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Tuesday, 5 February 2008

Islamic insurers eye West for 10-fold growth

By Mohammed Abbas

MANAMA (Reuters) - About a third of Islamic insurance premiums will come from the West by 2020, up from almost zero today, and premiums will grow ten-fold to $15 billion, the world's largest Islamic insurer by capital said on Monday.
By the end of this year Bahrain-based Solidarity will have operations in six Arab states, plus Malaysia and Luxembourg, and is eyeing the rest of Europe for expansion, but a lack of long-term investment vehicles and cultural barriers stand in its way.
In Islamic insurance, or takaful, the risk and reward are shared between the customer and insurer, while in conventional insurance the insurer takes on all the risk for a premium.
"Takaful may have started as a prerogative of Muslims; it's become widely acceptable to the entire marketplace. In Europe there is a lot of demand for ethical and principled products," Ashraf Bseisu, a general manager at Solidarity, told the Reuters Islamic Finance Summit.
The firm aims to raise $55 million by the end of next year through an initial public offering. In the West, the company is in talks with potential distributors of its insurance products.
"We are aiming that something will happen in Europe during 2008. We might consider the UK and France as markets, to start with," Solidarity Chief Executive Sameer Al Wazzan said.
The takaful industry is growing at an annual rate of about 15 to 20 percent, compared with about 9 percent for conventional insurance, and premiums were worth about $1.5 billion in 2006, Bseisu said.
About two-thirds of current premiums come from Asia, predominantly from Islamic banking hub Malaysia, and almost all the rest in the Middle East, he added.
Islam bans interest, investing in prohibited sectors such as gambling, pornography and alcohol and stipulates that risk and reward be shared among all those in a business venture.
Those taking out a takaful policy do not pay premiums, but donate to a pooled fund which is then invested. After paying for claims made by fund participants, returns from the fund are given back to policyholders.
The fund is invested according to sharia, or Islamic law.
TAKAFUL BARRIERS
Islamic insurance is poised to take advantage of a chronically under-insured Middle East and a growing popularity among Westerners for ethical financial products, but cultural and other hurdles remain, Solidarity said.
Banks and insurance firms that comply with Islamic law, or sharia, have struggled to find long-term investments for their deposits and premiums since most Islamic bonds, or sukuk, do not exceed five years in tenure.
A lack of long-term fixed-income products is forcing Islamic banks and insurers to invest in Gulf Arab real estate, exposing them to any property market correction, Solidarity said.
"Where is Islamic money? It's all in buildings and housing," said Sameer al-Wazzan, chief executive of Solidarity.
The Middle East and North Africa is the most underinsured part of the world. Average insurance premium returns per head of the population were $25 in the region, compared with $3,500 in the United States and Japan, Bseisu said.
When the takaful industry started about 30 years ago, some Muslims objected that it showed a lack of faith, since they believed only God could insure life, prompting takaful firms to rename life insurance "family insurance", Wazzan said.
Another hurdle to growth is a traditional reliance on the extended family for support, rather than insurance.
"Here people are not alarmed when they hear someone doesn't have life insurance. His cousin or mother will take care of his children ... but this is changing," Wazzan said.
In the West, some eye Islamic financial products with suspicion after the attacks of September 11, 2001, and the Danish cartoon controversy of 2006, Bseisu said.

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