NEWHORIZON

NEWHORIZON April to June 2013
TAKAFUL
There are, however, challenges
such as raising the awareness
of microtakaful; developing
efficient risk management tools,
the lack of credit information
and reinsurance capacity.
Rating Takaful Companies
Vasilis Katsipis, General
Manager, Market Development
MENA, Central and South
Asia for AM Best, the ratings
agency, examined the ways
in which takaful regulation
impacted ratings. He said
that the capitalisation of
takaful companies cannot be
evaluated in the same way
as conventional insurance
companies. He particularly
highlighted permanence, which
is the ability to pay insurance
company obligations at all times.
In takaful most policy holder
funds depend on qard hassan
(an interest-free loan) for their
viability and that loan should be
repaid if it becomes clear that
the policyholder fund is unable to
return to profitability, making it
difficult to meet the obligations at
all times.
Second, he highlighted the ability to
defer interest or dividend payments.
In takaful dividends can be and
usually are paid from the operators
fund, while the policyholder fund is
loss making. Third is subordination
in an insurance company’s structure,
through which policyholder
liabilities have priority in cases of
insolvency. Scholars have taken the
view that there is no subordination
in Shari’ah law.
He suggested that the legal/
regulatory framework can bring
some clarity on these issues,
but in the MENA region this
regulatory clarity only really exists
in Bahrain, the Dubai International
Financial Centre and the Qatar
Financial Centre. In other places
the permanence of qard hassan
is uncertain; policyholders do not
have seniority over other liabilities
and it is unclear which legal system
will apply in cases of insolvency.
Mr Katsipis suggested that there
were actions that takaful companies
operating in weak regulatory
regimes could take to improve
policyholder protection. For
example, they could incorporate
the missing regulatory rules in their
policy wording and ring fence funds
in the operator’s fund for use as
qard hassan, although this would
clearly increase costs.
He concluded by saying that
regulation is critical to the rating
prospects of all insurers including
takaful companies. Mr Katsipis
pointed out that variability in
regulation was particularly harmful
in the case of takaful, which as a
very young industry needs to be
seen as secure and dependable.
Takaful – An Alternative to
Conventional Insurance
The conference also discussed the
widely held misconception that
‘The Team from Nile Takaful Receive the Best Egyptian Takaful Company Award’
takaful is only for Muslims.
In Malaysia, for example,
takaful has had some success
among non-Muslim customers,
probably attracted by the
ethical nature of takaful. To
take full advantage of the
potential that exists among
non-Muslim customers, it
was suggested that the takaful
industry needs to increase the
range of its products, offering
alternatives to products
promoted by the conventional
insurance sector. Sameeulhaq
Thanvi, Managing Director of
Nile Family Takaful went so
far as to suggest that one way
of increasing the appeal would
be to change the product
label, removing words such
as ‘Islamic’ or ‘takaful’ and
replacing them with ‘ethical’.
The International Takaful
Awards
The conference also saw
the announcement of the
2013 International Takaful
Awards. Best takaful awards
went to General Takaful,
Qatar; Salama from the UAE;
Solidarity, Bahrain; The
Islamic Insurance Company,
Jordan; Prime Islamic Life
Insurance Ltd. Bangladesh;
Wethaq, Kuwait; Ta’awuniya
Insurance Company, Sudan;
Pak-Qatar Family Takaful,
Pakistan; Weqaya, Saudi Arabia;
Nile Takaful, Egypt and
Takaful Malaysia. In the best
retakaful category awards went
to the African Reinsurance
Corporation and Hannover
Re for the Middle East. The
National Bank of Abu Dhabi
won the award for the best
asset management company;
Norton Rose was the winner
of the best legal firm award
and Centegy Technologies
were voted the best technology
company.
www.islamic-banking.com IIBI 23