Zurich Malaysia is set on becoming Zurich Insurance Group's go-to business for Islamic investing.

As the Swiss insurer's local lifer unit, the company hopes to gain a leading edge from its location in Muslim-majority Malaysia – the world's leading Islamic finance centre, based on the latest ICD Thomson Reuters Islamic Finance Development Indicator.

“Given Malaysia’s position as the pioneer and leader in [the] Islamic finance industry globally, our investment management team has both the geographical and skills advantage to become the hub of Islamic investments – providing expertise for other Zurich entities across Asia Pacific and globally,” Andrey Fomin, chief investment officer at Zurich Malaysia, told AsianInvestor last month.

“We believe that we can develop Zurich Malaysia as a ‘think tank’ and technical adviser for sharia-compliant investments, fund offerings and product propositions for the Zurich group,” he said.

While Fomin didn’t provide further details of how the Malaysian unit plans to do that, there is little doubt that Islamic insurance, or takaful as it is locally known, is growing steadily in the Southeast Asian nation.

Andrey Fomin

Family takaful (life insurance) and general takaful business activity in Malaysia expanded by 12.9% and 7.1%, respectively, in the first half of 2018 – faster than the 5.4% and 0.9% growth seen in the life and general insurance categories, according to ratings agency Fitch.

Islamic life insurance also accounted for 32% of the overall life insurance market based on new business premiums in the first half of 2018, the report noted, up two percentage points from 2017.

Even more notably, it accounted for more than 60% of the total new business in Malaysia, the report said.

The ratings agency expects Malaysia’s takaful industry to continue its steady growth and maintain its position as the leading takaful market in the Asean region. Likely to help in this respect is the Malaysian government’s push for affordable insurance, which targets 75% insurance penetration by 2020, with takaful contributing 25%, Fitch noted.

Based on data collated by Thomson Reuters, Malaysia had the world's third-largest takaful market after Saudi Arabia and Iran in 2017. With a total value that year of $46 billion, it remains the smallest contributor to the global Islamic finance industry in terms of assets compared to Islamic banking, sukuk issuance and Islamic funds, according to the 2018 Islamic Finance Development Report.

According to that report, Malaysia ranks third globally for Islamic banking, first for sukuk issuance and second for Islamic funds.

FROM SHARIA TO ESG

Islamic insurance comes under the umbrella of Islamic investments, also known as shariah-compliant investments. Such investments typically avoid placing money in ‘forbidden’ industries, such as tobacco, weapons production, gambling, pornography and pork production.

These investments are widely considered to be a subset of the broader environmental, social and governance (ESG) investments that have advanced in popularity in recent years. 

"ESG and sharia compliance are quite aligned, so it’s easier for an institution to move towards the more broader principles of ESG after adopting sharia,” said Angelia Chin-Sharpe, chief executive officer at BNP Paribas Asset Management Malaysia.

So in some respects, Malaysian institutions have been ESG investment leaders – and so too local regulators – because they were committed to the ESG cause long before it became a buzzword, Chin-Sharpe told AsianInvestor.

She added that Malaysia is among the few markets in Asia where institutions have awarded ESG mandates.

One example of that is Malaysia’s civil service pension fund Kwap, which in 2018 announced plans to set aside $196 million in ESG-focused investments through two external fund managers. It has also said that it plans to make up to 70% of its total investment portfolio ESG-compliant.

Zurich Malaysia’s Fomin said that as well as seeking to be sharia-compliant, an ESG framework has become an integral part of the local selection process for both equity and fixed income portfolios.

“As many studies suggest, there is a strong correlation between ESG factors and corporate performance, which is particularly relevant in emerging market stocks due to the weaker corporate governance of many emerging market issuers,” he said.

He added that the wider Zurich group is now looking to invest $5 billion as part of its impact investing, having met its original goal of $2 billion in 2017.

For further insight and analysis into how insurers are seeking to invest and navigate regulatory changes, look out for AsianInvestor's 6th Insurance Investment Forum in Hong Kong on March 12 and its inaugural sister event in Singapore on March 14. For more information, please click here.