OLDWICK, N.J.--(BUSINESS WIRE)--In this A.M.BestTV episode, Salman Siddiqui, associate director, analytics, A.M. Best, said takaful-oriented insurers often rely on an interest-free loan system, known as Qard Hasan, to cover policyholder deficits, and that over-reliance on the system can create longer-term issues. Click on http://www.ambest.com/v.asp?v=qardhasan818 to view the entire program.
“Companies are very reliant on Qard Hasan because policyholder funds continue to make losses or deficits year after year,” said Siddiqui. “A.M. Best analysis has shown that, over the past 10 years, on an aggregate basis, takaful companies in the Middle East and North African (MENA) region have generated policyholder deficits year after year, with the accumulated deficit increasing over the same period. This has caused a need for Qard Hasan to actually increase year after year across the MENA region.”
Siddiqui also highlighted A.M. Best’s takaful-specific methodology.
“As part of the methodology, A.M. Best examines the capital adequacy of the policyholder fund on a risk-adjusted basis. If there is no surplus in the policyholder fund, then clearly the company does not have capital adequacy. … The methodology also requires a look at the balance of earnings between the shareholder and policyholder accounts. Over-reliance on Qard Haran means that there is an imbalance between the two funds, which will be a negative for the optimum performance assessment of these takaful operators,” said Siddiqui.
To access a copy of this briefing, titled, “Takaful Trends; Breaking the Reliance on the Qard’ Hasan,” visit http://www3.ambest.com/bestweek/purchase.asp?record_code=276662.
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