Takaful fund deficits in the UAE rose by more than 70% in the first quarter of the year, says S&P - IFN

Takaful fund deficits in the UAE rose by more than 70% in the first quarter of the year, says S&P

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UAE: The Takaful sectors of the UAE and Kuwait are not growing fast enough to balance out its current fund deficits which are eroding its capital strength and the sector’s financial strength as a whole, say analysts at S&P. “Despite rising contributions (premiums), which grew at over 15% in 2012, the UAE Takaful sector is not performing effectively for either the fund members, through generation of reliable fund surpluses for distribution, or shareholders, through generation of profits,” the ratings agency said in a report released on the 4th July. So far, no listed UAE Takaful company has accumulated a distributable surplus for its Takaful fund members, says S&P, while Takaful fund deficits in the UAE rose by more than 70% from the 31st December 2012. Takaful companies in the UAE had also recorded zero growth in shareholder funds after considering its Takaful fund deficits which were covered by shareholders through Qard Al Hassan facilities. The conventional insurance sector on the other hand, recorded 5% growth in shareholder funds in 2012 with less growth in premiums compared to the Islamic sector. According to S&P, Takaful firms are suffering from the direct competition with its conventional peers which have the benefits of established economies of scale, longer track records and tried and tested distribution mechanisms, such as less dependency on intermediaries for their revenue streams. It also said that the conventional sector has already tapped into any potential ‘meaningful Islamic communities’ to the growth of the Takaful sector, leaving hardly any room for new markets. The rating agency also commented that the GCC insurance market is already overpopulated with insurance providers, which is expected to give rise to overcapacity and heightened price competition.