Congress

UBS and other central banks passes US$700b bailout
WAMU 18inject
Sept:billions
Federal Bank
into the 3 Oct: US Congress Bank of
UBS
Q4 loss: and otherglobal
central banks
markets passes US$700b bailout
US$14b America
Q4 loss:
WAMU
8 April: inject billions into the Bank of
Receives US$7b global markets 16America
Jan: US
US$14b 8 April:
from TPG AIG Treasury invests
Receives US$7b
Capital 16 Jan: US
US$20b in Bank
from TPG AIGof US$85b
16 Sept: Loan
Citi RBS; Treasury
of invests
America
Capital approved by the Fed
Bear HSBC HBOS; US$20b in Bank
16 Sept: Loan of US$85b RBS; of America
15Citi
Jan: Stearns
Bear HSBC Fannie
approvedMae/
by the Fed Lloyds TSB
US$18.1b
12 May: HBOS; 19 Jan: UK
15
Q4 Jan:
loss 16 March:
Stearns Freddie Mac 13 Oct: UK bails
Taken over by US$3.2b Fannie Mae/ Lloyds
out TSB
RBS, HBOS announces a
US$18.1b 7 Sept: Nationalized
16 Morgan
JP March: 12
Q1May:
loss Freddie Mac 13 Oct:
and UK TSB
Lloyds bails 19
newJan:
bankUK
Q4 loss by the US Treasury
Taken over by US$3.2b outaRBS,
at HBOS
cost of announces
rescue a
S&P 500 7 Sept: Nationalized
JP Morgan Q1 loss and Lloyds TSB
US$63b new bank
program
Average by the US Treasury
S&P
2007:500 at a cost of rescue
Average
1,477 US$63b program
2007: March: US
1,477 Federal
March:
ReserveUS
buys
Federal
almost US$1.4t
Reserve
in debt buys
Deutsche Bank WAMU Lehman almost US$1.4t
in debt
Merrill Lynch US$3.9b
Deutsche Bank WAMU
22 July: 14Lehman
Sept: Files for
Q1 loss US$3.3b loss bankruptcy and
Merrill
17 Lynch
Jan: US$11.5b US$3.9b 22 July: 14 Sept:
stock Files for
markets
Q4 loss Q1 loss US$3.3b loss bankruptcy and
plummet
20092009
20082008
17 Jan: US$11.5b stock markets

Q4 loss plummet 10 Oct: G7
Finance Ministers
January
January
10 Oct:
meet G7issue a
and
Financeplan
5-point Ministers
January
January
meet and issue a

5-point plan
Source: Factiva; Bloomberg; Ernst & Young analysis
Source: Factiva; Bloomberg; Ernst & Young analysis 21

Insurance firms in particular have suffered major losses
Insurance firms in particular have suffered major losses
Reported Losses of Insurers and Insurance Company Equity Performance

Government Supported Enterprises* MSCI indicesCompany
Insurance (US$ returns):
EquityJan 1 2007=100
Performance
Reported Losses of Insurers and
Government Supported Enterprises* MSCI indices (US$ returns): Jan 1 2007=100
Asia
US$1.4b
Asia
US$1.4b
Europe
US$23.4b
Europe
US$23.4b
Americas
US$317.8b
Americas
US$317.8b
Americas
Americas
Europe Total: US$342.6b
Europe
Asia Total: US$342.6b
Asiawrite-downs and credit losses between January 1st 2007
Includes
and March 6th 2009.
Includes write-downs and credit losses between January 1st 2007
and e.g.
* GSE: March 6thMac
Freddie 2009.
Source: IIF, Freddie
March 2009 Source: Bloomberg; IIF, March 2009
* GSE: e.g. Mac
22 MEGA
Source: Brands.2009
IIF, March MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993 Source: Bloomberg; IIF, March 2009
Surviving financial institutions have lost significant value
Surviving financial institutions have lost significant value
Market Capitalization of top 10 Financial Institutions by Region

Market Capitalization of top 10 Financial Institutions by Region
USA Europe GCC South East Asia
USA Europe
920 GCC South East Asia
793
920 176 160
793
176 160
Banks 449
455 93 89
Banks 449
455 93 89
% of change -42% -51% -47% -44%
Market capitalization between
% of change -42% -51% -47%
31st Dec 2007 and 02nd Feb 2009 -44%
Market capitalization between
31st Dec 2007 and 02nd Feb 2009
601 595
456
601 595
456 7
Insurers
7 261
Insurance 183
100 4
183 261
% of change 100
-78% -70%
4
-41% -42%
% change between -78%
of capitalization
Market -70%
Market capitalization between -41% -42%
1st June 2007 and 20th Nov 2008 1st June 2007 and 20th Nov 2008
Market capitalization between Market capitalization between

1st June 2007 and 20th Nov 2008 1st June 2007 and 20th Nov 2008
Bank Capitalization in US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
Insurer Capitalization in US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
Source: US/Europe
Insurance Banks: Factset
Capitalization in US$bUS/Europe Insurance:
13th Mar 2009The Banker,
1stBloomberg,
Jan 2008One Sourcestated
(unless Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks:
otherwise)
Reuters MENA Insurance: Zawya, One Source
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks:
Reuters MENA Insurance: Zawya, One Source 23
American and
American and European financial
financial institutions
institutions have
have lost
lost over
over US$1.5t
US$1.5t in
in value
value
American and European
European financial institutions have lost over US$1.5t in value
American and European financial institutions have lost over US$ 1.5 trillion in value
Change in
Change in Market
Market Capitalization
Capitalization
Change in Market Capitalization
Banks by market 147 144 Change
109 in Market
109
87 Capitalization
87 85 65 55 52 48 16
USA
USA
Banks by market
capitalization
Banks by market
147
147
37
144
144
71 109
95
85
87 8536 65
65
55
55 52
52 26
48
48 15 16 14
16
USA capitalization
capitalization 37
37
71
71
95
95
53 36
36
49 46 26
26
15
15
14
14
147 144 109 53
87 85 49 46
Banks by market 53 4965 4655 52 48 16
USA capitalization
Citi
Citi
Bank of America Wells Fargo Chase Goldman
Goldman
Sachs
JP Morgan
JP Morgan
U.S. Bank
U.S. Bank
American
American
Express
Morgan
Morgan
Stanley
Capital
Capital
One
Bank of 71 Wells 95 36 26 15 14
37 Bank of America Wells Fargo Chase Goldman JP Morgan U.S. Bank American Morgan Capital
Citi America Fargo Chase Sachs Express Stanley One
53 Sachs 49 46 Express Stanley One
% of change -75% -51% 15% -40% -57% -26% -15% -50% -68% -17%
%%ofofchange
change -75%
-75%
Citi -51%
-51%
Bank of America 15%
15%
Wells Fargo -40%
-40%
Chase -57%
Goldman
-57% JP -26%
Morgan
-26% -15%
U.S.
-15% Bank -50%
American
-50% -68%
Morgan
-68% -17%
Capital
-17%
Sachs Express Stanley One
Insurance firms
Insurers
% ofmarket
change
Insurers
by firms
firms -75% -51% 15% -40% -57% -26% -15% -50% -68% -17%
by market 116 51
by market
capitalization 116
116 58 51 47 38 36 27 20
capitalization 58 51 3838 33 27 27
capitalization
Insurers
(1st Junefirms
2007 58 4747 10 3636 3333
30 20 20
(1st
(1st
and
by June
June
20
market 2007
2007
th Nov 3 21 6 1010 20 2 3030 9
1
and 20 ththNov 116
33 21
13
51 66 2020 2 2
15 9 9 1
and 20 Nov
2008)
capitalization 21
58 13
13 47 38 36 1515 27 1 20
2008)
2008) AIG Manulife MetLife Prudential Allstate Travelers 33
Hartford Great-west Sun life Lincoln
(1st June 2007 AIG Manulife MetLife Prudential 10
Allstate Travelers Hartford
30
Great-west
AIG Manulife MetLife Prudential Allstate Travelers Hartford Great-west SunSun
life9life Lincoln
Lincoln
and 20th Nov 3 21 6 20 2 15 1
% of change -97% -64% 13
-75% -87% -74% -44% -94% -50% -67% -95%
2008)
% of change
% of change -97%
-97%
AIG
-64%
-64%
Manulife
-75%
-75%
MetLife
-87%
-87%
Prudential
-74%
-74%
Allstate
-44%
-44%
Travelers
-94%
-94%
Hartford
-50%
-50%
Great-west
-67%
-67%
Sun life
-95%
-95%
Lincoln
% of change 189
-97% -64% -75% -87% -74% -44% -94% -50% -67% -95%
189
189
99 93
99
99 98 98 9393 85 67 66 66 60
EUROPE
EUROPE
EUROPE
Banks by market
Banks
Banksby bymarket
market
132
189
132
132
98
98 98
98 38
8585
39
6767
25
6666
33 66 66
20
60 60
20
capitalization 39 55 50 3838 3939 2525 3333 20 20 20 20
capitalization
capitalization 39
99
39 55
55 5050 93
98 98 85 67 66 66 60
EUROPE Banks by market HSBC
132
HSBC
HSBC
Intesa
Intesa
Intesa
Sanpaolo
Santander
Santander
Santander
BNP Paribas
BNP
BNPParibas
Paribas
UBS
38
UBS
UBS
BBVA
BBVA
BBVA
39
Société
Société
Société
Générale
25
Credit
Credit
Credit
33
Suisse
Deutsche
Deutsche
Deutsche
Bank
20
Barclays
Barclays
Barclays
20
capitalization Sanpaolo
39
Sanpaolo 55 50 Générale
Générale Suisse
Suisse Bank
Bank
% of change -30% -61% -44% -49% -59% -54% -62% -51% -70% -67%
%%ofofchange
change -30%
-30%
HSBC -61%
-61%
Intesa -44%
-44%
Santander -49%
BNP-49%
Paribas -59%
-59%
UBS -54%
-54%
BBVA -62%
-62%
Société -51%
-51%
Credit -70%
-70%
Deutsche -67%
-67%
Barclays
Sanpaolo Générale Suisse Bank
%Insurance
of change
Insurers firms
firms -30% -61% -44% -49% -59% -54% -62% -51% -70% -67%
Insurers
by marketfirms
by market 45
4545 42
by market
capitalization 100 98 4242 41
4141 37
37 37 36
36 36
capitalization 100 98
98 9090 5858 54
5454
capitalization
Insurers firms 100 90 58
(1st June 2007 14
14 11 9 99 11
(1st
by June2007
market
(1st
and June
20
2007
th Nov 28
28 14 29
29
29
31
31
31 2 22 23
2345 25
2542
1111 11 11
and2020ththNov
Nov 28 98 23 25 41 37 36
capitalization
and
2008) 100 90 58 54
2008)
2008) Allianz
Allianz ING AXA
AXA Generali Fortis
Fortis Zurich
Zurich MunichRe
MunichRe Aviva
Aviva Pru PLC
Pru PLC SwissRe
SwissRe
ING Generali
(1st June 2007 Allianz 14
ING AXA Generali Fortis
2
Zurich MunichRe 11
Aviva Pru9PLC 11
SwissRe
28 29 31 23 25
and
% 20th
of
%of
of Nov
change
change -72% -86% -68% -47% -96% -49% -41% -73% -76% -69%
% change -72%
-72% -86%
-86% -68% -47% -96% -49% -41% -73% -76% -69%
2008) Allianz
-68%
AXA
-47% -96%
Fortis
-49%
Zurich
-41%
MunichRe
-73%
Aviva
-76%
Pru PLC
-69%
SwissRe
ING Generali
BankCapitalization
Bank Capitalizationinin US$b
US$b 13th
13th Mar
Mar 2009 1st1st
2009 JanJan 2008
2008 (unless
(unless stated
stated otherwise)
otherwise)
% of change -72% -86% Bank Capitalization
-68% -47% in US$b -96% 13th
-49%Mar 2009 -41%1st Jan-73%
2008 (unless stated otherwise)
-76% -69%
Source: US/Europe
Source: US/Europe Banks: US/Europe Insurance:
Banks: Factset US/Europe Insurance:The
TheBanker,
Banker,Bloomberg,
Bloomberg,One
OneSource
Source Insurance Capitalization
Insurer Capitalization in US$b
in US$b 13th
13th Mar
Mar 2009 1st1st
2009 JanJan 2008
2008 (unless
(unless stated
stated otherwise)
otherwise)
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Insurer Capitalization in US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
23
Page 23 The World
The Takaful Report2009
2009
The World Takaful Report
24
Insurer Capitalization
Page 23 World
Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source
Takaful Reportin US$b
2009 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
Asia
Asiaand MENA have also experienced significant losses
Asiaand
andMENA
MENAhave
have also
also experienced significant
experienced significant losses
losses
Asia and MENA have also experienced significant losses
Change in Market Capitalization

