9 April 2018 Insurance

IUA CEO: Poor quality business weighs on re-Takaful market

The global re-Takaful market has suffered from poor quality business underwriting intrinsically linked to the underperformance of the primary Takaful sector, said Dave Matcham, chief executive of the International Underwriting Association in a speech delivered April 9 at the World Takaful Conference in Dubai.

“This has led to capital erosion for Islamic reinsurers and the eventual downgrade of creditworthiness,” Matcham said according to the script.

AM Best analysts Mahesh Mistry and Aneela Mather-Khan have previously commented: “The sustainability of the re-Takaful model is likely to be tested over the coming years and it remains debatable whether it can be seen as a viable alternative to conventional reinsurance over the longer term.”

Matcham noted that the supply of commercial Shariah-compliant insurance products (Takaful or Retakaful) does not even come close to matching the potential demand from the Islamic finance industry.

The London market has up to ten commercial insurers offering Shariah-compliant products. These can range from political risks insurance in regions of heightened tension to risk transfer mechanisms in major UK infrastructure projects backed by Islamic finance, Matcham explained.

There is intense competition from the conventional market, which promotes itself as stronger, better rated than Takaful alternatives, Matcham noted. This leads to conventional products chosen to obtain better client protection, he added.

According to AM Best, most regulators and Shariah scholars have been reluctant to obligate primary Takaful operators to cede business to re-Takaful operations as a measure to protect policyholders. This stance causes them to turn to strong creditworthy insurers (usually conventional players), Matcham noted.

Without the buy-in from Shariah boards to make re-Takaful the default search for primary Takaful operators before approaching conventional reinsurers, re-Takaful operators are unlikely to gain access to higher quality business, Matcham said.

AM Best added that “unless regulation and Shariah boards enforce the use of re-Takaful, the current re-Takaful model may be under threat over the long term unless the model can be repositioned and seen to add additional value to the reinsurance market.”

The underperformance of the Takaful sector aside, a major hurdle facing the Islamic reinsurance market is the absence of a mandate requiring Islamic insurers to cede business where possible in a Shariah-compliant manner, Matcham said.

Join us at Intelligent Automation in Insurance - April 26th 2018, London:  Book now.

More of today's news

European reinsurers avoid Berkshire retroactive reinsurance competition

Sompo merges international retail operations under new platform

LMG appoints Horton as new chair

Protection gap in cyber, health more acute than in nat cat

Beecher Carlson names new CEO, COO

Ransomware most prevalent malicious software

Global disasters caused record $144bn insured losses in 2017

Lloyd’s broker AFL taps chief commercial officer from JLT

Gallagher makes acquisition for transportation brokerage expansion

Don't miss our insurtech email newsletter - sign up today

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk