Swiss Re says reinsurance will help Takaful
ZURICH (Reuters) - The fledgling Islamic insurance industry needs stronger backing by sharia-compliant reinsurers, Swiss Re (RUKN.VX) said, in order to help it open new markets and sell its products to more clients.
Insurance is not nearly as commonly sold in the Middle East as in the West, studies show, and insurers hope their sharia-compliant products known as Takaful will persuade more Muslims to buy policies.
But the industry also needs a robust safety net from reinsurers, which help insurers cover the risk of costly events such as earthquakes or epidemics, Swiss Re said.
"The two go hand in hand. Without the access to the capacity, the expertise and the global reach of the reinsurance market, the Takaful industry itself will be constrained," said Chris Singleton, who heads a Swiss Re Takaful unit.
Sharia boards have long allowed Takaful companies to buy traditional reinsurance cover, because Islamic products did not exist, he said. But reinsurers are now offering their products on a fully compliant basis.
The concepts of sharia-compliant insurance -- where risk and reward are shared between policyholder and insurer -- are not new, Singleton said, harking back to mutual insurance, one of the oldest contract forms in the industry.
"It is not innovative in a financial aspect ... the innovation lies with the ability to provide products which comply with the laws of Islam," he said.
"There is no doubt it will increase insurance penetration in the Middle-East and the Gulf States in particular."
Swiss Re, the world's largest reinsurer, has already developed sharia-compliant life reinsurance products, though there are still some hurdles in developing property and casualty reinsurance on the basis of mutual risk sharing.
The pooling of the risk for industries where potential claims are very large, such as in nuclear energy, were still "somewhat problematic", Singleton said.
Swiss Re, whose main rivals Munich Re (MUVGn.DE) and Hannover Re (HNRGn.DE) offer similar products, declined to say how meaningful Takaful was for its business.
"It's still a very, very small line of business for us ... the market is pretty small at the moment, but it is growing very, very rapidly, albeit from a small base," he said.
Swiss Re has annual premiums of some 30 billion Swiss francs ($27.55 billion), dwarfing Takaful volumes.
(For Reuters content on Islamic finance, click on ISLAMIC)
(Editing by Rory Channing)