Change
Change inin Market
Market Capitalization
Capitalization
39 21
21 Change in
20 Market
18 Capitalization
39 21 20 10 10 10
Top 10 Banks by 39 7
Top 10 Banks
capitalization by
Top 10 Banks by 24
20 18
18 14 12 1010 10
4
10 10 10 7
13 13 14 12 3 47
ASIA capitalization
capitalization 39 2424 21 13 13 10 7 14 6 12 33 4 4 6 4
ASIA
ASIA Top 10 Banks by Hang Seng Bank DBS
13 20 13
United OCBC Bank
10
18 10 Maybank
77 CIMB6
6 10
BRI
10
BEA
10 6
6
BCA
4
Bangkok7Bank
capitalization Hang Seng Bank 14 12CIMB
24 Seng Bank
Hang
13 DBS
DBS Overseas
13United
Bank
United OCBCBank
OCBC Bank Maybank
Maybank CIMB 3 BRI
BRI 4 BEA
BEA BCABCA Bangkok
Bangkok Bank
4 Bank
ASIA % of change -39% -38% Overseas
-35% Bank
Overseas Bank 10
-41% 7
-48% 6
-50% -67% -65% -42%
6 -51%
changeHang Seng -39%
%%ofofchange -39%
Bank -38%
DBS-38%
-35%
United-35%
-41%
-41%
OCBC Bank
-48%
-48%
Maybank
-50%
-50%
CIMB
-67%
-67%
BRI
-65%
-65%
BEA
-42%
-42%
BCA
-51%
-51%
Bangkok Bank
Overseas Bank
237
% of change -39% 237
237 -38% -35% -41% -48% -50% -67% -65% -42% -51%
Top 10 147
TopTop1010 Insurers
Insurers 147 79 55 30 14
Insurance firms 147 79 55
55 10 9 8 8
firms
firmsbyby 3030 1414
237 37 16 10 9 8 8
by capitalization
capitalization
capitalization 85 86
37 16
16
16 5 510 59 58 28
Top 10 8585 147 8686 16
16 5 5 5 5 5 5 5 5 2 2
79 55 30 14
Insurance firms China Life Insurance China Life Insurance Ping An China Pacific Tokio Marine T&D Holdings Sompo
10Japan Sony Financial
9Financial Nipponkoa
8 8
Orix
Ping
Insurance An
An Insurance
Grp) China
China Pacific
Pacific Holdings
(Grp) Tokio
TokioMarine
Marine T&D
T&DHoldings Sompo
Sompo
Holdings Insurance Japan
Japan Sony Sony
Holdings FinancialInsurance
Nipponkoa
Nipponkoa Orix Orix
by capitalization China
China
Co. LifeInsurance
Life
(China) Insurance China
China
Co. Life
Life
(HK)
86
Insurance
Insurance 37 16 16 5 5 5Holdings Insurance
Co Corporation
5 Co Co Corporation
2
85 Co.(China)
Co. (China) Co.(HK)
Co. (HK) Insurance
Co Insurance (Grp)
of China Grp) Insurance (Grp)
Insurance (Grp) Holdings
Holdings Insurance
Insurance Holdings Insurance Corporation
% of change Co of China
China
-64% -42% -54% -71% -47% -62% -55% -43% -30% -71%
%%ofofchangechange -64% China Life Insurance
-64%
China Life Insurance -42%
-42% -54%
Ping An -71%
China Pacific
-71% Tokio Marine -47% -62%
-47% T&D Holdings-62% Sompo-55% -55% Sony-43%
Japan Financial
-43% -30%-30%
Nipponkoa -71%
Orix-71%
Co. (HK) Insurance Grp) Insurance (Grp) Holdings Insurance Holdings Insurance Co Corporation
Co. 44
(China)
Co of China 15
4444 17 15
% of change -64% 29
-42% -54% -71%15
15 -47% 15 14
-62% -55% -43% -30% -71%
Top 10 Banks by 29
29 17
17 15 1414 13 10
Top1010BanksBanksbyby 22 1313 1010 10 10
Top 10 10 10 10
capitalization 44 22 22 10 8 8 8 8 11 11 10
capitalization
capitalization 10 15 10 8 5 88
29 10 17 8 8 15 11 14 10 8 5 5 4
(31st Decst2007 8 4 4 8
Top 10
and (31
02
(31
nd Feb
Dec
st Banks
Dec 2007
by Al Rajhi Bank
2007 Banque Saudi Emirates NDB Saudi British Kuwait13
Finance National 10Bank National Bank 10
Qatar National
and 02 nd Feb
22
Al Rajhi Bank Samba Financial
Samba Financial Banque Saudi
Banque Saudi
Riyad Bank
Riyad Bank Emirates NDB Saudi British
Saudi British
Kuwait Finance
Kuwait Finance
National
of
Bank
National
Kuwait Bank National
Abu
10 Bank Bank
Bank
National
Dhabi
Qatar National
QatarSAQNational
capitalization
and 02 Feb
2009)
nd Al Rajhi Bank Samba Financial Fransi
8 Fransi Riyad
8 Bank
Emirates NDB
11 Bank House
MENA
MENA 2009)
2009)
Group
10 Group Fransi 10
Bank
Bank
House
8 House
of Kuwait
of Kuwait
5
Abu Dhabi
Abu Dhabi
Bank SAQ
Bank SAQ
8
MENA Group 4
%stofDec
(31 change
% 2007
of change -49% -49% -65% -65% -56% -56% -47% -47% -30%-30% -29%
-29% -35%
-35% -50%
-50% -57%
-57% -22%
-22%
and 02%ndofFeb change Al Rajhi -49% Bank -65%
Samba Financial -56% Riyad Bank
Banque Saudi -47% Emirates -30% NDB -29% Kuwait Finance
Saudi British -35% National Bank-50% National Bank -57% Qatar National
-22%
Fransi Bank House of Kuwait Abu Dhabi Bank SAQ
2009)
MENA Group
% of change -49%
2 -65% -56% -47% -30% -29% -35% -50% -57% -22%
2 1 1 1 1 0.80.8
Top 10 2 1 1 1 1 0.8 0.40.4 0.40.4 0.4 0.3 0.2
Top 10 Insurers 0.4 0.4 0.3 0.2
Top 10firms
Insurers 0.39 0.39 1 0.30.3 0.4 0.4 0.3 0.2
Insurance
firms by 0.39 0.170.17 0.78 0.70.7 0.30.3 0.2
0.2 0.3
0.3 0.2
0.2
firms by 0.710.71 0.78 0.3 0.3 0.2 0.3 0.2
by capitalization
capitalization 2 1 0.71 0.17 1 0.78 0.8 0.7
capitalization
Top 10 The Company for for QatarQatar
Insurance 1 ArabArab
Islamic OmanOman AbuAbu
Dhabi
Dhabi Kuwait 0.4
Insurance Al0.4
AinAin 0.4
AlAlAhleia 0.3
Gulf Arab 0.2
The Company Insurance Islamic Kuwait Insurance Al Ahleia Gulf Arab Insurance
Insurance
0.39
The
Insurance firms Cooperative Company
Insurance
Cooperative for
Insurance Qatar
CompanyInsurance
Company Islamic
Insurance Arab
Insurance
Oman
Insurance
Insurance Abu Dhabi
National
National 0.3 InsuranceAhlia
Kuwait
Company
Company 0.3 Al Ain
Insurance
Ahlia Insurance Al Ahleia
Insurance
Insurance Gulf
Insurance
Insurance Arab
Group.Insurance
Group.
Cooperative Insurance 0.71
Company 0.17
Insurance 0.78
Insurance
Company
Company 0.7National
Insurance
Insurance Company Ahlia
0.2
Insurance Company
Insurance
0.3
Insurance
0.2Group.
Company
Company Company
Company Company Co.
Co.
by capitalization Company Company Insurance
Co. Co. Company Company Co.
The Company for Qatar Insurance Islamic Arab Oman Co.
Abu Dhabi Kuwait Insurance Al Ain Al Ahleia Gulf Arab Insurance
% of change -80%
-80%Insurance -38% -38% -85% -85% Insurance
40% 40% National
17% 17% -37%-37% -11%
-11% -53%
-53% -12%
-12% -10%
-10%
% of change Cooperative Company Insurance Company Ahlia Insurance Insurance Insurance Group.
% of change -80% -38% -85%
Company Company 40% Insurance17% -37% -11%
Company -53%
Company Co.-12% -10%
Co.
Bank
Bank Capitalization
Capitalization in in US$b
US$b 13thMar
13th Mar2009
2009 1st Jan
1st Jan2008
2008 (unless
(unless stated otherwise)
otherwise)
Source:Source: % of
Factset,
Factset, change
Reuters,
Reuters, -80%
The Banker,
The Banker, Bloomberg,
Bloomberg, -38%
One Source
One Source -85%Bank Capitalization
40%
InsurerCapitalization
in US$b
Capitalization in17%
US$b
13th Mar 2009
-37%
13thMar 2009-11% 1st
Mar2009
1st Jan
1st Jan
2008 (unless
Jan-53%
2008 (unless
stated otherwise)
(unless -12% -10%
stated otherwise)
Source: Factset, Reuters, The Banker, Bloomberg, One Source
Insurance in US$b 13th 2008 stated otherwise)
Insurer Capitalization in US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
Page
Source: Factset, Reuters, The Banker, Page
24 24
Bloomberg, One Source TheThe World
World Takaful
Takaful
Insurance Report
Report
Capitalization in 2009
2009
US$b 13th Mar 2009 1st Jan 2008 (unless stated otherwise)
25
Short-term performance of Takaful operators has been impacted
Short-term performance of Takaful operators has been impacted
Average Return on Equity for a Sample of GCC and Malaysian Takaful Operators
Average ROE for a Sample of GCC and Malaysian Takaful Operators
15%
Return on Equity (percentage)
11.0%
15%
10% 9.0%
Return on Equity (percentage)
7.4% 6.3%
11.0% 5%
10%
5% 9.0%
6.6% 7.4% 6.3%
5.0% 5%
3.8% 4%
5%
0%
6.6% 5.0%
3.8% 4%
0%
-5% 2005 2006 2007 2008 2009e
-5%
-10% 2005 2006 2007 2008
-6.3% 2009e
-10% Year -6.3%
Year
GCC Malaysia
GCC Malaysia
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in
2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate
interviews.
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in
2008. In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon market data and corporate
interviews.
Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis
26 MEGA
Source: Brands.
Company MEGAReports,
Annual Clients. Market Leaders.
Corporate | Shaping
Interviews, the Future
Ernst of the
& Young Islamic Finance Industry Since 1993
analysis
Despite improvements in efficiency, Takaful operators need to better manage their
costs in improvements
Despite a more challenging market Takaful operators need to better manage their
in efficiency,
costs in a more challenging market
Average Cost Income and Claims Ratios for a Sample of GCC and Malaysia Takaful Operators
Average Cost Income and Claims Ratios for a sample of GCC and Malaysia Takaful Operators
Average Cost Income Ratios Claims Ratios
5.0
Average Cost Income Ratios Claims Ratios
60%
4.3
5.0 50% 48.8% 46.6%
4.0 60% 46.0%
4.3 43.2%
40%
50% 48.8% 46.6% 45.0%
(%) (%)
4.0
3.0 43.2% 41.5% 46.0%
43.2%
38.6% 32.0%
Ratio Ratio
Ratio Ratio
2.2 30%
40% 34.8% 29.4% 45.0%
3.0 43.2% 32.4% 41.5%
2.0 1.6 1.8 38.6% 31.0%
32.0%
28.4%
29.4%
2.2 30%
20% 34.8% 22.7%
32.4%
2.0 1.6 1.0 1.8 31.0%
1.0 0.7 0.8 28.4%
0.7 1.1 10%
20% 22.7%
0.8
1.0
1.0 0.7 0.8
0.0 0.7 1.1 10%
0%
0.8 2005 2006 2007 2008e
0.0 2005 2006 2007 2008 2009e
0%
2005 2006 Year
2007 2008 2009e 2005 2006 Year 2007 2008e
GCC Year Malaysia Saudi Arabia Claims Ratio

