Most takaful players in the GCC region are still struggling to build a viable business position, found a report by Standard & Poor’s Ratings Services (S&P).

According to S&P, unless takaful insurers were to develop a clear way to differentiate their products, they would find it difficult to achieve profitable growth, said a report in the Gulf Daily News (GDN), our sister publication.

The report titled ‘Regulatory Changes Cause A Shakeout In Gulf Islamic Insurance Markets,’ considers the long-term effect of recent measures.

This includes the doubling of the minimum capital requirements in Oman, enhanced liquid asset requirements in Kuwait and the UAE, and more stringent solvency measures in Bahrain.

In the view of the ratings agency, regulatory enhancements are likely to increase costs, putting further pressure on a sector that’s already suffering from its lack of scale.

In the long term, the new regulatory measures could mitigate price wars by encouraging risk-based decision making.

“We anticipate that improved supervision should encourage better capital management, liquidity, internal controls, and corporate governance, which we consider positive from a credit perspective,” the report says.

“However, the more-demanding insurance regulation in the region will increase short-term pressure on players in these typically overcrowded markets by increasing costs,” it adds.

Takaful insurers are already struggling to manage high expense ratios because of their lack of scale.

Despite year-on-year premium growth of more than 10 per cent in most GCC markets, S&P says it has long considered the takaful sector in particular to be overpopulated.

More than 70 Sharia-compliant insurers in the GCC are competing for premium income of nearly $10 billion, about 80 per cent of which is based in Saudi Arabia.

S&P feels takaful companies have not sufficiently differentiated their product offerings from the conventional insurers, and are therefore targeting the same customer base, particularly in the fiercely competitive motor insurance market.

“Unless they successfully differentiate their products and attract new insurance buyers to their Sharia-compliant product, we anticipate that it will be difficult for them to achieve sustainable business positions,” the report added. - TradeArabia News Service