Bahrain's Arab Insurance Group (ARIG) is in discussions to take full ownership of Dubai-based Islamic reinsurer Takaful Re, as regulatory moves add pressure on firms in the overcrowded Gulf insurance sector to consolidate.

ARIG is discussions to buy the remaining 46 per cent of shares it doesn't already own in Takaful Re, subject to shareholder and regulatory approval, the firm said in a bourse filing.

Major shareholders of Takaful Re include Dubai Investments, Emirates Funds, Emirates Industrial Bank and the Islamic Development Bank, each holding a 10 percent stake.

There are about 70 takaful or Islamic insurance firms in the Gulf region which compete for premium income of about $10 billion, 80 per cent of which comes from Saudi Arabia, according to Standard and Poor's rating agency.

The industry faces a shakeout, encouraged by a range of regulatory changes introduced over the past year, the agency said in a report on Tuesday.

These include a doubling of minimum capital requirements in Oman and enhanced liquid asset requirements in Kuwait and the United Arab Emirates, with Bahrain introducing more stringent solvency requirements, S&P said.

These measures have already prompted some consolidation steps. In April, Bahrain Kuwait Insurance Co raised its stake in local peer Takaful International to 40.9 per cent, a market with 24 locally incorporated insurers including nine Islamic firms.

Last month, Oman's Al Madina Insurance said it planned to acquire local rival Vision Insurance. - Reuters