Year UAE Claims Ratio
GCC Malaysia Saudi Arabia

Bahrain Claims
Claims Ratio
Ratio UAE Claims Ratio
Malaysia
Bahrain Claims Ratio Malaysia Claims Ratio
Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in 2008. In
Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon available market data and corporate
interviews.
Note: WhereFor claims ratios,
possible, the
publicly data forcorporate
available Malaysia and Bahrainhas
information is specific to theInTakaful
been used. industry,
the GCC, while data
9 companies for Saudi
published Arabia and
information the UAE
in 2005, 13 is
in specific
2006 and to 2007
the insurance industry
and 4 in 2008. In
as a whole.
Malaysia, No data is available
4 companies publishedfor Saudi Arabia
information in 2005.
in 2005, 6 in 2006, 8 in 2007 and 4 in 2008. Estimates have been made based upon available market data and corporate
interviews. For claims ratios, the data for Malaysia and Bahrain is specific to the Takaful industry, while data for Saudi Arabia and the UAE is specific to the insurance industry
as a Company
Source: whole. No dataReports,
Annual is available
Bankfor Saudi
Negara ArabiaTakaful
Malaysia in 2005.
Annual Report, SAMA Annual Reports, UAE Central Bank Annual Reports, CBB Insurance Annual Reviews, Ernst & Young analysis
Source: Company Annual Reports, Bank Negara Malaysia Takaful Annual Report, SAMA Annual Reports, UAE Central Bank Annual Reports, CBB Insurance Annual Reviews, Ernst & Young analysis 27
Especially in the face of large exposures to volatile equity markets
Especially in the face of large exposures to volatile equity markets
Average Equity Exposures and Cash Holdings for a sample of GCC and Malaysia Takaful Operators
Average Equity Exposures and Cash Holdings for a sample of GCC and Malaysia Takaful Operators
Average Equity Exposures Average Cash/Total Assets
Average Equity Exposures Average Cash/Total Assets
100% 40% 39.6%
90% 35% 39.6%

100% 40%
80% 30.1%
90% 30%
35%
70% 30.1%
80%
25%
30%
Exposure (%)
60% 53.6%
70% 51.1% 47.7%
(%) (%)
50% 45.0% 20% 18.2% 18.2%
25%
Exposure (%)
60% 53.6%
Ratio Ratio
40% 51.1% 47.7%
50% 45.0% 15%
20% 18.2% 18.2%
30% 25.5%
40% 22.8% 22.0% 22.0% 10%
15%
20% 25.5%
30% 22.8% 22.0%
10% 22.0% 5%
10% 2.0% 1.7%
20% 0.2% 0.2%
0% 0%
5%
10% 2.0% 1.7%
0.2%
2005 2006 2007 0.2%
2008
2005 2006 2007 2008e
0% 0%
Year Year
2005 2006 2007 2008e 2005 2006 2007 2008
Year Year
GCC Malaysia GCC Malaysia
GCC Malaysia GCC Malaysia
Note: For equity exposures, data for Malaysia includes family and general Takaful operators and was derived from holdings of Islamic private debt securities and equities,
where it was assumed that 50% of the total holdings were in the form of public equities. All estimates have been made based upon available corporate interviews.
Note: For equity
For cash exposures,
holdings, data for publicly
where possible, Malaysiaavailable
includescorporate
family and general Takaful
information operators
has been used. Inand
thewas derived
GCC, from holdings
10 companies of Islamic
published privateindebt
information securities
2005, andand
13 in 2006 equities,
2007. In
where it was4 assumed
Malaysia, that
companies 50% of information
published the total holdings were
in 2005, 6 inin2006,
the form
8 in of public
2007 andequities. All estimates have been made based upon available corporate interviews.
6 in 2008.
For cash holdings, where possible, publicly available corporate information has been used. In the GCC, 5 companies published information in 2005, 9 in 2006 and 2007. In
Malaysia,
Source: Bank 4 companies
Negara published
Malaysia information
Annual Takaful Statisticsin2007,
2005, 6 in 2006,
Company 8 inReports,
Annual 2007 and 4 &inYoung
Ernst 2008.analysis
28 MEGA
Source: BankBrands.
NegaraMEGA Clients.
Malaysia Market
Annual Leaders.
Takaful | Shaping
Statistics the Future
2007, of theAnnual
Company Islamic Reports,
Finance Industry
Ernst &Since 1993analysis
Young
The 2009 Takaful business risks landscape has changed substantially
The 2009 Takaful business risks landscape has changed substantially
How the Business Risks match up - 2009 and 2008 results

