KUALA LUMPUR: Malaysia’s retakaful sector is positioning itself for global expansion due to increasing demand for syariah-compliant solutions in the financial market, said Bank Negara Malaysia (BNM) deputy governor Adnan Zaylani Mohamad Zahid.

“With a comprehensive ecosystem and facilitative infrastructure in Malaysia, which is reflective of a more mature Islamic finance ecosystem, retakaful players in Malaysia are well-positioned to serve both the global and the domestic takaful value chains,” he said in his speech at the Malaysian Life Reinsurance Group Bhd (MLRe) retakaful launch ceremony today.

In recent years, he added, more new markets are emerging across Asia, Africa and Europe, as Islamic finance business expands to include syariah compliance risk protection.

Malaysia’s takaful industry has expanded nearly three times from where it was a decade ago, with diversification of business lines by extending takaful coverage to underserved segments and embedding new value-added services such as badal hajj, waqf and charity, Adnan Zaylani said.

“All these signal greater opportunities for the retakaful industry to expand in Malaysia and optimise Malaysia as a base for tapping global opportunities.”

Adnan Zaylani pointed to the global takaful industry which has been steadily growing with the number of takaful and retakaful institutions increasing from 274 players in 2012 to more than 340 in 2022, and the total size of the takaful industry tripled to reach US$90 billion.

“Still small compared to its conventional counterpart, but forming a much more vibrant international marketplace,” he said.

Additionally, the latest developments in digital takaful, microtakaful, and social and green finance together with Malaysia’s changing demographic landscape towards an aging population present new growth areas in which takaful can play a greater role.

“Takaful and retakaful markets are interdependent in terms of their growth and viability, similar to the symbiosis between insurance and reinsurance. As such, strong growth prospects for takaful means that retakaful also stands to reap its benefit if seized in a timely manner,” Adnan Zaylani said.

BNM commits to engaging continuously with the industry players, to work together in addressing barriers and challenges that stunt developments or expansion of the industry, he added.

One such step that BNM recently undertook in the space of regulatory development is providing clarity on syariah parameters on hajah (need) and darurah (dire necessity), including its scope of application to address hardship or difficulties in executing financial transactions based on syariah principles.

In the context of retakaful, ceding out of risks to retrocessionaires has been allowed on the basis of preservation of wealth (hifz al-mal) given limited availability of retrotakaful capacity.

“Hence, we certainly welcome new players in this space to expand this capacity further,” Adnan Zaylani said.

Another developmental effort that BNM intends to explore relates to advocacy among regulators in the region and beyond for takaful operators worldwide.

“This hopefully can reduce leakages in the long run and accelerate further developments in the global retakaful industry,” he added.

MLRe has been awarded a licence by the finance ministry to operate a retakaful window, which allows it to offer family retakaful services, mirroring the company’s trajectory in conventional life reinsurance.

MLRe CEO Patrick Cheah said the retakaful window marks a milestone in MLRe’s history.

“Our goal is to introduce customised retakaful solutions, tailored to meet the evolving needs of takaful operators. We are not merely expanding market choices and capacity; we are setting new standards in service excellence and innovation in the Islamic financial ecosystem.”