LONDON, 12 March 2007 — The Islamic insurance (Takaful) industry in Saudi Arabia is set for a dramatic boost with the announcement of two imminent major developments in the market. Firstly, the National Company for Cooperative Insurance (NCCI), the premier insurance company in the Kingdom, has appointed a Shariah Advisory Committee which will “review new regulations, products and services and see whether they comply with Shariah principles.”
Secondly, Bank AlJazira is spinning off its highly successful Takaful Ta’awuni Division into a Takaful joint venture with a major international insurance firm.
NCCI’s CEO Ali Al-Subaiheen last week confirmed the appointment of Sheikh Abdullah Suleiman Bin Munei, Sheikh Muhammad Ali Bin Eid and Sheikh Rashid Al-Ghunaim to the inaugural Shariah Board of NCCI. “The company was keen on choosing religious scholars with extensive experience in insurance and investment. This will reflect positively on the company’s performance,” Al-Shubaiheen said.
The development at NCCI is highly overdue. Since the introduction of the National Cooperative Insurance Law some four years ago together with the insurance regulatory authority, there has been confusion in the market as to whether the law and the National Cooperative Insurance Scheme were indeed Shariah-compliant.
Takaful operators welcome the move.
At the same time, the Kingdom is opening up its insurance market with the issuance of 13 new licenses including about five to Takaful companies including HSBC Amanah, Salama, FW Group and Tokyo Marine. One operator which has the first mover advantage is Bank AlJazira’s Takaful Ta’awuni, whose assistant general manager and head of Takaful Ta’awuni, Dawood Taylor, stresses that its business has increased dramatically over the last two years, with the division now breaking even.
Takaful Ta’awuni now has a staff of 400 and SR4 billion in life coverage policies, comprising 15,000 individuals and 22,000 group life Takaful clients. In addition, Takaful Ta’awuni has over 91 percent Saudi employees, Taylor added.
The bank plans to open several Takaful offices — both men and women’s offices, inter alia, in Riyadh, Dammam, Makkah, Madinah and Hofuf. The spin-off joint venture, Taylor said, will be authorized under a new law. The memorandum of understanding has recently been revised and is being considered by the Saudi Arabian Monetary Agency (SAMA) with a view to possible final approval.
“Bank AlJazira is a significant investor and will have a major international insurance partner in the joint venture. We will determine its name based on a market survey currently being undertaken by the JV partner, which has operations worldwide. The joint venture will be headquartered in Jeddah and there is also an international agreement for cross-border regional offices at a later stage. The joint venture must have a minimum SR100 million in capital, but it is likely that it would be nearer SR300 million. We have excellent relations with SAMA which has been extremely co-operative in implementing regulated Takaful products in the Kingdom,” Taylor noted.
Bank AlJazira is bullish about the life insurance (life Takaful) market in the Kingdom, which will be driven by Life Takaful. Conventional life insurance, he predicts, will not get a look in because it has hardly been established in the Kingdom. Premium income to GDP for life insurance in Saudi Arabia is currently estimated at a mere 0.1 percent. As such, the Life Takaful and insurance market in the Kingdom alone is worth billions of dollars. The only real group life insurance product in the Kingdom is offered by Takaful Ta’awuni and by Bank Al-Saudi Al-Fransi, which are also wrapped around medical and personal plans. Takaful Ta’awuni plans have both investment and protection elements which give families with plans some financial comfort in the event of the death of the policy holder and any serious disability.
The claims culture has also been good, with Takaful Ta’awuni paying out a total of SR4.5 million to 35 clients to date.
Taylor stressed that Bank AlJazira’s Takaful Ta’awuni is “ploughing the fields hand-in-hand with regulators and the competition when it comes along”. Market penetration especially of life and group Takaful “will increase dramatically” as more licenses and more IPOs come to market. He predicted that there will be about five Takaful operators in the Kingdom based on Wakala (agency) business based on direct sales or on the Bancassurance model. He also projected a huge takeoff of other products such as pensions, education, marriage and health Takaful plans.
There is also a huge scope for mortgage Takaful, but this would necessitate the introduction of a mortgage law. Last month Saudi Finance Minister Ibrahim Al-Assaf confirmed that a draft mortgage law is before the Shoura for consultation and debate. Saudi Arabia hopes to introduce the law before then end of 2007.
Takaful Ta’awuni premiums are invested in commodity Murabaha contracts on the London commodity market. It has no ambition to offer General Takaful (motor insurance, fire, etc).
ReTakaful (reinsurance) remains a challenge for the sector. Major westerms firms such as Swiss Re and Convarium Re (formerly Zurich Re) are developing capabilities to take over the Retakaful business of the Takaful companies. This could happen within 2007. The challenge is to have a large enough Takaful market to justify Reataful business. Taylor favored the Malaysian practice of having a national Shariah board at the central bank. This would pre-empt confusion in the market as to Shariah compliance.