How the Business Risks match up - 2009 and 2008 results
Investment
Investment Human
Human Global
Global Economic
Economic Enterprise
Enterprise Risk
Risk Regulatory
Regulatory
Competition
Category
and
Competition
Category
andand
Portfolios
Portfolios Resources
Resources Downturn
Downturn Management
Management Regimes
Regimes
Investment
Investment Human
Human Global
Global Economic
Economic Enterprise
Enterprise Risk
Risk Regulatory
Regulatory
Competition
Category
Competition
Risk
Category
and
RiskRisk
Portfolios
Portfolios Resources
Resources Downturn
Downturn Management
Management Regimes
Regimes
Financial
Financial Risk
Risk Operational
Operational Risk
Risk Strategic
Strategic Risk
Risk Financial
Financial Risk
Risk Compliance
Compliance Risk
Risk Compliance
Compliance Risk
Risk
Risk
Financial
Financial Risk
Risk Operational
Operational Risk
Risk Strategic
Strategic Risk
Risk Financial
Financial Risk
Risk Compliance
Compliance Risk
Risk Compliance
Compliance Risk
Risk
2009
2009 1stst
1 2nd
2
nd 3rdrd
3 4thth
4 5thth
5 66thth
2009
2009 11stst 22nd
nd 33rdrd 44thth 55thth 66thth
2008
2008 44thth 11st
st
N/A
N/A N/A
N/A 66thth N/A
N/A
2008
2008 44thth 11stst N/A
N/A N/A
N/A 66thth N/A
N/A
►Restricted
► Restricted ►Lack
► Lack of
of skilled
skilled HR
HR ►Low
► Low barriers
barriers to
to ►Decrease
► Decrease in
in new
new ►Reputational
► Reputational risk
risk ►Varying
► Varying regulatory
regulatory
investment
investment universe
universe and
and increasing
increasing entry
entry (minimum
(minimum premium
premium growth.
growth. from
from varying
varying requirements
requirements --
►Restricted
► Restricted
and
and unbalanced
unbalanced ►Lack
► Lack of
of skilled
skilled
competition
competition for HR
forHR ►Low
► Low barriers
barriers to
capital
capital to ►Decrease
► Decreaseinin new
indefaults
new ►Reputational
► Reputational
business
business models.
risk
risk
models. ►Varying
► Varying regulatory
businessregulatory
business models
models
►Increase
Factors
► Increase in defaults
Factors
investment
investment universe and increasing entry (minimum premium growth. from
from varying requirements -
investments.universe
investments. and increasing
resources.
resources. entry (minimum
requirements).
requirements). premium
and claims.
and claims.
growth. varying
Controls, risk
► Controls, risk
► requirements
requirements.-
requirements.
and
and unbalanced
unbalanced competition
competition for
for capital
capital ►Increase in
in defaults business
business models.
models. business
business models
models
Factors
►High
High equity ►Limited
Limited pool
pool of ►Increasing
► Increase defaults management
management and ►Young
Young and
Factors
► equity
investments.
►
resources. of ► Increasing
requirements). ►Market
► Market risk
risk and
and and ► and
requirements.
investments. resources. requirements). and claims.
and claims. Controls,
Controls, risk requirements.
reporting risk
exposures. scholars ►
exposures. scholars with
with competition
competition and
and resulting negative
resulting negative
►reporting inexperienced
inexperienced
►High
► High equity
equity ►Limited
► Limited
suitable pool
pool of
of
suitable knowledge. ►Increasing
► Increasing
aggressive
aggressive pricing. ►Market
Market risk and management
management
framework. and
framework. and ►Young
► Young and
andregimes.
regulatory
onrisk and
knowledge. pricing. ► regulatory regimes.
►High
High counterparty effect
effect on
Contributing
► counterparty
Contributing
exposures.
exposures. scholars
scholars with
with competition
competition and
and resulting
resulting negative
negative reporting
reporting inexperienced
inexperienced
risks.
risks. ►Lack
► Lack of
of operational
operational ►Competitive
► Competitivepricing. investment
investment ►Obtaining
► Obtaining an an ►Evolving
► Evolving capital
capital
►High
High counterparty suitable
suitable knowledge.
knowledge. aggressive
aggressivereducing
pricing. effect on framework.
framework. rating. regulatory
regulatory regimes.
regimes.
Contributing
► counterparty effect on
Contributing
►Reduced
► Reduced SukukSukuk expertise
expertise in
in certain
certain pressures
pressures reducing portfolios.
portfolios. independent
independent rating. requirements
requirements (risk
(risk
risks.
risks. ►Lack
► Lack
lines of
of
of operational
operational
business. ►Competitive
► Competitive
safety investment
investmentcrisis ►Obtaining
► Obtaining an
an ► Evolving
Evolving capital
capital
issuance
issuance is is further
further lines of business. safety margin
margin in
in ►Economic
► Economic crisis ►Conflict
► Conflict between
between
►based capital).
based capital).
► Reduced
Reduced Sukuk
Sukuk expertise
expertise in
in certain
certain pressures
pressures reducing
premiums. reducing portfolios.
portfolios. independent
independent rating.
rating. requirements
requirements (risk
(risk
►limiting
limiting fixed
fixed premiums. caused
caused byby the
the motives
motives of the
of the
issuance
issuance is
is further
further lines
lines of
of business.
business. safety
safety margin
margin in
in ►Economic
Economic crisis Conflict between based
based capital).
capital).
ofcrisis Conflict between
income ► ►
income equivalents.
equivalents. premiums.
collapse
collapse of the
the ►Takaful fund
Takaful fund and and
limiting fixed
limiting fixed premiums. caused
caused by
banking by the
the
sector. motives
motives
the of
of the
the
banking sector. the shareholders’
shareholders’
income
income equivalents.
equivalents. collapse
collapse ofof the
the Takaful
Takaful
fund. fund
fund and
and
fund.
banking
banking sector.
sector. the
the shareholders’
shareholders’
fund.
fund.

High risk investment portfolios, human resource expertise and competition will be
the most
High risk pressing global
investment Takafulhuman
portfolios, business risks over
resource the next
expertise and12 months will be
competition
the most pressing global Takaful business risks over the next 12 months
Takaful Globally
Key Business Risks Takaful Globally Key Business Risks
2008* 2009
Key Business Risks Key Business Risks
1
2008*
Lack of Human Financial Compliance 2009
High-risk
Resource Expertise* 1 Investment
1
Lack of Human Financial Compliance High-risk
Portfolios
Resource Expertise* 1 Investment
Limited Product
2 Portfolios
Lack of Human
Development 2
Global Economic Regulatory Resource Expertise
Limited Product
2 Lack of Human
Development
Inability to Tap Downturn Regimes 2
Resource Expertise
3
Pent-up Demand*
Global Economic Regulatory 3 Competition
Inability to Tap Downturn Regimes
3
Pent-up
High-riskDemand* 3 Competition
Global Economic
4 Investment
High-risk
Portfolios* Investment ▲ 4
Downturn
4 Investment Portfolios ▲ ▲
Enterprise Risk
4
Global Economic
Portfolios*
Lack of Rated Investment Management Downturn
Enterprise Risk
5
ReTakaful* Portfolios ▲ Enterprise Risk 5
Management
Lack of Rated Management Enterprise Risk
5
ReTakaful*
Enterprise Risk
▼ 5
Management
Varying Regulatory
6 6
Management*
Enterprise Risk
▼ Regimes
Varying Regulatory
6 Competition Human 6
Regimes
Management* Inability to Achieve
Resources 7
Underwriting Profit
Key to Symbols Competition Human
Inability to Achieve
Resources 7
Underwriting
KeyUp
to Symbols
from Lack of RatedProfit
8
▲ 2008
ReTakaful
Up from Lack of Rated
8
▲ 2008
Down from 9
ReTakaful
Lack of Financial
▼ 2008
Strategic Operational Flexibility
Lack of Financial
Down from 9
▼ 2008
Strategic Operational
10
Flexibility
Inability to Tap
New entry Pent-up Demand
Inability to Tap
10
New entry Pent-up Demand
Source: Corporate Interviews, Ernst & Young analysis * Note: To ease comparability, the names of these 2008 risks have been amended to reflect responses from this years.
30 MEGA
Source: Brands.Interviews,
Corporate MEGA Clients. Market
Ernst Leaders.
& Young | Shaping the Future* of
analysis the Islamic
Note: To easeFinance Industry Since
comparability, the 1993
names of these 2008 risks have been amended to reflect responses from this years.
Takaful operators from the GCC and South-East Asia are facing similar risks, but
regional nuances exist
Takaful operators from the GCC and South-East Asia are facing similar risks, but
regional nuances exist
Takaful in the Gulf Cooperation Council (GCC ) Takaful in South-East Asia (SEA)
Takaful
Financial in the Gulf Cooperation Council (GCC )
Compliance Financial Takaful in South-East Asia (SEA) Compliance
Financial Compliance Financial Compliance

Regulatory Investment Portfolios
Global Economic 6 Regimes
Downturn Regulatory
Global Economic 6 Investment Portfolios
Regimes
Downturn
5 Enterprise Risk Global Economic
4 Enterprise Risk
Investment Management Downturn 2
5 Global Economic 5 Management
Portfolios 1 4 Enterprise Risk 1 Enterprise Risk
Investment Management Downturn 2
5 Management
Portfolios 1 Achieving 1
2 Underwriting Profit Human
3 Human Achieving 3
Competition Resources
2 Resources Underwriting Profit 6 Human
3 Human 4 3
Competition Resources
Resources
6
4
Competition
Competition
Strategic Operational Strategic Operational
Strategic Operational Strategic Operational
Business Risks in the GCC Business Risks in SEA

► Equity concentrated investment portfolios are a key risk. ► The global downturn is seen as the most important risk.
Business Risks in the GCC Business Risks in SEA
► HR continues to concern many operators. ► Although more diversified, investment portfolios are also a key risk
► Equity concentrated investment portfolios are a key risk. ► The global downturn is seen as the most important risk.
► Increased competition has emerged as a new risk. as equity markets and interest rates fall.
► HR continues to concern many operators. ► Although more diversified, investment portfolios are also a key risk
► HR continues to concern many operators.
► Increased competition has emerged as a new risk. as equity markets and interest rates fall.
► HR continues to concern many operators.
Source: Corporate Interviews, Ernst & Young analysis
Source: Corporate Interviews, Ernst & Young analysis 31

High risk investment portfolios have moved up the agenda
High risk investment portfolios have moved up the agenda
Commentary and Contributing Factors

The limited investment universe results in concentrations: “ The ability to deliver
► Takaful operators are required to invest only in Shari’a-compliant investments. The investment universe adequate investment
The limited investment universe results in concentrations: “ The ability to deliver
is thus reduced and lacks fixed income equivalents. The result is an unbalanced investment portfolio, performance in today's shell-
► Takaful operators are required to invest only in Shari’a-compliant investments. The investment universe adequate investment
particularly with regard to the policyholders’ fund, which is over-concentrated in high-risk equity shocked environment is
is thus reduced and lacks fixed income equivalents. The result is an unbalanced investment portfolio, performance in today's shell-
investments, illiquid real estate and low-return cash deposits (Murabaha). seen as the key risk -
particularly with regard to the policyholders’ fund, which is over-concentrated in high-risk equity shocked environment is
► Sukuk issuance has been negatively affected by the global collapse of capital markets and by concerns
challenges are falling asset
investments, illiquid real estate and low-return cash deposits (Murabaha). seen as the key risk -
over Shari’a compliance - the result has been a reduction in new fixed income investments. values, market volatility and
► Sukuk issuance has been negatively affected by the global collapse of capital markets and by concerns
challenges are falling asset
extra low interest rates. ”
► A large allocation to cash, which is particularly evident for GCC-based operators, is often accompanied
over Shari’a compliance - the result has been a reduction in new fixed income investments. values, market volatility and
- SEA Takaful executive
with a concentration in a small number of Islamic financial institutions. extra low interest rates. ”
► A large allocation to cash, which is particularly evident for GCC-based operators, is often accompanied
► This risk has highlighted shortcomings in the industry, particularly in the GCC, where operators are - SEA Takaful executive
with a concentration in a small number of Islamic financial institutions. “ The economic crisis has
reliant upon investment income. For one GCC Takaful executive, recent events have been a wakeup
► This risk has highlighted shortcomings in the industry, particularly in the GCC, where operators are brought to light weaknesses
call: “The economic crisis has brought to light weaknesses in the insurance sector…this will hopefully “ The economic crisis has
reliant upon investment income. For one GCC Takaful executive, recent events have been a wakeup in the insurance sector. ”
help them to take corrective measures to concentrate on their core activity [insurance underwriting]”. brought to light weaknesses
call: “The economic crisis has brought to light weaknesses in the insurance sector…this will hopefully - UAE Takaful executive
► In Malaysia, regulatory restrictions on foreign investment have also limited opportunities for in the insurance sector. ”
help them to take corrective measures to concentrate on their core activity [insurance underwriting]”.
diversification. - UAE Takaful executive
► In Malaysia, regulatory restrictions on foreign investment have also limited opportunities for “ Equity/real estate
diversification. investments, particularly
However, conservative investment strategies do exist: “ Equity/real estate
regional, are highly risky and
► Takaful windows argued that their “conservative investment strategies” have made this risk less investments, particularly
However, conservative investment strategies do exist: low-risk instruments are
pertinent. Their focus has instead been on achieving an underwriting profit. regional, are highly risky and
► Takaful windows argued that their “conservative investment strategies” have made this risk less
limited in volume. ”
low-risk instruments are
pertinent. Their focus has instead been on achieving an underwriting profit. - Ratings executive
limited in volume. ”
- Ratings executive
Key Considerations
Increase retention, focus on underwriting and seek professionalKey Considerations
asset management:
► Those operators who have relied upon investment income need to enhance their portfolio management capabilities to improve risk adjusted
Increase retention, focus on underwriting and seek professional asset management:
returns. This risk is an opportunity for asset managers, who need to address the unique risk/return profile of Takaful operators.
► Those operators who have relied upon investment income need to enhance their portfolio management capabilities to improve risk adjusted
returns. This risk is an opportunity for asset managers, who need to address the unique risk/return profile of Takaful operators.
Source: Corporate interviews, Ernst & Young analysis
32 MEGA
Source: Brands.interviews,
Ernst Leaders.
& Young | Shaping the Future of the Islamic Finance Industry Since 1993
analysis
Human resource expertise has remained a key risk for operators
Human resource expertise has remained a key risk for operators

