1. 2 November 2007, London Ajmal Bhatty, SEO & Chief Operating Officer Tokio Marine Middle East Limited Investment Challenges For Takaful Companies in the GCC

2.  The economic dynamics  Takaful scene generally  Takaful companies in the GCC  Investment instruments  Asset-liability considerations  Regulatory considerations  Minding the Gaps

3.  Oil driven economic fundamentals  Non-oil diversification building solid base  Inextricable link to Shariah compliant finance  Move towards regulated markets $18 $30 $90 Oct 06 Oct 07 Middle East Daily Import US$300 million Daily Income US$500 million US + Europe Oil Price, barrels per day KSA US$152 bn Source: Newsweek

4.  100 to 250 takaful providers globally  Varying estimates of projected premiums by 2015: US$7.4bn to US$12 -14bn  GCC market (insurance + takaful) US$6.2bn in 2006, UAE alone: US$2.7bn (44% of GCC)  89% general insurance

5. Source: Business Monitor & Sigma Swiss Re Non-life life

6. Premiums in US$m, 2006 TotalLifeNon-life GCC 6,172 677 5,495 Egypt 843 356 487 Iran 2,818 186 2,632 Turkey 6,617 972 5,645 Malaysia 7,537 4,881 2,656 India 43,032 37,220 5,812 China 70,805 45,092 25,713 UK 418,367 311,691 106,676 USA 1,170,101 533,649 636,452 World 3,723,411 2,209,317 1,514,094 Source: Business Monitor & Sigma Swiss Re

7. Average Per Company Takaful, GCC US$m All Companies * US$m Assets162100 Premiums5236 Shareholder Equity9141 Net Profits178 Capital5015 Return On Equity18%21% * 244 conventional and takaful companies in the Arab World, Source: Author’s data base

8. GCC Existing, Nov 2007 In formation Total Takaful Total Market Saudi Arabia 14 23 37 Bahrain 5 - 5 20 Kuwait 6 - 6 17 Qatar 3 - 3 9 Oman 1 - 1 18 UAE 3 2 5 47 Total 32 25 57 148 Source: Author's own

9.  25% market share in 5 years  KSA: US$1bn in 2003, US$2bn now, in 5 years?  US$5bn in 5 years  Total GCC: US$6.5bn in 5 years  If this is true, the global figure of US$7.4bn is low!  Family takaful in the GCC: US$0.8bn in 5 years  Family takaful: 12% of total

10.  Driven by products and risk exposure  Competition  Regulatory requirements and limits  Localization of assets  Other factors – market price risk, credit risk, profit margin risk, currency exchange risk, liquidity risk, transaction risk, retakaful default risk, capital protection risk

11.  To become secure, durable and rated companies  Become mainstream business, not a niche  Meet customer expectations  Deliver acceptable returns to shareholders

12.  Not many investment related challenges  There is reasonable spread of suitable Shariah compliant avenues for investment  More challenging is.. taking larger market share  Secondly to provide good customer care  Thirdly to meet expectations of customers and shareholders

13.  Retailing of personal lines business offers greater opportunities  Long term business has more complex issues of pricing, profit distribution and asset liability matching. It requires continuous revision of underlying assumptions as investment and claims experience unfolds

14. Takaful funds: Risk Categorization Existing and future funds may be broadly placed in the following risk / reward categories to serve customer perceptions and product benefit profile SECURE Low Risk Income / capital protected low returns BALANCED Medium Risk Lower capital protection, commensurate higher returns BALANCED Medium to high risk No capital protection Blue chip security of income AGGRESSIVE HIGH RISK Potential for high returns, high volatility

15. Conventional and Shariah Compliant instruments for asset-liability requirements 1.Working capital 2.Short term liabilities 3.Longer term secure returns. Improve performance and provide liquidity for liability portfolio. 4.Long term capital growth 5.Improve performance in meeting known liabilities 6.High rates of cash returns. 7.Improve overall performance.

16. T YPE OF LIABILITY T YPE OF ASSET C ONVENTIONAL I SLAMIC Working capital requirements  Highly liquid  Risk free Bank deposits and cash managed through money markets. Interest gained on overnight and short term deposits. Commodity murabahas, wakala agreements from Islamic banks. Typically 1-year maturity with few basis points below LIBOR.

17. T YPE OF LIABILITY T YPE OF ASSET C ONVENTIONAL I SLAMIC Cover contractual returns on short term liabilities  Highly liquid  Risk free  Inflation proof  Maturity date Government stocks Provide fixed returns on the face value at maturity. Gaps exist slowly being filled by sukuks although these are still not as liquid. Trade finance, Lease and rental instruments such as Ijara, Bei Salam and Bei Istisna available to provide fixed returns. Again, these are not as liquid as government stocks but acceptable.

18. T YPE OF LIABILITY T YPE OF ASSET C ONVENTIONAL I SLAMIC Cover longer term guarantees. Improve performance and provide liquidity for liability portfolio.  Medium risk  Cash generative  Medium marketability  Real rate of return  Maturity date Debentures, preference shares and commercial paper. Structured products (Ijara/lease and rental instruments) of longer duration, including instruments related to Real Estate financing similar to closed end property unit trusts. Developments in sukuks would provide desired solutions. Current tenor short of 5 years, but recent issues have offered long term maturity.

19. T YPE OF LIABILITY T YPE OF ASSET C ONVENTIONAL I SLAMIC Long term capital growth  Low long term risk  High real rate of return  Marketability for - performance - meeting liabilities Established company equities. Ample possibilities in Shariah Compliant equities with good returns. Dow Jones Islamic Index and other local / regional indices of Shariah compliant equities

20. T YPE OF LIABILITY T YPE OF ASSET C ONVENTIONAL I SLAMIC Improve performance in meeting known liabilities High rates of cash returns.  High rate of return  Cash generative * Security of pay out High yield fixed interest securities, high risk commercial paper, institutional (bank) loans Trade Finance, lease and rental based solutions possible at the expense of lower marketability. Developments in sukuks would provide desired solutions.

21. T YPE OF LIABILITY T YPE OF ASSET C ONVENTIONAL I SLAMIC Improve overall performance. High rates of capital returns. * High total rate of return * Security of return  Hedge funds, overseas equities, emerging markets  Property  Venture capital investments  Options, derivatives  Same as conventional plus private equities, venture capital  Options / futures difficult but solutions available via 3 rd party arm’s length transactions

22. This generally applies to companies regulated under the Co-operative Insurance Regulations of SAMA. Regulations permit waiver (at SAMA’s discretion) from some of these conditions by “PURE” takaful companies based on proposed investment policy requiring departure from above in compliance with Shariah guidelines. Regulatory Investment Limits: Saudi Arabia

23. Takaful Asset classes where more funds are needed

24.  Projected GCC premiums: US$6.5bn?  Potential assets under management: US$12bn to 15bn (General and family takaful)?  Family takaful assets between US$4bn to 6bn  Shariah authenticity and Management knowhow is the key, starting at the Board Level in creating and supporting development of truly Shariah compliant structures and not just profit centers for Shareholders.