In a recently published report, Standard & Poor’s discusses how Sharia-compliance affects the analysis of the creditworthiness of insurance companies that follow Islamic religious principles (see “S&P’s Analysis Of Sharia-Compliant Cooperative And Takaful Insurers In The Middle East Focuses primarily On Financial Strength”). Across much of the Islamic world, Sharia-compliant takaful and cooperative providers have in recent years started to compete aggressively with traditional insurers and reinsurers.
The rapid growth and multiplication of these new entrants has been impressive, but has occasionally brought into question the stability of their business model. This can sometimes be seen as encouraging excessive premium expansion alongside exposure to religiously acceptable, but potentially volatile or illiquid investment assets–notably shares and real estate. These inherent dangers will likely remain implicit in takaful insurance, particularly when shareholder income is, in part, based on a fixed percentage share of gross premiums written. However, in our view, the risks can be limited through prudent management, good corporate governance, effective risk controls, and conservative central regulation.
Source : S&P