Commentary
Human resources risks are still high on the executive agenda: and Contributing Factors
► As with the wider Islamic financial services industry, Takaful continues to suffer from a shortage of “ The availability of business/
Human resources risks are still high on the executive agenda:
human resources with the requisite expertise. This risk was considered more important in the GCC, but financially qualified scholar
► As with the wider Islamic financial services industry, Takaful continues to suffer from a shortage of “ The availability of business/
South East Asian operators also acknowledged its continued relevance. According to interviewees, in the industry is still an
human resources with the requisite expertise. This risk was considered more important in the GCC, but financially qualified scholar
human resource risk is particularly acute in specialist fields, including life insurance, risk management issue. ”
South East Asian operators also acknowledged its continued relevance. According to interviewees, in the industry is still an
and Shari’a compliance. - SEA Takaful executive
human resource risk is particularly acute in specialist fields, including life insurance, risk management issue. ”
► The continued under-penetration of life insurance in the GCC has resulted in the near non-existence of
and Shari’a compliance. - SEA Takaful executive
indigenous expertise. As a result, a number of recent attempts to expand family Takaful in this market “ We have created a good
► The continued under-penetration of life insurance in the GCC has resulted in the near non-existence of
have included participation from international conventional insurers. culture and focus on hiring
indigenous expertise. As a result, a number of recent attempts to expand family Takaful in this market “ We have created a good
► Executives in both key markets (GCC and Malaysia), voiced concern over the availability of Shari’a locally, which has greatly
have included participation from international conventional insurers. culture and focus on hiring
scholars with relevant business acumen. reduced executive turnover. ”
► Executives in both key markets (GCC and Malaysia), voiced concern over the availability of Shari’a locally, which has greatly
scholars with relevant business acumen. - GCC Takaful executive
reduced executive turnover. ”
However, not all operators are suffering to the same extent: - GCC Takaful executive
► Takaful windows are tapping large pools of conventional talent relocated from depressed markets.
However, not all operators are suffering to the same extent: “ There is an openness in
► There has been a shift towards the recruitment and development of indigenous talent in recognition of
► Takaful windows are tapping large pools of conventional talent relocated from depressed markets. terms of the movement of
the additional expenses of expatriate staff and their willingness to repatriate. Such sentiment was “ There is an openness in
► There has been a shift towards the recruitment and development of indigenous talent in recognition of conventional skilled
confirmed by a SEA Takaful executive who pointed out: “During this period, companies with financial terms of the movement of
the additional expenses of expatriate staff and their willingness to repatriate. Such sentiment was personnel into Takaful. ”
strength can target new employees - a lot of those Malaysians working abroad are being retrenched.” conventional skilled
confirmed by a SEA Takaful executive who pointed out: “During this period, companies with financial - Takaful window executive
personnel into Takaful. ”
strength can target new employees - a lot of those Malaysians working abroad are being retrenched.” - Takaful window executive
Key Considerations
Focus on developing local talent and partnering for quickKey Considerations
market entry:
► Hiring indigenous talent and providing structured internal training programs helps to create a development culture and reduce turnover.
Focus on developing local talent and partnering for quick market entry:
► For conventional insurers, partnering with established local operators can provide brand equity, infrastructure and access to HR including
► Hiring indigenous talent and providing structured internal training programs helps to create a development culture and reduce turnover.
expertise in Shari’a compliance. For local Takaful operators, international insurers provide expertise in risk management and specialist lines.
► For conventional insurers, partnering with established local operators can provide brand equity, infrastructure and access to HR including
expertise in Shari’a compliance. For local Takaful operators, international insurers provide expertise in risk management and specialist lines.
Source: Corporate interviews, Ernst & Young analysis 33

Competition has emerged as a major global risk for operators
Competition has emerged as a major global risk for operators

New local operators and international windowsCommentary
are crowding theand Contributing Factors
landscape: “ Competition has become
► Regulatory authorities in many established Takaful markets have recently relaxed restrictions on the very tough in the last year,
New local operators and international windows are crowding the landscape: “ Competition has become
insurance sector. Licenses have been awarded to new locally-backed entities and Takaful windows of competitors are cutting
► Regulatory authorities in many established Takaful markets have recently relaxed restrictions on the very tough in the last year,
large conventional incumbents. Interviewees, particularly in the GCC, argued that increased rates aggressively - the
insurance sector. Licenses have been awarded to new locally-backed entities and Takaful windows of competitors are cutting
competition in a contracting market had resulted in overly aggressive pricing for group and commercial market is changing, due to
large conventional incumbents. Interviewees, particularly in the GCC, argued that increased rates aggressively - the
risks. lower business. ”
competition in a contracting market had resulted in overly aggressive pricing for group and commercial market is changing, due to
- GCC Takaful executive
risks. lower business. ”
The wakalah business model puts Takaful at a pricing disadvantage: - GCC Takaful executive
► Price remains a key differentiating factor - “Customers still go for ‘value for money’ insurance
The wakalah business model puts Takaful at a pricing disadvantage: “ Because we can’t share in
purchases over faith purchases” is how one GCC Takaful executive described preferences.
► Price remain a key differentiating factor - “Customers still go for ‘value for money’ insurance purchases underwriting income, we
► When competing for business that does not require Shari'a compliant coverage, wakalah-based “ Because we can’t share in
over faith purchases” is how one GCC Takaful executive described preferences. can’t adjust pricing and
operators are unable to use retained underwriting surplus to discount. As a result, a number of underwriting income, we
► When competing for business that does not require Shari'a compliant coverage, wakalah-based can’t meet the same terms
interviewees argued that Takaful pricing for group and commercial cover was often uncompetitive. This can’t adjust pricing and
operators are unable to use retained underwriting surplus to discount. As a result, a number of brokers are offered by
lack of competitiveness reduced an operator’s ability to use brokerage as a “cost-effective mechanism” can’t meet the same terms
interviewees argued that Takaful pricing for group and commercial cover was often uncompetitive. This conventional insurers. ”
to source business. brokers are offered by
lack of competitiveness reduced an operator’s ability to use brokerage as a “cost-effective mechanism” - GCC Takaful executive
conventional insurers. ”
to source business.
But competition is still lacking in GCC family Takaful: - GCC Takaful executive
► The specialist nature of family Takaful and long gestation period has limited competition - “What “ Competition drives the
But competition is still lacking in GCC family Takaful: industry to better itself. ”
competition? I wish we had more”, was the response from one GCC Takaful executive. For the majority “ Competition drives the
► The specialist nature of family Takaful and long gestation period has limited competition - “What - Takaful window executive
of GCC-based interviewees, critical mass has not yet been established for family Takaful. industry to better itself. ”
competition? I wish we had more”, was the response from one GCC Takaful executive. For the majority
of GCC-based interviewees, critical mass has not yet been established for family Takaful. - Takaful window executive
Key Considerations
Partnerships and specialization can differentiate operators, Key
butConsiderations
critical mass is essential:
► Partnerships with conventional incumbents and specialization in specific lines can differentiate operators from their competition. However,
Partnerships and specialization can differentiate operators, but critical mass is essential:
without critical mass, profitability in family Takaful will be delayed and competiveness when bidding against insurance companies will be
► Partnerships with conventional incumbents and specialization in specific lines can differentiate operators from their competition. However,
limited.
without critical mass, profitability in family Takaful will be delayed and competiveness when bidding against insurance companies will be
► Distributions are a unique value proposition for Takaful and should be emphasized when competing against conventional competition.
limited.
Source:
► Corporate interviews,
Distributions are aErnst & Young
unique analysis
value proposition for Takaful and should be emphasized when competing against conventional competition.
34 MEGA
Ernst Leaders.
analysis
The global economic downturn has now begun to affect market conditions
The global economic downturn has now begun to affect market conditions

The global economic downturn is now impacting Commentary
the GCC andand SEA:Contributing Factors
“ We saw a down-turn [in
The Emerging
► markets were
global economic largely
downturn isshielded from thethe
now impacting early
GCCimpacts of the global economic downturn.
and SEA: premiums] in the previous
However, the situation has now changed and the majority of interviewees acknowledged a drop in “ We saw a down-turn [in
► Emerging markets were largely shielded from the early impacts of the global economic downturn. quarter of about 30-40%,
premiums. In SEA, reduced business confidence and a corresponding reduction in lending has premiums] in the previous
However, the situation has now changed and the majority of interviewees acknowledged a drop in especially in life, property
negatively affected finance Takaful - a key family product in that region. In the GCC, the collapse of quarter of about 30-40%,
premiums. In SEA, reduced business confidence and a corresponding reduction in lending has and motor. ”
equity markets has reduced uptake in investment-linked family products. especially in life, property
negatively affected finance Takaful - a key family product in that region. In the GCC, the collapse of - GCC Takaful executive
► A number
equity of interviewees
markets has reduced argued
uptakethat, despite the relatively
in investment-linked sound
family performance of the Takaful industry
products. and motor. ”
vis-à-vis conventional financial services, contagion had also taken its toll. - GCC Takaful executive
► A number of interviewees argued that, despite the relatively sound performance of the Takaful industry “ Business confidence is
vis-à-vis conventional financial services, contagion had also taken its toll. down. ”
“ Business confidence is
The downturn has increased claims and the prevalence of fraud - SEA Takaful executive
down. ”
The Underwriting
► downturn has riskincreased
has grownclaims
as bullish
andeconomies begin of
the prevalence to fraud
slow and asset bubbles deflate. Claims - SEA Takaful executive
ratios across the GCC and SEA are expected to rise as defaults increase. One GCC Takaful executive “ As personal financing has
► Underwriting risk has grown as bullish economies begin to slow and asset bubbles deflate. Claims
gave an example of: “Warehouses bought at inflated prices being burnt down to collect insurance reduced, so too has finance
ratios across the GCC and SEA are expected to rise as defaults increase. One GCC Takaful executive “ As personal financing has
payouts”. Takaful. ”
gave an example of: “Warehouses bought at inflated prices being burnt down to collect insurance reduced, so too has finance
payouts”. - SEA Takaful executive
Takaful. ”
Opportunities exist for family Takaful
- SEA Takaful executive
► A handful ofexist
Opportunities interviewees
for familyargued that the downturn could potentially increase demand for family Takaful
Takaful “ With bad conditions, the
as customers seek annuity products that offer long-term diversification. For one GCC-based Takaful risks of underwriting have
► A handful of interviewees argued that the downturn could potentially increase demand for family Takaful “ With bad conditions, the
executive, “the growth in life insurance [family Takaful] is purely due to the investment element.” increased. ”
as customers seek annuity products that offer long-term diversification. For one GCC-based Takaful risks of underwriting have
executive, “the growth in life insurance [family Takaful] is purely due to the investment element.” - GCC Takaful executive
increased. ”
Key Considerations
Improve the core business function and diversify income:Key Considerations
► To meet
Improve the the challenges
core businessoffunction
a depressed market and
and diversify increased competition, Takaful operators need to enhance their underwriting capabilities
income:
and capacity.
► To meet the challenges of a depressed market and increased competition, Takaful operators need to enhance their underwriting capabilities
► Operators should also consider the benefits of diversifying exposures, both across lines of business and across geographies.
and capacity.
► Operators should also consider the benefits of diversifying exposures, both across lines of business and across geographies.

