An increase in minimum capital requirements would require almost 90 per cent of Islamic insurers in Saudi Arabia to raise new capital, consolidate through mergers and acquisitions or exit the market.
Monday 15, July 2019 BY KUDAKWASHE MUZORIWA
The Saudi Arabian Monetary Authority (SAMA) is considering increasing minimum capital requirements for primary Islamic insurers from SAR 100 million to SAR 500 million to strengthen the sector.
S&P Global Ratings said that plans to increase minimum capital requirements will lead to consolidation in the GCC’s Takaful industry.
Emir Mujkic, S&P Global Ratings Credit Analyst, said, “Thanks to strong premium growth in Saudi Arabia and other GCC markets, Islamic insurers in the region recorded a 9.5 per cent increase in gross written premiums and contributions in first-quarter 2019 following years of flat performance and declining profitability.”
The rating agency said that accumulated losses have in recent years eroded capital buffers and resulted in solvency issues and licence suspensions for several insurers especially in Saudi Arabia, the largest Islamic insurance market in the GCC.
According to S&P despite improvements, more than one-third of insurers in the Takaful sector continue to report underwriting losses.
In the UAE, where about 40 per cent of Takaful players do not comply with new solvency requirements and in Kuwait, where a new law is likely to be implemented in 2020, a significant number of companies will also need to increase their capital or consolidate, added Mujkic.