Abu Dhabi National Insurance Company (Adnic) plans to enter the Islamic insurance market and develop joint ventures with foreign partners to diversify away from investments and focus on core business to boost growth, its chief executive said.

Adnic, owned 25 percent by the Abu Dhabi government, booked 307 million dirhams in impairments on investments last year, which sent net profit tumbling to 52 million dirhams in 2009 from 210 million dirhams a year earlier.

"We are not a bank or investment house although historically insurance companies here invested in equities," Walid Sidani told Reuters in an interview.

"As part of a new five-year, strategic plan 2009-2014, we will focus on core competencies to improve our top and bottom lines," he said.

The new government-backed Islamic insurance, or takaful, firm will be launched in early 2011 in partnership with National Bank of Abu Dhabi (NBAD), Abu Dhabi National Energy Company (Taqa) and Aldar Properties.

It is currently under approval by the regulator, the Emirates Securities & Commodities Authority (ESCA), he said, declining to provide the new firm's capital or name. The minimum capital for a takaful firm is 100 million dirhams, he said.

"Insurance penetration in the UAE is very low, people want sharia-compliant insurance and we see a huge growth potential here," he said.   

Although insurance penetration of between three to seven percent in the UAE is the highest in the Middle East, it compares poorly with countries such as Japan, UK and Europe where penetration levels are over 90 percent, he said.

The UAE with a population of around 8 million has 59 insurance companies and seven takaful providers.

Takaful works like mutual insurance, but there is a clear segregation of the assets owned by members and those owned by the insurer. Islamic insurers keep away from investments in risky assets and prefer fixed income products for parking their funds.

Adnic is also exploring partnerships with foreign firms to broaden its products and services offering, especially in Dubai where a new medical health law in 2011 makes it mandatory for employers to provide medical insurance, he said.

Over the last year, it set up a joint venture in the Dubai International Financial Centre (DIFC) with Talbot Ltd to offer reinsurance services and another with Belgium's Vanbreda International for co-branded medical insurance.   

"We are open to dialogue for more strategic partners," he said, declining to elaborate. Adnic currently has 10 branches in the UAE and plans to open the next in Dubai in November, its second in that emirate. - Reuters