Enterprise risk management has moved up our rankings and reflects market turmoil
Enterprise risk management has moved up our rankings and reflects market turmoil

Commentary
The global financial crisis brings risk management to the fore:and Contributing Factors
“ In such an environment,
The Volatile
► markets, slowed
global financial economic
crisis brings riskgrowth, realizedtolosses
management and
the fore: the subsequent possibility of regulatory
people are learning to be
intervention or increased monitoring are all weighing heavy upon Takaful operators. “ In such an environment,
► Volatile markets, slowed economic growth, realized losses and the subsequent possibility of regulatory more cautious. ”
► As a nascentorand
intervention fragmented
increased industry,
monitoring areenterprise riskheavy
all weighing management (ERM)
upon Takaful has been slow to develop
operators. people are learning to be
with only a handful of established operators and windows claiming to have fully implemented an more cautious. ”
► As a nascent and fragmented industry, enterprise risk management (ERM) has been slow to develop
effective framework. The importance of risk management has been underlined by the current crisis. - GCC Takaful executive
with only a handful of established operators and windows claiming to have fully implemented an “ Compliance plays a major
► A sharp decrease
effective framework. in investment income,
The importance which
of risk followed a has
management sustained bull-run in by
been underlined both
thethe GCC crisis.
current and South role and it’s fundamental to
East Asia, has also made the management of stakeholder expectations more challenging. As one SEA “ Compliance plays a major
► A sharp decrease in investment income, which followed a sustained bull-run in both the GCC and South starting any business - it’s
Takaful executive points out: “The pressure is to remain solvent, profitable, and be able to meet client role and it’s fundamental to
East Asia, has also made the management of stakeholder expectations more challenging. As one SEA a differentiating factor for
claims and expectations”. starting any business - it’s
Takaful executive points out: “The pressure is to remain solvent, profitable, and be able to meet client companies. ”
a differentiating factor for
claims and expectations”. - Takaful window executive
companies. ”
Getting rated - a mixture of opinions: - Takaful window executive
► Recent events in the financial services sector have exposed ratings agencies to criticism. A number of “ These days, ratings are
Getting rated - a mixture of opinions: overrated. ”
our interviewees questioned the validity and merit of ratings - a GCC-based Takaful executive “ These days, ratings are
► Recent events in the financial services sector have exposed ratings agencies to criticism. A number of - GCC Takaful executive
explained how a ratings downgrade assigned to one of their reinsurance companies would not effect overrated. ”
our interviewees questioned the validity and merit of ratings - a GCC-based Takaful executive
future treaties. Track record, reputation and existing due diligence were sufficient. - GCC Takaful executive
explained how a ratings downgrade assigned to one of their reinsurance companies would not effect “ Get themselves financially
► That
futuresaid, otherTrack
treaties. interviewees described and
record, reputation ratings as a necessity
existing if Takaful
due diligence was to more effectively
were sufficient. rated in order to compete
compete with its conventional counterpart in industrial and commercial underwriting. “ Get themselves financially
► That said, other interviewees described ratings as a necessity if Takaful was to more effectively for bigger business. ”
rated in order to compete
compete with its conventional counterpart in industrial and commercial underwriting. - GCC Takaful executive
for bigger business. ”
Key Considerations
Prioritize risk management and seek ratings: Key Considerations
► The Takaful
Prioritize industry is facing
risk management and a combination
seek ratings: of insurance and Shari'a risks, fragmentation and a lack of financial strength, a concentration in
emerging markets and a reliance upon inexperienced regulatory regimes. Implementing effective ERM is key to sustainability.
► The Takaful industry is facing a combination of insurance and Shari'a risks, fragmentation and a lack of financial strength, a concentration in
► For all its failings,
emerging marketsan and independent ratinginexperienced
a reliance upon remains a differentiating factor in Implementing
regulatory regimes. the insurance effective
industry. ERM
If Takaful operators
is key are to effectively compete
to sustainability.
with their conventional counterparts for high value underwriting, a rating appears essential.
► For all its failings, an independent rating remains a differentiating factor in the insurance industry. If Takaful operators are to effectively compete
with
Source: their interviews,
Corporate conventional
Ernst & counterparts
Young analysis for high value underwriting, a rating appears essential.
36 MEGA
Ernst Leaders.
analysis
Varying regulatory regimes have emerged as a business risk and reflect increased
sophistication of players
Varying regulatory regimes have emerged as a business risk and reflect increased
sophistication of players

Industry expansion has highlighted regulatory risks: “ Countries need to properly
► In the GCC, a lack of regulation has historically impeded growth in the insurance sector and is now also develop their regulations
Industry expansion has highlighted regulatory risks: “ Countries need to properly
considered a business risk for Takaful. A number of interviewees argued that the progress made by the and aim for standardization -
► In the GCC, a lack of regulation has historically impeded growth in the insurance sector and is now also develop their regulations
industry has not been matched by the regulatory authorities. As one GCC Takaful executive stated; Takaful is treated differently
considered a business risk for Takaful. A number of interviewees argued that the progress made by the and aim for standardization -
“Regulation and regulators are somewhat immature, there is still a lot of development needed.” in each country. ”
industry has not been matched by the regulatory authorities. As one GCC Takaful executive stated; Takaful is treated differently
► As competition increases and international conventional incumbents become more active, the - Takaful window executive
“Regulation and regulators are somewhat immature, there is still a lot of development needed.” in each country. ”
sophistication of operators will continue to improve. Regulators will subsequently have to develop
► As competition increases and international conventional incumbents become more active, the - Takaful window executive
supervisory frameworks to match industry innovation. To date, only a small number of countries have
sophistication of operators will continue to improve. Regulators will subsequently have to develop “ The Gulf states are highly
implemented tailored regulations for Takaful - Bahrain and Malaysia being the two clearest examples.
supervisory frameworks to match industry innovation. To date, only a small number of countries have fragmented in their
implemented tailored regulations for Takaful - Bahrain and Malaysia being the two clearest examples. “ The Gulf states are highly
regulatory approach. ”
The application of conventional regulations to Takaful fragmented in their
- Ratings executive
► The application of capital adequacy to Takaful is complicated by the separation of shareholders’ and regulatory approach. ”
The application of conventional regulations to Takaful
policyholder’s funds. A number of interviewees disagree with the application of such requirements to - Ratings executive
► The application of capital adequacy to Takaful is complicated by the separation of shareholders’ and
policyholders’ funds in isolation, which requires an accumulation of earnings, particularly in the early
policyholder’s funds. A number of interviewees disagree with the application of such requirements to “ Solvency criteria are
years of operations, and the subsequent withholding of distribution to policyholders.
policyholders’ funds in isolation, which requires an accumulation of earnings, particularly in the early difficult to meet and
years of operations, and the subsequent withholding of distribution to policyholders. “ Solvency criteria are
effectively remove our
difficult to meet and
competitive advantage. ”
effectively remove our
competitive advantage. ”
Key Considerations
Transparency and consistency, preparation and dialogue:Key Considerations
► The ongoing ambiguity and opaqueness of the Takaful industry reduces its appeal to a wider audience. Takaful operators should strive to adopt
Transparency and consistency, preparation and dialogue:
consistent business models and provide transparency to consumers.
► The ongoing ambiguity and opaqueness of the Takaful industry reduces its appeal to a wider audience. Takaful operators should strive to adopt
► Preparation for regulatory
consistent business modelschanges and continuous
and provide dialogue
transparency with authorities helps to smooth the learning curve.
to consumers.
► Preparation for regulatory changes and continuous dialogue with authorities helps to smooth the learning curve.

3. Sustaining the Future
Latent demand will continue to fuel long-term future growth for the Takaful industry
Latent demand will continue to fuel long-term future growth for the Takaful industry

► Takaful operators who successfully adapt their A

Premiums
► Takaful
businessoperators
models and whomitigate
successfully
againstadapt their
changing
Scenarios
Economic A
Premiums
business risk
models and mitigate
will have against
opportunities tochanging
expand. fundamentals
Scenarios
Economic
► business risk will favorable

In the long-term, have opportunities
demographics, to expand. fundamentals
B
Potential
Takaful
► In the income
rising long-term,andfavorable desire Business
a growingdemographics,
to consumerisks
B
Potential
Takaful
Business risks
rising
Shari’aincome and products
compliant
Economic
a growingwill
desire
benefitto consume
Takaful. C
Shari’a
Based on compliant
researchproducts willand
interviews benefit Takaful.
estimates,
Global
downturn
► Economic We are here C
Based ondownturn
research
of theinterviews andStrategic
estimates,
Global
► the likely size global Takaful

We are here marketCompliance
the
couldlikely size
be as of the
high global
as US$ Takaful
7.7 billion market
by the
Operations
Strategic
end
Financial
Compliance
could
of 2012.be as high as US$ 7.7 billion by the
Operations end
Financial
of 2012.

