There are also variations within each of the four basic models, depending on the country in which it is domiciled. This is
a reflection, Underwood says, of the diversity in the Muslim
“Many people in the Islamic world have been working on
this simultaneously over the last few years and have been dealing with various sharia legal systems and Islamic scholars in
doing so. As a result, somewhat different forms have been approved as in accordance with Islamic law in various countries,”
When choosing investments, takaful
companies must segment funds and
monitor carefully the types of assets
in which they invest. There is a lot
of money chasing sharia-compliant
investments and this can put
downward pressure on returns.
Underwood explains. “Sometimes this is a function of the details of the underlying sharia legal system. At other times, it is
due to the religious rulings of the particular Islamic scholars involved. In fact, some more conservative scholars/jurisdictions
do not consider the modified mudaraba or hybrid models to be
halal—in accordance with Islam.”
When choosing investments, takaful companies must segment
funds and monitor carefully the types of assets in which they
invest. There is a lot of money chasing sharia-compliant investments, and this can put downward pressure on returns.
In Arab states in the Persian Gulf, for instance, profitability has declined because of low investment returns and poor
loss experience. But Malaysian takaful companies are looking
at improved results.
Middle Eastern takaful firms tend to use retakaful more than
their Asian counterparts. In the Middle East, approximately
40 percent of the business is ceded, while in Malaysia only 5
percent to 15 percent is ceded. As a result, it can be difficult for
Middle Eastern takaful operators to make consistent money
on writing, forcing them to rely more heavily on investment
income. Profitability for takaful operators in the Arab states
in the Gulf comes primarily from income on investments. For
Malaysian takaful operators, the biggest source of profitability
is underwriting income.
General Manager Riadh Karray of reinsurer Best Re predicts
the retakaful industry will grow by 10 percent to 15 percent
globally as the availability of sharia-compliant investments
opens up new markets.