IFSB to hold roundtable on retakaful in January 2016

The Islamic Financial Services Board (IFSB) is organising a roundtable about retakaful on 10 January 2016 in Manama, Bahrain. The Roundtable Discussion on Retakāful (Islamic Reinsurance) aims to discuss the issues contained in the recently-issued IFSB Exposure Draft on Guiding Principles for Retakāful (Islamic Reinsurance) (ED-18). The event is hosted by the Central Bank of Bahrain. 

ED-18 aims to provide the regulatory and supervisory authorities (RSAs) and takāful industry stakeholders with guidance relating to retakāful. The draft document was issued by the IFSB on 5 November 2015 for a two-month public consultation period.

ED-18 highlights the distinguishing features of the various retakāful models used for inward and outward retakāful arrangements. It also identifies the challenges that require attention of regulatory and supervisory authorities pertaining to the regulation and supervision of retakāful activities. The objectives of ED-18 include: 

• To provide a basis for RSAs to set rules and guidance on the operational framework of entities undertaking inward retakāful activities; 
• To outline a basis for RSAs to supervise takāful and retakāful undertakings’ use of outward retakāful arrangements; and 
• To suggest recommended best practices for retakāful and takāful operators and their RSAs to help address regulatory issues concerning retakāful. 

The Roundtable Discussion on ED-18 aims to invite greater engagement, and garner feedback, from key industry stakeholders on the Exposure Draft prior to its final submission to the IFSB Council in April 2016 for adoption. It is the second such session to allow feedback on the draft ED-18 document. The first was a Public Hearing held in Kuala Lumpur, on 30 November 2015.

Confirmed speakers from Malaysia include Dr Mohamed Rafick Khan Abdul Rahman, Chief Executive Officer, Munich Re Retakāful; Dr Hamim Syahrum Ahmad Mokhtar, Deputy Director, Financial Surveillance Department, Bank Negara Malaysia; and Dr Sami Guellouz, General Manager, B.E.S.T Re Family. Other speakers include Scott Lim, Associate Director, Dubai Financial Services Authority; Moch Mochlasin, Directorate of Sharia NBFI, Financial Services Authority, Indonesia; and Naveed Shahid, Head of Life & Health, Hannover Re, Bahrain. 

Interested?

Participation is open to all RSAs as well as players in the takāful and retakāful industries. Register

Takaful struggles for recognition in Middle East

The significant premium growth in the global takaful sector is expected to continue and reach US$20 billion by 2017, with the majority of that increase originating from Malaysia and Saudi Arabia, according to a new AM Best special report.

The Best's Special Report, Takaful Operators Struggle with Growth and Profitability, also notes that despite the rapid growth of takaful on a global basis, it has struggled to take hold in Middle East markets, other than Saudi Arabia, which are considered to be concentrated with a few large players dominating their respective markets.

The report contains an analysis of 14 GCC takaful operators and 24 conventional insurers in the UAE, drawing out distinctions between the two groups in terms of performance and operating results. The smaller scale of many takaful operators results in high costs bases and expenses ratios that dampen operating performance. For example, takaful companies had a weighted average expense ratio of 30% in 2013, compared with 20% for the UAE conventional market.

"Given the huge global Muslim population, AM Best believes significant opportunities exist for takaful operators to provide sound financial protection in line with the consumers' religious sensibilities," said Michael Dunckley, Financial Analyst.

A number of challenges remain, including market conditions that leave takaful operators subject to fierce pricing competition from more established insurers that benefit from brand awareness and more established distribution networks. Other challenges involve achieving growth without compromising on profitability, developing a niche market position and a loyal customer base.

Takaful operators are differentiated from conventional insurers by the opportunity for policyholders to share in the underwriting profit. While shareholders require dividends to justify their capital investment, takaful policyholders also maintain the right to share in the surplus that accrues from good management of a takaful fund. Striking a proper balance of earnings is important to improving mutuality, as well as policyholder protection, AM Best said.

Source: DIFC. Shah.

Despite AM Best's gloomy prognosis, there is activity in the Middle East when it comes to takaful. Chirag Shah, Chief Strategy and Business Development Officer, Dubai International Financial Centre Authority (DIFC Authority), said however in a keynote at the World Takaful Conference which took place from 13 to 14 April in Dubai that retakaful* is also facing challenges. He said the reinsurance sector crossed the US$1 billion mark of gross written premiums by the end of 2013. The DIFC hosts many major insurance conglomerates, including AIG, Zurich, Allianz, MetLife, Lloyds of London, Swiss Re and Munich Re and retakaful players like Emirates Re and Takaful Re.

Shah said: "Although retakaful has witnessed significant growth as an Islamic alternative to conventional insurance, it still represents a small portion, approximately 2%, of the overall insurance penetration in key markets. The sector is facing a multitude of challenges like the need for skilled professionals, lack of innovation, depreciating profit margins, the lack of a deeper pool of sharia-compliant investment opportunities, as well as issues of operating efficiency and scalability, among others."

Click here to obtain a copy of the AM Best report.

*The Islamic financial equivalent of reinsurance, in which an insurance company may depend on another company for insurance coverage.

World Islamic Insurance Directory (WIID) 2014 launched

Source:: MEIR website

Middle East Insurance Review (MEIR) has unveiled its 8th annual edition of the World Islamic Insurance Directory (WIID) 2014. The only Islamic insurance directory in circulation was launched at the annual World Takaful Conference in Dubai in mid-April. 

WIID 2014 provides a snapshot of the global takaful scene with detailed financial and management data of over 200 takaful and retakaful operators in the market. It is published jointly by Takaful Re and Middle East Insurance Review. 


According to WSJ, which quotes figures from the WIID, the global Islamic Insurance industry is still slow to scale despite the potential rewards.


A copy of WIID 2014 can be ordered here.