Good morning, ladies and gentlemen, and a warm welcome to Singapore to our overseas guests.
1 The theme for this year’s conference - “Reality Check on Growth and Promise of Takaful as a Dynamic Force” is appropriate and timely in many ways. Given the upheavals in the international financial system and asset markets, a sober reality check is in order to assess the impact from recent developments. In general, the insurance industry in Asia has weathered the crisis well but there is no room for complacency even as asset markets have rebounded strongly. The industry will have to adjust to a different business and regulatory environment going forward. While the exact regulatory measures, as you know, are still being discussed at international fora, what is certain is that rules will be tightened to prevent such a crisis from recurring.
2 The theme is also apt in that while growth of the takaful industry remains robust, continued expansion should not be taken for granted. Significant risks are still present in the global financial system and we can expect new market stresses to surface from time to time; the latest being concerns over rising sovereign debt.
3 As we know, the global takaful industry is still in its early stages of development. While the number of takaful operators have risen and more are expanding into new territories, the industry is still small when compared to the nearly US$4 trillion of premiums seen in conventional insurance. Insurance penetration in Asia for conventional insurance is only roughly half of that in developed regions like North America and Europe. For takaful, the penetration figure is even lower, a mere fraction of the Asian retail markets. Hence, there is plenty of scope for demand to grow if regulators and industry players can get the necessary pre-conditions right. It is therefore heartening to see so many international industry players gathered here today, to share their expertise and experience and to help set the course for this budding and promising sector.
4 In Singapore, takaful has been supervised under the same regime as other insurance products since the first takaful products were introduced here in 1995. This is in line with our broad approach of regulating Islamic financial services under the same framework as conventional finance since prudential concerns and supervisory oversight are largely common to both. To ensure that Islamic financial institutions and their conventional counterparts operate on a level playing field, the Monetary Authority of Singapore (MAS) works closely with industry players to ensure that Shariah-compliant products are not disadvantaged in terms of regulatory or tax treatment where the economic substance and risks are similar to conventional products.
5 Let me touch briefly on several key challenges that the industry is facing and how we are addressing them in Singapore. These challenges are not new but have taken on greater impetus given the dramatic change in the operating environment.
6 The first is the shortage of Shariah-compliant assets for investment which the takaful industry has faced for some time. One of the main sources of investment assets – the sukuk market, has been struck by several stoppages of late: in 2008 when a controversy arose over the Shariah compliance of certain sukuk structures and again last year when Dubai World announced its intentions to restructure its financial commitments. In Singapore, we are encouraged that more Islamic financial products and services have emerged in the last two years. For instance, Daiwa Asset Management listed its FTSE Japan Shariah ETF on the Singapore Exchange and recently, several Singapore dollar sukuk have been issued. These include two tranches by property developer, City Development Ltd; the first supranational sukuk in Singapore by Islamic Development Bank, and a third sukuk by the Islamic Religious Council of Singapore (MUIS). In January last year, MAS itself launched our own Singapore dollar sukuk issuance facility to provide Shariah compliant assets to help locally-based financial institutions undertaking Islamic financial activities to meet their regulatory requirements. In addition, we look forward to the world’s first Shariah-compliant data centre fund which is being arranged by Keppel T&T and AEP Investments.
7 Another concern experienced by the industry is the fragmentation of liquidity currently seen in Islamic finance as funds are unable to move seamlessly across developed centres. We are pleased to note that work is gathering pace on international standards and Shariah guidelines for the takaful industry, which will provide a clearer framework that will help foster the orderly development of the industry and promote greater cross-border investments. The Islamic Financial Services Board (IFSB), of which MAS is a Council member, issued its first Takaful standards in December 2009, setting guiding principles on governance for takaful undertakings. The IFSB is now seeking industry feedback on the Exposure Draft of its second standards addressing solvency requirements for takaful undertakings, as well as drafting a Guidance Note on Ratings of Takaful/Retakaful operations. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has also issued its accounting and Shariah standards for these institutions.
8 One often-discussed challenge constraining the growth of the industry is the inadequate number of rated retakaful providers with the capacity and expertise to meet the needs of takaful companies. As a leading insurance centre in Asia, with a substantial critical mass of international insurers, reinsurers and intermediaries, Singapore has the capacity to meet this shortfall and play a wider role in retakaful services. In 2004, Singapore licensed its first rated retakaful company - Tokio Marine Retakaful. In addition, a few Singapore-based reinsurance companies are also providing specialized services to takaful operators in the region. To further encourage the underwriting of offshore takaful and retakaful products and services from Singapore, a concessionary 5% tax has been introduced with effect from FY 2008.
9 Finally, the takaful industry needs to address the shortage and development of human resources. In its 2009 World Takaful Report, Ernst & Young highlighted that the shortage of human resources with the requisite expertise will pose significant business risks for takaful operators. Just as for conventional insurance, building up the talent pool of experienced and competent underwriters, actuaries, claims managers and agents will be as important for a successful takaful or retakaful operator. Indeed, as manpower demand across the entire spectrum of the expanding Islamic financial services industry is expected to stay strong, the cost of experienced and skilled human resources can be the single largest contributor to the operating expenses of an Islamic financial institution. Training institutions and other ancillary service providers should therefore step up their programmes to meet the needs of the Islamic finance industry. In Singapore, MAS encourages financial players to undertake continuous education and training to upgrade their competencies and skill sets as well as for more training providers to set up here. We provide attractive financial support to help institutions develop talent and enhance expertise through the Financial Training Scheme (FTS).
10 In the aftermath of the recent financial crisis, Islamic financial services have attracted greater global attention and plans have been announced to further foster its development. Many countries such as Germany, Luxembourg, Italy, Australia and Korea have recently expressed the desire to tap and grow Islamic finance. We hope that, as more centres develop their Islamic financial industry, we can overcome the liquidity fragmentation which I alluded to earlier. To promote the understanding and development of Islamic finance, MAS hosted the first IFSB Summit in East Asia last year. This year, we are pleased to host the inaugural Asian chapter of the premier World Islamic Banking Conference (WIBC) in June, where central bankers, regulators, industry professionals and academia from Asia and the Middle East will meet to discuss the theme of "Seeking New Growth Horizons" for Islamic Finance. We welcome institutions such as yourselves to participate and identify new growth opportunities for the industry, and to take an active part in its future development. For Islamic finance to develop further and reach new heights, we require all three of its arms – Islamic banking, Shariah-compliant capital markets and takaful/retakaful – to be equally well-developed, to complement each other and work synergistically to serve the consumer.
11 On this note, I wish you all a fruitful Conference and for those of you visiting from overseas, have an enjoyable stay in Singapore. Thank you.
