Islamic insurer growth limited by overcrowded market

Added 7th September 2016

Islamic insurance company earnings in Gulf Cooperation Council (GCC) states are relatively weak and unevenly distributed, hampered by an overcrowded market and a focus on low-margin retail products, according to S&P Global Ratings.

Islamic insurer growth limited by overcrowded market

Although fast growing, most takaful insurers are still relatively small compared with their conventional peers, which have successfully diversified beyond low-margin retail lines.

The shorter track records and less-diverse books of business of takaful insurers puts them at a disadvantage now that the falling oil price and stricter regulations are hitting GCC insurance markets, the agency reported.

For a number of companies operating in the overcrowded takaful and Islamic cooperative insurance markets, S&P found that precipitous growth combined with net losses is eroding their capital strength and damaging their credit profiles.

Islamic versus conventional

Islamic insurers achieved aggregate premium growth of about 20%, year-on-year, in 2014 and 2015, compared with 10% for conventional insurers.

In 2015, the combined gross premium income of listed Islamic insurers in the region exceeded $10bn (£7.5bn, €8.9bn), compared to roughly $9bn of premium income generated by conventional insurers in the GCC.

However, profits were concentrated in only a few companies, with many Islamic insurers reporting losses.


Also known as cooperative insurance in Saudi Arabia, takaful is where members pool money in the form of ‘contributions’ to guarantee each other against loss or damage. Based on sharia law, participants enter into a contract to mutually help other participants should they suffer misfortune.

At the end of each financial year, after deduction of expenses, any remaining cash surplus is not retained by the company or its shareholders, but is returned to the policyholders in the form of cash dividends or distributions. 

As a result, the policyholders, rather than shareholders, are the sole beneficiaries of the profits generated from the takaful and investment assets.

More than 85% of the region's Islamic insurance premiums were written in Saudi Arabia, which has the largest sharia-compliant market in the region.

There are half a dozen explicitly takaful insurers and 28 Islamic cooperative companies operating in Saudi Arabia. 

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 


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