Best’s Special Report: The Struggle for Retakaful as Competition Bites Sector

LONDON--()--The increasing appetite for Islamic insurance has led many investors to view the retakaful sector as a growth opportunity. However, a new report by A.M. Best examines how retakaful players have recently run into difficulty or have exited the market.

The Best’s Special Report, titled, “The Struggle for Retakaful as Competition Bites Sector,” states since the early 2000s, there has been an influx of new retakaful formations, mainly across countries in Asia Pacific and the Middle East. However, A.M. Best notes that in general, success has been limited, with a number of retakaful companies exiting the market in recent years. This has been primarily due to the poor quality of business underwritten, which has led to underperformance of their portfolios.

Mahesh Mistry, senior director, analytics, said: “The operating environment for retakaful companies is challenging as these operators compete against more established conventional reinsurers in a soft market environment. The sustainability of the retakaful model is likely to be tested over the coming years and it remains debatable whether it can be seen as a viable alternative to conventional reinsurance over the longer term.”

In A.M. Best’s opinion, the traditional retakaful operator has struggled to gain traction in a highly competitive reinsurance market because of the limited access to quality business, predominantly resulting from the underperformance of the primary takaful sector. The success of the retakaful model is intrinsically linked to that of the primary takaful market, and most takaful operators have struggled to differentiate themselves from conventional insurers.

While retakaful operators have generally been well-capitalised, issues largely pertaining to performance have resulted in capital erosion for the sector and downgrading of the creditworthiness of these institutions. The report states that without being able to achieve the necessary scale, retakaful operators are likely to continue to struggle to operate successfully in the reinsurance market.

Aneela Mather-Khan, financial analyst, added: “Whilst the outlook for the retakaful sector may appear bleak, A.M. Best notes that there are some operators that are swimming against the tide and successfully managing their retakaful operations – particularly in the African market. A.M. Best does believe that retakaful still has a future, with branches and subsidiaries of conventional reinsurers achieving some success.”

To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=270468.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates.

ALL RIGHTS RESERVED.

Contacts

Mahesh Mistry, +44 20 7397 0325
Senior Director, Analytics
mahesh.mistry@ambest.com
or
Yvette Essen, +44 20 7397 0322
Director, Research & Communications –
Europe, Middle East & Africa
yvette.essen@ambest.com
or
Aneela Mather-Khan, +44 20 7397 0319
Financial Analyst
aneela.mather-khan@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5159
Director, Public Relations
james.peavy@ambest.com

Contacts

Mahesh Mistry, +44 20 7397 0325
Senior Director, Analytics
mahesh.mistry@ambest.com
or
Yvette Essen, +44 20 7397 0322
Director, Research & Communications –
Europe, Middle East & Africa
yvette.essen@ambest.com
or
Aneela Mather-Khan, +44 20 7397 0319
Financial Analyst
aneela.mather-khan@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5159
Director, Public Relations
james.peavy@ambest.com