London's Cobalt Underwriting boosts Islamic insurance capacity

March 28 Thu Mar 27, 2014 10:30pm EDT

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March 28 (Reuters) - London-based Cobalt Underwriting said it was signing the European unit of QBE to its sharia-compliant insurance platform, helping address capacity constraints in the takaful (Islamic insurance) industry.

The Cobalt platform is part of a range of initiatives aimed at boosting London's credentials in the Islamic finance industry, which follow religious guidelines such as a ban on interest and pure monetary speculation.

Cobalt will has increased its capacity to underwrite property risks to $425 million from $300 million, construction to $160 million from $100 million and an additional $50 million for casualty risks, the firm said in a statement.

"It has long been our intention to broaden the range of products we offer since our launch last year, and we will continue to do so," said Cobalt chief executive Richard Bishop.

The platform uses a syndication model to help spread risk across a panel of underwriters, allowing multiple insurers to pool their capacity while each can subscribe to the desired level of risk though individual Islamic windows.

The risk is priced by a lead insurer and other firms must then subscribe under similar terms, a similar approach to the subscription model used in London's Lloyds insurance market.

CAPACITY

Cobalt, formed with capital from Capita insurance services and the Bank of London and The Middle East, hopes to address gaps in the takaful and re-takaful sectors.

Takaful is based on the concept of mutuality, where a company oversees a segregated pool of funds contributed by policy holders.

The firm seeks to underwrite large transactions of no less than $30 million in value, and further capacity could be added for other risks including trade finance, Islamic finance institutions, energy and aviation.

Operators in the takaful sector, which has its core markets in the Gulf and southeast Asia, have been limited in their ability to take on large commercial risks partly due to a lack of scale.

Reinsurance options are also scarce, with some takaful firms forced to reinsure through conventional lines, a practice allowed under the concept of darura, or extreme necessity.

Industry purists, however, are increasingly challenging whether the darura concept is still applicable in today's market and are encouraging alternatives. (Editing by Eric Meijer)

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