AIA Launches Takaful Bancassurance Joint Venture in Malaysia

American International Assurance Bhd. launched a takaful joint venture in Kuala Lumpur, AIA AFG Takaful Bhd., which the insurer confirmed is developing "the first takaful bancassurance for AIA."

Takaful is Islam-compliant insurance. AIA AFG Takaful is a 70%-30% joint venture between Malaysia-based insurer AIA Bhd. and Alliance Bank Malaysia Bhd., a wholly owned subsidiary of Alliance Financial Group.

The takaful joint venture follows AIA's receiving a family takaful license from Bank Negara Malaysia, the central bank of Malaysia, a few months ago, said Patricia Chua, a Hong Kong-based spokeswoman for AIA Group Ltd.

"Alliance Bank is one of the major lenders in Malaysia and we believe it is a good local partner," said Chua.

The venture will provide takaful savings, protection and investment products in Malaysia, where AIA has had a presence for 63 years. Malaysia is one of the insurer's largest markets, noted AIA, the Hong Kong-listed Asian insurance operations of American International Group Inc.

"With this launch, AIA is set to become a major player in the important and fast-growing takaful market in Malaysia," said Mark Tucker, AIA group chief executive and president, in a statement.

AIA said the takaful market is "an important and sizable strategic opportunity for AIA" as it allows the company to access a large Muslim population that can now purchase Shariah-compliant products.

AIA AFG Takaful will focus on four key strategies, which AIA Bhd.'s CEO and managing director Khor Hock Seng said include a multidistribution approach to access more customers; offering customer-centric products and services; creating an empowering workplace for the staff; and leveraging its scale to deliver operating efficiency.

To target a wider segment of the Malaysian market, AIA AFG Takaful CEO Encik Wan Azman Wan Mamat said the company's products will "initially be focused on protection, education, savings and investment" and will be distributed through its agency force and more than 90 Alliance Bank branches in the country.

Malaysia is the largest takaful market in Southeast Asia with gross takaful contributions of US$889 million in 2008, representing 77.6% of total contributions in the region, noted consultancy Ernst & Young (BestWire, Dec. 23, 2010).

This is a "timely opportunity" as it allows Alliance Bank to offer a wider range of financial solutions and meets the Malaysian government's aspiration to "accelerate the penetration of takaful to Malaysians in the urban and rural areas," said Datuk Oh Chong Peng, chairman of Alliance Financial Group, the parent of the bank, in a statement.

The chairman added the partnership has reflected the group is committed to provide more Shariah-compliant financial solutions covering Islamic banking and takaful to meet the market demands of the Muslim community and Malaysians.

Alliance Bank earlier said it would continue to expand the Islamic banking business to meet the central bank's target of 11% and 20% of total asset base by 2005 and 2010, respectively.

AIA has another wholly owned takaful subsidiary -- AIA Takaful International Bhd. -- in Malaysia. The company is licensed to provide family and general takaful and retakaful business in international currencies.

In December 2010, MNRB Holdings Bhd. said it had started discussions with Allianz Malaysia Bhd. to sell shares of its wholly owned takaful operation, Takaful Ikhlas Sdn. MNRB is an investment holding company with retakaful and reinsurance subsidiaries including Malaysian Re (BestWire, Dec. 23, 2010).

In September 2010, Bank Negara granted new licenses for family takaful to four joint venture entities led by foreign and local insurance and financial companies. Those four licenses were granted to joint ventures led by Great Eastern Holdings Ltd., ING Groep NV, AIA and AMMB Holdings Bhd. (BestWire, Sept. 2, 2010).

The liberalization move by Bank Negara in 2009 lifted the cap on foreign entity holdings of operators of takaful, conventional insurance, investment banks and Islamic banks from 49% to 70% (BestWire, May 5, 2009).

Malaysia has eight takaful operators, four retakaful operators and one international takaful operator in addition to the four new family takaful licenses granted in September last year, according to Bank Negara.

(By Rebecca Ng, Hong Kong news editor: [email protected])