Bahrain: Bid to up takaful profitability

The introduction of measures aimed at updating and expanding the rules on takaful (sharia-compliant) insurance in Bahrain is expected to aid the segment’s efforts to make inroads into the market share currently held by conventional insurers.

Bahrain saw its first Islamic policy writer open its doors in 1989, well ahead of most of its Gulf neighbours and Asia. But while the Kingdom has been developing itself as an insurance and takaful centre for the region, more could be done to strengthen its position, such as developing its human resources pool through advanced training programmes, according to Abdul Rahman Al Baker, the executive director of financial institutions supervision at the Central Bank of Bahrain (CBB).

“The industry must focus on enhancing retention by developing long-term incentive schemes and training programmes,” Al Baker said on October 17, during his opening address to the Middle East Takaful Forum, held in Manama. “This will guarantee the necessary supply of highly qualified personnel to meet the growing demands of the market.”

In its role as regulator of Bahrain’s financial sector, including the insurance industry, the CBB was also acting to improve the prospects for the takaful segment, working to reinforce the regulatory infrastructure governing sharia-compliant insurance, said Al Baker.

“Currently, we are working on updating and expanding rules on takaful, in order to facilitate and further enhance the growth of the industry,” he said. “Part of the enhancement to the rules relates to the solvency margin requirements in terms of its calculation and treatment.”

This process was being conducted in coordination with the licensed takaful operators and their respective sharia boards to ensure that the rules are in line with the best international standards and adequately protect the interest of all stakeholders, said Al Baker.

At present, there are seven locally registered takaful insurers operating in Bahrain, as well as two working strictly as takaful reinsurers, providing risk support to other sharia-compliant policy writers by underwriting their coverage. By comparison, there are 15 locally incorporated conventional insurers, of which two are reinsurers, as well as 17 foreign insurers with branches or representative offices in the Kingdom.

Though the ratio of takaful service providers to conventional policy carriers is quite high, these firms are not as well represented in terms of assets or market share. Accounting for almost one-third of the locally registered companies in the insurance sector, the gross contributions of Bahrain’s takaful policy writers in 2011 accounted for 19% of the total premiums or contributions of the domestic industry, according to a report issued by the Central Bank of Bahrain (CBB) in September. Takaful contributions rose by 4% in 2011, while the segment’s total assets increased by around 3% over 2010, somewhat below the performance of Bahrain’s conventional insurers.

By contrast, the liabilities held by the takaful segment jumped by 20% year-on-year in 2011, much higher than the 5% increase in the conventional part of the sector. There was also a sizeable gap in net profits as well, with conventional insurers posting a combined net profit of $150m, compared with the $3.5m registered in the takaful segment, though this represents a strong turnaround from the $10.2m loss of 2010.

Indeed, this has been viewed as a solid result, given the difficult investment environment in 2011, which has made it harder for takaful firms to generate sound returns on contributions. With improved economic conditions this year, it is likely that the takaful segment should post a further increase in earnings by the close of 2012.

Reforms to the regulatory regime covering takaful, along with improving training standards, should give the segment the additional impetus to take the next step up and compete with the conventional insurance sector.

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