Moves to cap wakala (agency) fees and improved oversight of underwriting policies have helped Islamic insurance, or takaful, firms in the United Arab Emirates maintain profitability, an official from the country's insurance authority has said.

Speaking at the World Takaful & InsurTech Conference in Dubai this week, Ahmed Mohammed Nagy, a consulting actuary at the UAE Insurance Authority, said that the financial results of the country's 12 takaful firms showed a 26 percent increase in net profit on the back of a 4 percent growth in gross premiums.

In 2017, listed takaful firms ran at an aggregate loss as players fought for their shares of  a crowded market.

Nagy noted that "several factors" had contributed to the improved results. "After implementing financial regulations, now there is a cap for wakala fees. We try to keep it close to the actual expenses," he said.

"Another factor is the sufficient reserves that is being estimated by the appointed actuaries, and it is being back-tested every quarter by the companies," he added.

He said the fact that actuaries working for the Insurance Authority reviewed the underwriting policies of Islamic insurers had led firms to "manage their risks effectively and helped companies to become solvent". Quarterly offsite monitoring and onsite inspections that helped firms to improve financial reporting, and annual risk analysis exercises also contributed to better management of investment risks, he added.

Nagy also cited minimum pricing policies for motor insurance premiums that were announced in December 2016 as a contributing factor towards greater profitability.

A note distributed by ratings agency, Moody's, on Tuesday stated that the "spread of compulsory motor and medical cover" would support the growth of the takaful market across the Gulf Cooperation Council (GCC).

"We expect premiums to keep growing moderately in the next 2-3 years, and the industry will benefit from improved regulation," Mohammed Ali Londe, an analyst at Moody's, said in an accompanying press release.

The ratings agency said that gross takaful premiums across the GCC increased by 7 percent last year, and that net income for takaful providers grew by 34 percent during the first nine months of 2018. Londe said profitability should stabilise this year after suffering a decline in 2017 "due to discounting in Gulf Cooperation Council countries and rising claims in south east Asia".

Speaking at the conference, Safder Jaffer, the managing director & principal at actuarial firm, Milliman, said UAE is the second-biggest market in the takaful industry which is globally worth around $20 billion. UAE’s share is around $3-3.5 billion, with Saudi Arabia comprising around half ($10 billion) of the market in terms of value, he added. (Read more here).

Nasar Ahmed Al Salhi, a director in the Oman Capital Market Authority's valuations and risks surveillance department, said the takaful market in the Sultanate had grown by 12 percent since the first two companies were established five years ago.

"There is big potential to growth in takaful, especially now we have medical insurance to be compulsory," he said, adding that Oman's health minister had just last week announced that compulsory health insurance would be introduced for all private sector employees by the end of the year.

However, the challenge faced by the industry was a lack of specialist knowledge, he said.

"Most of the people working in takaful (are) coming from conventional (insurance), so there is no add-on. There has to be innovation. (With) Islamic finance, there is more innovation in their product," he said.

A separate note distributed by Moody's on Wednesday estimated that around 2 million private sector employees and their dependents will seek cover once Oman’s mandatory scheme is rolled out.

© ZAWYA 2019