Takaful take-up

As I’m sure you no doubt know, Takaful re-/insurance is that which complies with Sharia law and is thus acceptable to the Islamic world.

It has certain defining features, and this short paragraph from the ICMIF website sets out certain of the main considerations:
>Takaful reinsurance or Retakaful requires clearly defined joint responsibility which means that it is likely to be arranged on a proportional basis under quota share or surplus treaties. Although non-proportional reinsurance coverage could be arranged on a strict profit commission plan or on a reciprocal basis. However, there are very few retakaful companies in operation; with growing number of Takaful companies the existing retakaful capacity is not sufficient to meet the demand. The only route available left for takaful companies is to reinsure on conventional basis, contrary to the customer’s preference of seeking cover on Islamic principles. Sharia scholars have allowed takaful operators to reinsure on a conventional basis so long as there was no retakaful alternative available. If there is a need to turn to the conventional reinsurance market then the Takaful operator should first try and obtain coverage from the cooperative and mutual insurance sector.

Remarkably good sense to concentrate on proportional business, since there are many fewer problems than in excess of loss (or “excessive loss”, as one of my assistants wrote in a report for me one day ;-) ).

Apparently, the global market for Takaful may rise fivefold to $14 billion by 2015, and this no doubt explains why AIG have just entered the game with an office in Dubai. This adds to the likes of Allianz, Hannover Re and Swiss Re who already have operations on the ground.

I noticed in particular that, according to Nicholas Walsh, AIG’s group senior vice-president for foreign general insurance, premiums are rising 12 percent to 15 percent a year in Middle East and South Asian markets, as compared an average 9 percent decline in non-life rates outside the United States in the first half of the year. That is a pretty big disparity. I wonder what explains it. Novelty of cover? Pent-up demand?