Previous 5-10 Years Takaful2008-2009
Growth Phases Next 5 Years
Long term growth of Takaful is predicated on strong underlying factors
Long term growth of Takaful is predicated on strong underlying factors
► Favorable demographics ► Available Shari’a compliant

► Favorable demographics
Increased income earnings ► projects
Available Shari’a compliant
MaMa
► and propensity
Increased incometo consume
earnings ► projects
Equity markets
s s
rkerke
and propensity
socialtoattitudes
consume Equity markets
taltal
► Changing ► Investment opportunities
towards insurance
Changing social attitudes enen Investment
Institutional opportunities
t Ct C
► ► growth
amam
towards insurance Institutional growth
onon
►
Takaful
ndnd
Takaful
ditdit
Takaful
Industry
FuFu
Takaful
Industry
ionion
Industry
Industry
s s
Facilitators
►
Facilitators
Regulatory support and framework
► Regulatory support and framework
Insurance legislation
► Insurance
Compulsorylegislation
coverage
► Compulsory coverage
40 MEGA
Source: ErnstBrands.
& YoungMEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
analysis
Although the global recession has led to a drop in short term GDP forecasts, long
term prospects
Although for growth
the global in the
recession GCC
has led and
to a South
drop inEast Asia
short remain
term GDP positive
forecasts, long
term prospects for growth in the GCC and South East Asia remain positive
Real GDP Growth Rate - GCC Real GDP Growth Rate - South East Asia
Real GDP Growth Rate - GCC Real GDP Growth Rate - South East Asia
12.0 12.0
10.0
12.0 10.0
12.0
Growth
Growth
8.0
10.0 8.0
10.0
Growth
Growth
6.0
8.0 6.0
8.0
Percentage
Percentage
4.0
6.0 4.0
6.0
Percentage
Percentage
2.0
4.0 2.0
4.0
0.0
2.0 0.0
2.0
2005 2006 2007 2008e 2009e 2010e 2011e 2012e 2005 2006 2007 2008e 2009e 2010e 2011e 2012e
0.0 -2.0
0.0
2005 2006 Bahrain
2007 2008eKuwait
2009e 2010e
Oman2011e 2012e 2005 2006 2007 2008e 2009e 2010e 2011e 2012e
-2.0 Malaysia Indonesia
Qatar Bahrain
Saudi Arabia
Kuwait United
OmanArab Emirates
Malaysia Indonesia
Qatar Saudi Arabia United Arab Emirates
Source: Global Insight
Source: Global Insight 41

A young population in core Takaful markets will need more coverage as government
Asubsidies decrease in
young population and more
core families
Takaful require
markets private
will need coverage
more coverage as government
subsidies decrease and more families require private coverage
Population (m) in 2008 Youth Population as a Percentage of Total (2008)
Population (2008) CAGR 2004-08
Youth Population as a Percentage of Total (2008)
CAGR 2004-08 26%
Iran 72.2 1.3%
72.2 26%
Iran 1.3%
Bahrain 1.1 26%
6.5%
Kuwait
Bahrain 2.9
1.1 23%
26%
2.8%
6.5%
Qatar
Kuwait 1.4
2.9 17.5% 21%
23%
2.8%
SaudiQatar
Arabia 1.4 25.3 2.4%
17.5% 21% 33%
UAE 4.5 25.3 3.3%

2.4% 20% 33%
Saudi Arabia
Oman
UAE 2.7
4.5 1.9%
3.3% 20% 32%
Oman 2.7 1.9% 32%
Jordan 6.1 35%

3.3%
Jordan 6.1 35%
3.3%
Brunei 0.4 2.1% 28%
Indonesia
Brunei 0.4 234.3 1.2%
2.1% 27%
28%
Malaysia
Indonesia 27.0 234.3 1.8%
1.2% 27%30%
Singapore
Malaysia 4.5 27.0 1.2%
1.8% 17% 30%
Thailand
Singapore 4.5 64.3 21%
17%
1.2%
0.7%
Thailand 64.3 21%
0.7%
Sudan 38.6 38%
2.1%
Sudan 38.6 38%
2.1%
Source: Global Insight Source: Global Insight
Source: Global Insight Source: Global Insight
With insurance penetration levels in Muslim countries at their current levels, there is
considerable latent
With insurance demandlevels
penetration for Takaful
in Muslim countries at their current levels, there is
considerable latent demand for Takaful
Insurance Penetration and GDP per Capita for Select Countries (2007)
Insurance Penetration and GDP per Capita for Select Countries (2007)
18%
in 2007
18%
16% UK
in 2007
16%
14% UK
GDPGDP
Mature Markets
– –
14%
12%
Penetration
Mature Markets
of Nominal
12%
Penetration
10% Early Development France

%aof%Nominal
Early Development France USA

10%
8% Singapore
World USA
Canada
Insurance
8% Morocco Italy Germany

6% Thailand
World Singapore
Canada
Insurance
Morocco
India Malaysia Italy Germany
6% Thailand
as aas
4% Growth markets
India Malaysia
Premiums
Jordan
4% Tunisia Russia Growth markets
2% UAE
Turkey
Premiums
Jordan Oman Qatar

Tunisia
Algeria Russia KSA Kuwait
2%
0% UAE
Turkey Oman Qatar
Nigeria Indonesia Egypt
Algeria 15,000 20,000
KSA
25,000 30,000 35,000 40,000 45,000
Kuwait
50,000 55,000
0%
Pakistan Bangladesh
Egypt
Nigeria0 Indonesia 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
5,000 10,000
Pakistan Bangladesh Nascent Markets Nominal GDP per Capita in 2007
Current OIC
0 5,000 10,000 at PPP Exchange Rates
Nascent Markets Nominal GDP per Capita in 2007
member states (2008) (US$ per person)
Current OIC at PPP Exchange Rates
member states (2008) (US$ per person)
Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis
Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis 43
By 2012, total Takaful contributions could reach US$ 7.7 billion
By 2012, total Takaful contributions could reach US$ 7.7 billion
Global Gross Takaful Contributions by Year (US$m)

Global Gross Takaful Contributions by Year (US$m) Potential Scenarios
Indian
Sub-Continent Potential Scenarios
Indian
Levant A Optimistic
Sub-Continent 7,696
Africa 63 Assumes unabated demand growth with
Levant 67
A
Optimistic Optimistic
769
7,696 5,929 no significant impact from the global
South East Asia
Africa 63 43
US$7,696m economicunabated
Assumes crisis anddemand
continued growth
growth in
with
GCC 796 67 583 53 Optimistic
CAGR: 18% supply.
no significant impact from the global
South East Asia 5,929 4,293
1,778 43
27 US$7,696m economic crisis and continued growth in
GCC 583 53
413 40 CAGR: 18% supply.
4,293 Balanced
1,457 27
1,778
413 40
B
1,142 Assumes moderate impact from the
Balanced
1,457 global economic crisis and short-term
B
Balanced reduction in economic growth,
1,142 Assumes moderate impact fromreduced
the
US$5,929m premiums in personal general lines but
global economic crisis and short-term
Balanced
CAGR: 12% also increased
reduction market growth,
in economic share inreduced
corporate
3,364 18 and group.in personal general lines but
premiums
5,019 US$5,929m
32 also increased market share in corporate
3,792 CAGR: 12%
3,364
951
317
18 2,673 and group. Conservative
32 5,019 C
3,792 Assumes significant impact from the
317 2,673 Conservative
951
2,046 C
Conservative
global economic crisis and prolonged
reduction in economic
Assumes significant impact growth.
from Reduced
the
US$4,293m demand for personal general lines and
2,046 global economic crisis and prolonged
Conservative
CAGR: 5% investment-linked family products,
2007e A B C reduction in economic growth. Reduced
US$4,293m together for
demand with aggressive
personal pricing
general linesin and
the
Optimistic Balanced Conservative CAGR: 5% corporate segment,
investment-linked will slow
family premium
products,
2007e A B C growth. with aggressive pricing in the
together
2012 Potential Projections
Optimistic Balanced Conservative corporate segment, will slow premium
growth.
2012 Potential Projections
Source: World Islamic Insurance Directory 2008; Ernst & Young analysis
Source: World Islamic Insurance Directory 2008; Ernst & Young analysis
Conclusions
Historic growth is now being affected by the economic downturn - a window of
Historic growth
opportunity has is now being for
materialized affected
thoseby the economic
Takaful downturn
operators that can --manage
a window of risks
their
Historic growth
opportunity has is now being
materialized affected by the economic downturn a window
for those Takaful operators that can manage theirof risks
and sustain
opportunity future growth
and sustain has materialized
future growth for those Takaful operators that can manage their risks
and sustain future growth
► Basic product ranges. ► Increased alliances.
►
►
Basic
Simpleproduct ranges.
distribution channels. ►
►
Increased
Mergers and alliances.
acquisitions.
► Basic product ranges. ► Increased alliances.
►
►
Simple distribution channels.
Development of regulatory ►
►
Mergers
Cross selling acquisitions.
and and BancTakaful. A
Premiums
► Simple distribution channels. ► Mergers and acquisitions. A

► Development of regulatory
frameworks. ► Cross selling and BancTakaful.
Scenarios
Product innovation.
Premiums
► Development of regulatory
►
► Cross selling and BancTakaful. Economic A
frameworks.
Scenarios
Premiums
► Emergence of standardization. ►
►
Product innovation.
Multiple distribution channels. Economic
fundamentals
frameworks.
Scenarios
► Emergence of standardization. ► Product innovation. Economic
fundamentals
►
►
Multiple
Emerging distribution
markets. channels.
► Emergence of standardization. ► Multiple distribution channels. fundamentals
► Emerging markets.
B
Potential
► Emerging markets.
Takaful
Business risks B
Potential
Takaful
Business risks B
Potential
Takaful
Business risks
Economic C
Economic C
Global
downturn
Economic We are here Large population centres. C
Global
downturn ►
We are here
Global
downturn ►
►
Large population
Expanding income.centres.
We are here Strategic Compliance ►
►
Large population centres.
Expanding income.
Strategic
Operational Compliance ► Changing social attitudes towards
Financial ► Expanding income.
Strategic
Operational Compliance
Financial
► Changing
Takaful. social attitudes towards
Operational Financial ► Changing
Takaful. social attitudes towards
► Growing awareness.
Takaful.
►
►
Growing
Economicawareness.
development.
► Growing awareness.
►
►
Economic development.
Growth of Islamic banking.
► Economic development.
► Growth of Islamic banking.
► Growth of Islamic banking.

