Lloyd's eyes Islamic reinsurance

(For other news from the Reuters Islamic Banking Summit, clickhere) * Lloyd's of London examining Islamic reinsurance syndicate

* To be operational by early 2010

* More ‘retakaful’ syndicates likely to follow

(adds comment from Lloyd’s of London)

By Cecilia Valente

LONDON, April 14 (Reuters) - Lloyd’s of London is examining the viability of an Islamic reinsurace, or takaful, syndicate with interested parties planning capacity of up to 200 million pounds ($294.5 million), a PriceWaterhouseCoopers executive said on Tuesday.

Mohammad Khan, director for takaful at PwC, said the Lloyd’s syndicate would include mainly financial institutions and to a lesser extent individual investors. It could become operational by early-2010 and would write business worldwide.

Financial consultant and accounting firm PwC is advising parties interested in the Lloyd’s retakaful syndicate, Khan said at the Reuters Islamic Banking and Finance Summit in London.

A Lloyd’s spokesman said: “We have an active interest in understanding whether the Lloyd’s platform could be utilised to underwrite Retakaful business, but are currently only researching whether a syndicate at Lloyd’s is viable.”

Islamic insurance is a tiny industry in Europe despite a 20-million strong Muslim population. Its development, and the growth of takaful more widely, will rely to a large extent on the strengthening of Islamic compliant re-insurance, Khan said.

Khan said the first Lloyd’s syndicate would inevitably pave the way for more, bringing liquidity to the market for insurance which complies with Sharia law.

“Once you get one syndicate you get others, that is not a problem. The Lloyd’s model is about sharing (risks and rewards). If you think about it, the model lends itself quite neatly to Sharia because it is mutual,” he said.

Lloyd’s has been here before. In 2006 Lloyd’s insurer Creechurch Underwriting Limited announced the formation of a syndicate to be managed in accordance with Islamic principles, but Khan said no business was written, because the insurer was subsequently taken over.

Khan said the new syndicate would raise between 50 million and 200 million pounds.

“I do not think Lloyd’s is just looking at one (syndicate), it would not make sense... Lloyd’s is quite serious about this,” he said.

Under 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 investment strategies must also abide by Sharia law, which excludes sectors like alcohol as well as instruments such as interest bearing investments or over-leveraged companies.

At the session of the Reuters Islamic Finance Summit in Dubai, Noor Takaful’s managing director Ahmed al-Jana said the emerging industry could grow at 30-40 percent annually in the next three to five years as more people switch from conventional to Islamic insurance [nLE256086].

Noor Takaful is a unit of Dubai’s Noor Islamic Bank.

HSBC HSBA.L expects the market to reach $14.4 billion by 2010, owing to a low insurance penetration in the Middle East and Asia, which offers growth opportunities.

($1=.6790 Pound)

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(Additional reporting by Joel Dimmock)

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