Consolidations loom as UAE takaful firms feel the pinch
Saturday, 05 02 2015, Category: Insurance and Reinsurance, Country: U.A.E
New regulations, low margins and a highly fragmented marketplace are leading the UAE’s takaful firms to plan a wave of consolidations, according to experts.
Bigger capital requirements, increasing back-office staff needs, tighter auditing rules, and a desire to achieve real profits mean that small-scale takaful firms need a quick route to growth. With overall double-digit industry growth, new regulatory incentives to merge, and the presence of a large number of small firms making negligible profits, industry analysts envisage a sector ripe for consolidation.
“[Takaful] companies should recognise that at the current scale of their businesses, they should merge, combine balance sheets and create a stronger sustainable platform for business,” said Salman Siddiqui, a financial analyst at the ratings agency AM Best.
In the UAE, margins on Sharia-compliant underwriting are low. Return on equity at UAE takaful companies stood at 0.4 per cent in 2014, according to data from the accountancy firm Milliman. This compares unfavourably with return on equity in Saudi Arabia and Malaysia, which stand at 6 and 14 per cent, respectively.
Source: The National – UAE