Global takaful contributions grew by 19% to $8.3bn in 2010, according to Ernst & Young's World Takaful Report 2012.
The Gulf Cooperation Council contributed $5.68bn to the total, and south east Asia contributions were $2bn.
Growth in the GCC slowed to 16% in 2010, from a compound annual growth rate of 41% in 2005-2009, as the implementation of compulsory medical takaful in Abu Dhabi and Saudi Arabia was completed earlier.
Saudi Arabia remains by far the largest takaful market, responsible for $4.3bn, or 51.8%, of the industry. Malaysia grew 24% to reach contributions of $1.4bn. The United Arab Emirates was third, growing at 28% with contributions of $818m.
"With current growth trends, and the addition of new fringe markets such as Indonesia and Bangladesh, we expect gross contributions of $12bn by 2012," said Ashar Nazim, MENA head of Islamic financial services at Ernst & Young.
The Islamic finance share in the GCC and Malaysia is 25% and 22% respectively, whereas the takaful market share is 15% and 10% respectively. In terms of consumer segmentation, the Shari'a appeal of takaful makes it predominantly retail driven in most markets, the report said.
Gordon Bennie, MENA financial services industry leader at Ernst & Young, said: "The GCC takaful market predominantly comprises general takaful business, with family takaful accounting for as little as 5% in certain markets.
"With high disposable income average and low market penetration, the GCC presents great potential for family takaful.
"Large Muslim markets such as Libya, Egypt, Bangladesh, Indonesia and Brunei are opening up to takaful."
Insurance companies continued to yield an average return on equity of 8% in the GCC compared to the takaful operators with 4%. Operators in Saudi Arabia have struggled to show positive returns since the financial crisis.
The local market is currently dominated by three players, the remaining operators incurring high expense and loss ratios in their efforts to gain market share.
The combined operating ratios of Malaysian takaful operators are better than their conventional peers, but the reverse is true for the GCC. Strong competition, evolving regulations and a shortage of takaful expertise are identified as key risks in the GCC and south east Asia.
Young takaful operators are relying on aggressive pricing strategies to compete against the established, older, conventional players. Such pricing is not sustainable and is causing significant pressure on the industry's profitability, the report said.
"Industry consolidation would allow takaful operators to compete effectively with larger, more established conventional insurers and also reduce unhealthy price wars," Nazim commented.
"However, the industry is still growing rapidly which is keeping shareholders interested in their takaful operations."
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