UAE Islamic insurers consider mergers as tighter rules bite
(Reuters) – Several Islamic insurers in the United Arab Emirates are seeking guidance from the UAE Insurance Authority on the possibility of mergers and acquisitions in the sector, Ibrahim Al Zaabi, director-general of the authority, told Reuters on Monday.
Talks are at an early stage, he said on the sidelines of an Islamic insurance (takaful) event, without naming any of the companies. The authority regulates the insurance industry.
The comments signal that tough new regulations, combined with financial losses and stiff competition are pushing some of the providers in one of the Gulf’s largest takaful markets to consider consolidation.
Expectations of mergers in the region were raised last week when Bahrain Kuwait Insurance Co, the country’s largest lender, said it had raised its stake in rival Takaful International to 40.9 percent.
More than 50 conventional and Islamic insuers are estimated to operate in the UAE, a country of nine million people. In Germany, a country of more than 80 million people, there are less than 30 insurers.
Intense competition, combined with low penetration of the insurance market meant that no UAE takaful provider rated by Standard & Poor’s generated a fund surplus in 2013, according to the ratings agency.
In a move that could encourage consolidation, the UAE is one of the first markets in the Middle East to adopt new risk capital requirements being introduced in the European Union. In the same legislation announced late last year, it also told insurers to invest no more than 30 percent of their funds in either UAE equities or real estate.
The “radical overhaul” would help catapult the UAE to a more sophisticated risk-based underwriting and solvency regime, said Raymond Hurley, a partner at PwC in the region. “It is only the larger insurers that can comply profitability with the regime, so over time the smaller insurers will need to combine, be acquired or really question what their business model is,” he said in an interview.
Islamic insurance is one of the eight pillars of Dubai’s drive to become the centre of the global Islamic economy. Zaabi also said a committee to oversee Islamic insurance would be established in the UAE by the end of this year to help standardise the sector.
The committee will monitor takaful providers as well as the products they offer, he said, adding that the composition of the body was still being finalised but it would be made up mainly of people operating within the UAE’s takaful sector.