A comparative study of Takaful and conventional insurance

empirical evidence from the Malaysian market

Hussein Abdou, Khurshid Ali, Roger J. Lister

Research output: Contribution to journalArticle

Abstract

The purpose of this paper is to distinguish between the performance levels of the Malaysian Takaful and conventional life insurance industries with a view to better informing the decisions of stakeholders. Our analysis makes use of financial ratios and macro-economic variables namely Gross Domestic Product (GDP), Consumer Price Index (CPI) and Treasury Bill Rate (TBR). We use two stage analysis. In the first stage we use discriminant analysis and logistic regression models for the financial ratios as independent variables and a dichotomous dependent variable. In the second stage we use multiple regression to investigate the macro-economic independent variables with net premiums/contributions and net investment income as dependent variables. The data is extracted from companies’ annual reports. Our results indicate that conventional insurers perform better than Takaful companies in terms of profitability and risk measurement but Takaful outperform conventional insurance in respect of premium to surplus ratio. However, Takaful companies have prudent underwriting practices in place to curb information asymmetry. Furthermore, our results indicate that, unlike in the case of conventional insurance, the macro-economic variables have no impact on the growth of Takaful companies as measured by the net premiums/ contributions. However, net investment income shows statistical significance for both industries. This is indicative of the fact that both industries efficiently utilize their funds to generate the desired return on their investments. Our paper has scholarly implications in terms of the empirical analysis of conventional and Islamic financial institutions – insurance in particular. It can also inform market decisions and public policy with respect to the economic contribution of the insurance industry in Malaysia.
Original languageEnglish
Pages (from-to)22-34
Number of pages13
JournalInsurance Markets and Companies: Analyses and Actuarial Computations
Volume5
Issue number1
Publication statusPublished - 2014

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Insurance
Empirical evidence
Comparative study
Premium
Financial ratios
Macroeconomic variables
Insurance industry
Industry
Income
Life insurance
Risk measurement
Gross domestic product
Discriminant analysis
Profitability
Underwriting
Public policy
Consumer price index
Macroeconomics
Performance levels
Islamic financial institutions

Cite this

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abstract = "The purpose of this paper is to distinguish between the performance levels of the Malaysian Takaful and conventional life insurance industries with a view to better informing the decisions of stakeholders. Our analysis makes use of financial ratios and macro-economic variables namely Gross Domestic Product (GDP), Consumer Price Index (CPI) and Treasury Bill Rate (TBR). We use two stage analysis. In the first stage we use discriminant analysis and logistic regression models for the financial ratios as independent variables and a dichotomous dependent variable. In the second stage we use multiple regression to investigate the macro-economic independent variables with net premiums/contributions and net investment income as dependent variables. The data is extracted from companies’ annual reports. Our results indicate that conventional insurers perform better than Takaful companies in terms of profitability and risk measurement but Takaful outperform conventional insurance in respect of premium to surplus ratio. However, Takaful companies have prudent underwriting practices in place to curb information asymmetry. Furthermore, our results indicate that, unlike in the case of conventional insurance, the macro-economic variables have no impact on the growth of Takaful companies as measured by the net premiums/ contributions. However, net investment income shows statistical significance for both industries. This is indicative of the fact that both industries efficiently utilize their funds to generate the desired return on their investments. Our paper has scholarly implications in terms of the empirical analysis of conventional and Islamic financial institutions – insurance in particular. It can also inform market decisions and public policy with respect to the economic contribution of the insurance industry in Malaysia.",
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A comparative study of Takaful and conventional insurance : empirical evidence from the Malaysian market. / Abdou, Hussein; Ali, Khurshid; Lister, Roger J.

In: Insurance Markets and Companies: Analyses and Actuarial Computations, Vol. 5, No. 1, 2014, p. 22-34.

Research output: Contribution to journalArticle

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