Previous 5-10 Years Takaful2008-2009Growth Phases Next 5 Years
Source: Ernst & Young analysis Takaful Growth Phases
Source: Ernst & Young analysis Takaful Growth Phases
46 Source: Ernst & Young analysis
References and Methodology
The Ernst & Young team
The Ernst & Young team
EMEIA Sameer Abdi +973 1751 2801 sameer.abdi@bh.ey.com

EMEIA Sameer Abdi +973 1751 2801 sameer.abdi@bh.ey.com
Bahrain
Bahrain SalmaanJaffery
Salmaan Jaffery +973
+973 17512802
1751 2802 salmaan.jaffery@bh.ey.com
salmaan.jaffery@bh.ey.com
Saudi Arabia Ahmed Taher +966 1215 9438 ahmed.taher@sa.ey.com
Saudi Arabia Ahmed Taher +966 1215 9438 ahmed.taher@sa.ey.com
Qatar Robert Abboud +974 4573 444 robert.abboud@qa.ey.com
Qatar Robert Abboud +974 4573 444 robert.abboud@qa.ey.com
Kuwait Daryoush Pour +965 2295 5055 daryoush.pour@kw.ey.com
Kuwait Daryoush Pour +965 2295 5055 daryoush.pour@kw.ey.com
UAE Najeeb Rana +971 4312 9343 najeeb.rana@ae.ey.com
UAE
United Kingdom Najeeb Rana
Richard H. Grainger +971
+444312 9343
207 951 1091 najeeb.rana@ae.ey.com
rgrainger@uk.ey.com
United Kingdom
Luxembourg Ken Eglinton
Pierre Weimerskirch +44 20742951
+352 1242000
8312 keglinton@uk.ey.com
pierre.weimerskirch@lu.ey.com
Malaysia
Luxembourg AbdulWeimerskirch
Pierre Rauf Rashid +603
+352 427495
1248000
8312 abdul-rauf.rashid@my.ey.com
pierre.weimerskirch@lu.ey.com
Hong Kong James A. Smith +852 2846 9888 james.smith@hk.ey.com
Malaysia Abdul Rauf Rashid +603 7495 8000 abdul-rauf.rashid@my.ey.com
The report’s methodology and our interviews
The report’s methodology and our interviews
Survey Methodology Business Risks Radar

Survey
► Our Methodology
survey sought to identify key trends and business risks for the Business
► The ErnstRisks Radar risk radar is a simple device that allows us to
& Young
global Takaful
► Our survey industry
sought through
to identify in-depth
key trends interviews
and businesswithrisks
executives
for the present
► The the&top
Ernst 6 business
Young risks
risk radar is ainsimple
the Takaful
deviceindustry.
that allows us to
and industry observers.
global Takaful industry through in-depth interviews with executives ► present
The risksthe at top
the 6center
business risks
of the radarin the
are Takaful industry.
those that the individuals
► and
Theseindustry observers.
discussions were used to gauge business sentiment and we interviewed thought would pose the greatest challenge
► The risks at the center of the radar are those that the individuals to the
identifydiscussions
► These key areas for inquiry.
were used to gauge business sentiment and industry in 2009.
we interviewed thought would pose the greatest challenge to the
► identify
Interviewskeywere
areas for inquiry.
conducted in February and March of 2009. A total industry in 2009.
of 21 interviews were conducted
► Interviews were conducted in February in seven
and different
March countries
of 2009. Abytotal Business Risk Categories
Ernst & Young staff.
of 21 interviews were conducted in seven different countries by Business
► The radarRiskisCategories
divided into four sections that correspond to the Ernst
► Ernst & Young
Interviews staff. on three main topics of discussion, namely;
centered & Young Risk
► The radar is divided Universe™ model.
into four sections that correspond to the Ernst
► Interviews
► Business confidence,
centered on threedemand and supply
main topics of discussion, namely; ► & Young Riskthreats
Compliance Universe™ model.
originate in politics, law, regulation or
► Mega trends
Business confidence, demand and supply corporate governance;
► Compliance threats originate in politics, law, regulation or
► Business
Mega risks
trends ► corporate
Financial governance;
threats stem from volatility in markets and the real
► Business risks economy;
► Financial threats stem from volatility in markets and the real
Business Risk Ratings ► economy;
Strategic threats are related to customers, competitors and
Business
► Ernst &Risk
YoungRatings
subject matter experts from the Middle East, Asia ► investors;
Strategic and threats are related to customers, competitors and
and Europe developed
► Ernst & Young subject matter a list ofexperts
Takafulfrom
business risks and
the Middle East, Asia ► investors;
Operational andthreats impact the processes, systems, people and
contributing factors.
and Europe developed a list of Takaful business risks and overall value threats
► Operational chain ofimpact
a business.
the processes, systems, people and
► contributing factors.
All interviewees were provided with this list of business risks and overall value chain of a business.
requested to rate
► All interviewees were eachprovided
to reflectwith
its severity to business
this list of their respective
risks and Anonymity and Quotes
business over the coming 12 months. Interviewees were also
requested to rate each to reflect its severity to their respective Anonymity
► and Quotes
All interviewees were assured of anonymity and minutes
asked
businessto add
overanythe additional
coming 12risks they Interviewees
months. felt were important.
were also documented during
► All interviewees were our discussions
assured were approved
of anonymity by respective
and minutes
► asked to addofany
The results thisadditional risks were
rating process they felt were
tallied important.
and a relative interviewees.
documented during our discussions were approved by respective
ranking
► The assigned
results of thistorating
each.process
This rank
wereformed
talliedthe
andbasis for our
a relative ► interviewees.
Quotations have been used to support argument made in the
comparative
ranking studytowith
assigned 2008
each. Thisresults.
rank formed the basis for our
► report.
Quotations have been used to support argument made in the
comparative study with 2008 results.
report.
49
References and the Project Team
References and the Project Team
Sources Ernst & Young’s Project Team

Sources
► Global Insight - Comparative World Overview Tables
Ernst & Young’s Project Team
► Global Insight - Comparative World Overview Tables
► Datamonitor Bahrain Office
► Datamonitor
► Swiss RE, Sigma No. 3 (2008)
Bahrain
Sameer Office
Abdi Salmaan Jaffery
► Swiss RE, Sigma No. 3 (2008) Sameer Abdi Salmaan Jaffery
► CIA World Fact book Mark Stanley Samir Bhegani
► CIA World Fact book Mark Stanley Samir Bhegani
► Middle East Insurance Review Klaudia Reich Hala Naseeb
► Middle East Insurance Review Klaudia Reich Hala Naseeb
► World Islamic Insurance Directory (WIID) 2008 & 2009 Natasha Varma Faisal Hassan
► World Islamic
[Author: Insurance
Takaful Re] Directory (WIID) 2008 & 2009 Natasha Varma Faisal Hassan
[Author:
► Factiva
Takaful Re]
Dubai Office
► Factiva Dubai
► Bloomberg NajeebOffice
Rana Farah Khalid
► Bloomberg Najeeb Rana Farah Khalid
► The Banker
► The Banker
► Zawya Malaysian Office
► Zawya Malaysian
► Reuters Abdul RaufOffice
Rashid Brandon Bruce
► Reuters Abdul Rauf Rashid Brandon Bruce
► Institute of International Finance (IIF)
► Institute of International Finance (IIF)
► SAMA Annual Reports Hong Kong Office
► SAMA Annual Reports Hong
► UAE Central Bank Annual Reports JamesKong Office
A. Smith
► UAE Central Bank Annual Reports James A. Smith
► CBB Insurance Annual Reviews
► CBB Insurance Annual Reviews
► Bank Negara Malaysia Annual Takaful Statistics 2007 London Office
► Bank Negara Malaysia Annual Takaful Statistics 2007 London
► Bank Negara Malaysia Statistical Bulletins Richard Office
H. Grainger
► Bank Negara Malaysia Statistical Bulletins Richard H. Grainger
For questions or comments, please contact Mark Stanley on:
For questions
+973 or comments, please contact Mark Stanley on:
1751 2811mark.stanley@bh.ey.com
+973 1751 2811mark.stanley@bh.ey.com
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on Islamic finance has enabled us to create significant value for the leading players in the Islamic banking, finance and investment markets. The portfolio of
MEGA brands represents the landmark industry conferences and our clients are the leading players in the international financial markets.
Partnering with Governments and the Industry Thought Leaders
Our Strategic Associates are world leaders in their respective fields and include key government finance and regulatory agencies such as the Central Bank of
Bahrain, Dubai International Financial Centre, UK Trade & Investment, the Monetary Authority of Singapore, and the Economic Development Board of Bahrain.
These and our other strategic alliances with international thought leaders including Ernst & Young and global strategy advisory firm McKinsey & Company
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2009

THE WORLD TAKAFUL REPORT

Opportunities in Adversity - the Future of Takaful

Dear Insurance Industry Leader,

Shaping the Future of the Islamic Finance Industry Since 1993

The Takaful industry has strong foundations

Page 3 The World Takaful Report 2009

National Company for

Arab Islamic Swiss Re; Hannover Re

Source: Ernst & Young analysis

Source: Ernst & Young analysis

2. Global Takaful Markets 3. The Financial Crisis 4. Sustaining the Future

Previous 5-10 Years 2008-2009 Next 5 Years

Takaful Growth Phases

Global Gross Takaful Contributions by Year (US$m)*

Iran - Gross Takaful Contributions by Year (US$m)

Gross Takaful Contributions in the GCC (US$m)

2004 2005 2006 2007(e)

2004 2005 2006 2007 (e)

Gross Takaful Contributions by Business as a Percentage of the Total (2006)*

Gross Takaful Contributions by Business as a Percentage of the Total (2007)*

Source: World Islamic Insurance Directory 2008 and 2009

Global Estimated Muslim Populations in 2008

Global Estimated Muslim Populations in 2008

Egypt Turkey Iran

Estimated Algeria Egypt

Source: CIA World Fact book;

18 Sept: Federal Bank 3 Oct: US Congress

17 Jan: US$11.5b stock markets

meet and issue a

Source: Factiva; Bloomberg; Ernst & Young analysis

Source: Factiva; Bloomberg; Ernst & Young analysis 21

Reported Losses of Insurers and Insurance Company Equity Performance

Market Capitalization of top 10 Financial Institutions by Region

Market capitalization between Market capitalization between

Change in Market Capitalization

-10% Year -6.3%

Average Cost Income Ratios Claims Ratios

GCC Year Malaysia Saudi Arabia Claims Ratio

GCC Malaysia Saudi Arabia

Bahrain Claims Ratio Malaysia Claims Ratio

90% 35% 39.6%

GCC Malaysia GCC Malaysia

How the Business Risks match up - 2009 and 2008 results

Source: Ernst & Young analysis 29

Financial Compliance Financial Compliance

Strategic Operational Strategic Operational

Business Risks in the GCC Business Risks in SEA

Source: Corporate Interviews, Ernst & Young analysis

Source: Corporate Interviews, Ernst & Young analysis 31

Commentary and Contributing Factors

Source: Corporate interviews, Ernst & Young analysis

Commentary and Contributing Factors

Source: Corporate interviews, Ernst & Young analysis 33

Commentary and Contributing Factors

Commentary and Contributing Factors

Source: Corporate interviews, Ernst & Young analysis 35

Commentary and Contributing Factors

Commentary and Contributing Factors

Source: Corporate interviews, Ernst & Young analysis 37

2. Global Takaful Markets 3. The Financial Crisis 4. Sustaining the Future

► Takaful operators who successfully adapt their A

► business risk will favorable

► the likely size global Takaful