The World Takaful Report 2009 The Future of Takaful - Opportunities in adversity 14 April 2009

The World Takaful Report 2009Page 2 1. Global Takaful Markets Takaful continues to show strong growth in underpenetrated insurance markets. 2. The Financial Crisis Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities. 3. Sustaining the Future Latent demand will continue to fuel long-term future growth. Key messages

The World Takaful Report 2009Page 3 1: Global Takaful Markets Takaful continues to show strong growth in underpenetrated insurance markets.

The World Takaful Report 2009Page 4 CAGR * Note: Iran’s financial services sector, which is entirely Islamic, has been shown separately from the global analysis. 2,561 3,283 Global Gross Takaful Contributions by Year (US$m)* Iran - Gross Takaful Contributions by Year (US$m) 4,157 Source: Ernst & Young WTR08, Ernst & Young analysis 2,164 27% Indian Sub- Continent Levant Africa South-East Asia GCC 52% 35% 32% 29% CAGR ( ) = 30% Global gross Takaful contributions have grown with contributions in 2007 reaching US$ 3.4 billion 770 1,238 1,579 2, (e) 1,384 1,988 2,518 3,364

The World Takaful Report 2009Page 5 The Takaful industry has been expanding by tapping into large Muslim markets globally Source: CIA World Fact book; Global Insight; Middle East Insurance Review; World Islamic Insurance Directory 2009; Ernst & Young analysis Under 1 – Estimated Gross Contribution Income (US$m) September 2008January 2009 ~124 ~ * Indonesia: 3 Takaful Operators + 27 Shari'a Divisions Iran’s insurance companies are governed by Shi’ite law and their products have been approved as halal. Excludes Takaful windows. Total including windows ≈ 179 Takaful Operators Note: Due to varying definitions, the number of Takaful operators differs depending on source. We have assumed the broadest definition. Takaful Companies (+38 Windows)Takaful Companies Takaful operators present but no record of contributions Global Takaful Operators and Contributions in * KSA ~37 Malaysia ~12 Sudan ~15 Indonesia ~3 Bahrain ~7 Kuwait ~12 UAE ~6 3

The World Takaful Report 2009Page 6 But significant untapped markets in Asia and MENA exist Source: CIA World Fact book; Global Insight; Ernst & Young analysis 100m m 10 – 50m 5 – 10m 1 – 5m Estimated Muslim Populations in 2008 India ~151m Indonesia ~207m Pakistan ~160m Bangladesh ~132m Turkey ~71m Egypt ~71m Nigeria ~64m Algeria ~33m Morocco ~32m Iran ~64m Global Estimated Muslim Populations in 2008 Under 1m Note: Muslim populations have been determined using estimated Muslim percentages of totals and 2008 population data.

The World Takaful Report 2009Page 7 2: The Financial Crisis Takaful operators that successfully manage their business risks will be well placed to take advantage of emerging opportunities.

The World Takaful Report 2009Page 8 17 Jan: US$11.5b Q4 loss 12 May: US$3.2b Q1 loss 7 Sept: Nationalized by the US Treasury 14 Sept: Files for bankruptcy and stock markets plummet 16 Sept: Loan of US$85b approved by the Fed 3 Oct: US Congress passes US$700b bailout 13 Oct: UK bails out RBS, HBOS and Lloyds TSB at a cost of US$63b 10 Oct: G7 Finance Ministers meet and issue a 5-point plan 16 Jan: US Treasury invests US$20b in Bank of America January Jan: UK announces a new bank rescue program S&P 500 Average 2007: 1,477 January 2008 Q4 loss: US$14b 15 Jan: US$18.1b Q4 loss 16 March: Taken over by JP Morgan US$3.9b Q1 loss 8 April: Receives US$7b from TPG Capital 22 July: US$3.3b loss The financial landscape has experienced significant turmoil Source: Factiva; Bloomberg; Ernst & Young analysis March: US Federal Reserve buys almost US$1.4t in debt 18 Sept: Federal Bank and other central banks inject billions into the global markets UBS WAMU AIG Deutsche Bank Merrill Lynch WAMULehman Fannie Mae/ Freddie Mac RBS; HBOS; Lloyds TSB Bank of America Bear Stearns HSBC Citi

The World Takaful Report 2009Page 9 USASouth East AsiaEurope Market Capitalization of top 10 Financial Institutions by Region % % % % % 7 -41% % GCC % Banks Insurers % of change Source: US/Europe Banks: Factset US/Europe Insurance: The Banker, Bloomberg, One Source Asia Banks: The Banker, Bloomberg, One Source Asia Insurance: One Source, Bloomberg MENA Banks: Reuters MENA Insurance: Zawya, One Source Market capitalization between 1st June 2007 and 20 th Nov 2008 Market capitalization between 31 st Dec 2007 and 02 nd Feb 2009 Market capitalization between 1st June 2007 and 20 th Nov Bank Capitalization in US$b Insurer Capitalization in US$b 13th Mar st Jan 2008 (unless stated otherwise) Surviving financial institutions have lost significant value

