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S&P - Considerations in the analysis of sharia compliant takaful insurance and reinsurance

Global Arab Network - - Maha Karim

Wednesday, 12 August 2009 10:17

Standard & Poor's Ratings Services today noted that it is rating more and more insurance and reinsurance companies that operate under "takaful" principles, which help render their activities compliant with Islamic Sharia law. A new report published today, titled "Analyzing Sharia -Compliant Takaful Insurance And Reinsurance Companies: Concepts And Considerations," considers the practical implications for our analysis of this concept of insurance activity.

"Many concepts within takaful remain largely outside our analysis, most notably the idea that the customer is less a policyholder paying a premium to buy a guarantee of protection and more an individual sharing risks with other participants while paying a donation to participate in any surplus on the takaful underwriting and investment funds," said Standard & Poor's credit analyst David Anthony in the report published today, titled "Analyzing Sharia-Compliant Takaful Insurance And Reinsurance Companies: Concepts And Considerations."

Analytically, we remain unconcerned whether premiums need to be called "tabarru" (donation, contribution, or gift), or whether policyholders are called "participants". Similarly, we have no need to involve ourselves in any debate on compliance across the various schools of Sharia law.

Nevertheless, when the pursuit of Islamic commercial principles leads in our opinion to significant changes in the way an insurer presents its accounts, then we aim to understand the detail of what is happening.

If we do have concerns with the takaful model, these tend to center less around hypothetical issues and more around conventional analytical problems.

We believe that distinct issues do therefore arise in the analysis and rating of takaful and retakaful companies. However, we believe that all of these issues can typically be addressed from within the standard analytical "template" that we apply in the interests of consistency to the analysis of all rated insurers and reinsurers around the world. In essence, this template comprises the nine elements of our analysis. When applied to a takaful company, our analysis will still include all the basic elements of insurance analysis, but our assessment will also take into account the specific issues relating to a takaful mode of operation.

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