GCC: Regulation aggravates cost worries for takaful operators - S&P
Source: Middle East Insurance Review | Sep 2015
Most GCC takaful players are still struggling to build a viable business position, yet regulatory enhancements, which are likely to increase costs, are putting further pressure on a sector that is already suffering from its lack of scale, according to Standard & Poor’s (S&P).
In a recent report, titled “Regulatory Changes Cause A Shakeout In Gulf Islamic Insurance Markets”, S&P said that the Gulf states have experienced massive regulatory change with respect to insurance over the past 12 months. Recent measures include the doubling of the minimum capital requirements in Oman, enhanced liquid asset requirements in Kuwait and the UAE, and more stringent solvency measures in Bahrain.
S&P anticipates that improved supervision should encourage better capital management, liquidity, internal controls, and corporate governance, which it considers positive from a credit perspective. However, the more-demanding insurance regulation in the region will increase short-term pressure on takaful players by increasing costs. Shariah-compliant insurers, in particular, are already struggling to manage high expense ratios because of their lack of scale.
Despite year-on-year premium growth of over 10% in most GCC markets, S&P has long considered the takaful sector in particular to be over-populated. More than 70 Shariah-compliant insurers in the GCC region are competing for premium income of nearly US$10 billion, about 80% of which is based in Saudi Arabia.
“In our opinion, takaful companies have not sufficiently differentiated their product offerings from the conventional insurers, and are therefore targeting the same customer base, particularly in the fiercely competitive motor insurance market. Unless they successfully differentiate their products and attract new insurance buyers to their Shariah-compliant products, we anticipate that it will be difficult for them to achieve sustainable business positions,” said S&P.