The World Takaful Report 2009Page 10 Short-term performance of Takaful operators has been impacted Source: Company Annual Reports, Corporate Interviews, Ernst & Young analysis Average ROE for a Sample of GCC and Malaysian Takaful Operators Note: Where possible, publicly available corporate information has been used. In the GCC, 9 companies published information in 2005, 13 in 2006 and 2007 and 4 in In Malaysia, 4 companies published information in 2005, 6 in 2006, 8 in 2007 and 4 in Estimates have been made based upon market data and corporate interviews. Cost Perspective Income Perspective High Operational Cost Rising Claims Ratios Dropping equity markets are negatively impacting earnings on overly equity exposed investment portfolios Lack of short-term and/or fixed income instruments is resulting in low yields and rising cash reserves

The World Takaful Report 2009Page 11 Investment portfolios and human resource expertise are the most pressing risks in 2009 Financial Compliance StrategicOperational Investment Portfolios Enterprise Risk Management Regulatory Regimes Global Economic Downturn Competition Human Resources Global Takaful Risk in 2009 ► Lack of skilled HR and increasing competition for resources. ► Limited pool of scholars with suitable knowledge. ► Lack of operational expertise in certain lines of business. ► Low barriers to entry (minimum capital requirements). ► Increasing competition and aggressive pricing. ► Competitive pressures reducing safety margin in premiums. ► Varying regulatory requirements - business models requirements. ► Young and inexperienced regulatory regimes. ► Evolving capital requirements (risk based capital). ► Reputational risk from varying business models. ► Controls, risk management and reporting framework. ► Obtaining an independent rating. ► Conflict between motives of the Takaful fund and the shareholders’ fund. ► Decrease in new premium growth. ► Increase in defaults and claims. ► Market risk and resulting negative effect on investment portfolios. ► Economic crisis caused by the collapse of the banking sector. ► Restricted investment universe and unbalanced investments. ► High equity exposures. ► High counterparty risks. ► Reduced Sukuk issuance is further limiting fixed income equivalents.

The World Takaful Report 2009Page 12 High Risk Investment Portfolios Human Resource Expertise Global Economic Slowdown Competition Enterprise Risk Management Varying Regulatory Regimes Key RiskKey Consideration  Enhance investment portfolios  Improve risk adjusted returns  Seek professional asset management  Develop local talent  Introduce structured internal training  Partner with established players  Diversify income and exposures  Diversify across geographies  Improve core business function  Enhance underwriting capability  Specialize in specific lines  Partner and develop alliances  Improve distribution and service Key considerations exist for each of the business risks  Prioritize risk management  Seek ratings  Implement effective ERM policy and incorporate into strategy  Proactively increasing corporate transparency to all stakeholders  Boost collaboration with industry groups and regulators  Prepare and participate in change

The World Takaful Report 2009Page 13 3: Sustaining the Future Latent demand will continue to fuel long-term future growth.

The World Takaful Report 2009Page 14 Takaful Industry Long term growth of Takaful is predicated on strong underlying factors Takaful Industry Fundamentals Facilitators Market Conditions ► Favorable demographics ► Increased income earnings and propensity to consume ► Changing social attitudes towards insurance ► Available Shari’a compliant projects ► Equity markets ► Investment opportunities ► Institutional growth ► Regulatory support and framework ► Insurance legislation ► Compulsory coverage Source: Ernst & Young analysis

The World Takaful Report 2009Page 15 Source: Swiss RE - Sigma No. 3 (2008), Global Insight, Ernst & Young analysis Low insurance penetration levels in Muslim countries suggests considerable latent Takaful demand Current OIC member states (2008) Insurance Penetration and GDP per Capita for Select Countries (2007) Nominal GDP per Capita in 2007 at PPP Exchange Rates (US$ per person) Insurance Penetration – Premiums as a % of Nominal GDP in ,00010,000 Algeria India World 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Thailand Morocco Tunisia Jordan Nigeria Pakistan Indonesia Bangladesh Egypt 20,000 Malaysia Russia Turkey 15,000 Canada France Germany Italy Singapore UK USA 25,00030,00035,00040,00045,00050,00055,000 KSAKuwait Oman Qatar UAE Early Development Mature Markets Growth markets Nascent Markets

The World Takaful Report 2009Page 16 Global Gross Takaful Contributions by Year (US$m) By 2012, total Takaful contributions could reach US$ 7.7 billion Assumes unabated demand growth with no significant impact from the global economic crisis and continued growth in supply. Source: World Islamic Insurance Directory 2008; Ernst & Young analysis Potential Scenarios 2,046 5,019 3,792 2, ,778 1,457 1, e 2012 Potential Projections Indian Sub-Continent Levant Africa South East Asia GCC Optimistic US$7,696m CAGR: 18% Balanced US$5,929m CAGR: 12% Conservative US$4,293m CAGR: 5% Assumes moderate impact from the global economic crisis and short-term reduction in economic growth, reduced premiums in personal general lines but also increased market share in corporate and group. Assumes significant impact from the global economic crisis and prolonged reduction in economic growth. Reduced demand for personal general lines and investment-linked family products, together with aggressive pricing in the corporate segment, will slow premium growth. OptimisticBalancedConservative Optimistic Balanced Conservative 7,696 3,364 A B C ABC 5,929 4,293

The World Takaful Report 2009Page 17 Global Takaful Premiums Previous 5-10 YearsNext 5 Years Takaful Growth Phases A window of opportunity has emerged for Takaful operators Source: Ernst & Young analysis Historical GrowthWindow of OpportunityFuture Growth Global Takaful MarketsThe Financial CrisisSustaining the Future We are here A B C Business risks Potential Scenarios Financial Compliance Strategic Operational

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