Dec 14 2011
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Takaful ratings under construction
The new guidelines address a number of concerns that Takaful firms have, but none more important than the limitations of the Shari'ah compliance rules on the investments available to Takaful firms and the lack of Shari'ah compliant fixed income products like Sukuk.
A.M. Best said: "Takaful companies need to develop and demonstrate that they can apply an adequate risk-based approach to investment management because of the reduced investment opportunities."
However, A.M. Best conceded that Takaful firms can get higher ratings than their business would otherwise dictate if the operator's funds are financially stronger, offering greater resources to be able to cover fund deficits through Qard Hassan.
A.M. Best did raise questions about the lack of experience with troubled Takaful funds to see if the segregation of the operator's and Takaful funds would be respected in practice. Overall, A.M. Best's draft ratings methodology highlight the higher growth rates of Takaful, albeit from a lower base, and should provide both Takaful firms and other Islamic financial institutions with a clear list of items needed to strengthen Takaful companies: more Sukuk, greater reTakaful capacity, internet distribution and the use of bancassurance as a distribution platform.
© The Islamic Globe 2011
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