Takaful insurance looks set to be the fastest growing sector in coming years, predict Phillip Thorpe and Fetooh Al Zayani.

In September the Qatar Financial Centre (QFC) regulatory authority announced a new prudential regime for insurers authorised to carry out insurance business in or from the QFC. The new rules provide for the establishment and ongoing review of a robust risk management policy, minimum capital requirements, the measurement of assets and liabilities and actuarial reporting requirements.

This development underscores a significant trend in the Middle East insurance industry. There is clearly room for growth and development, and a growing realisation among the larger global players of the potential demand, and the QFC has not been slow in identifying its ambitions in this respect.

But there is also something else implicit in the QFC's announcement. Takaful is undeniably a growing force, and takaful insurance and reinsurance has become increasingly popular throughout the world. The core of the takaful system revolves around the concept of “guaranteeing each other”. Each participant contributes sufficient amounts to a fund to cover expected claims and support the other participants, or in other words the objective of takaful is to pay a defined loss from a defined fund.

The global takaful market is growing rapidly and the growth in the Middle East region is much higher than in conventional insurance. Estimates for the current size of the global market vary from $1.5bn to $2bn which is expected to increase to around $8bn by 2010. Last year, Arig launched the first takaful reinsurance company, Takaful Re, which at the time was the first “fully Shari'ah compliant” reinsurance company, with an initial authorised capital of $500m. Early indications show a strong first year for the fledgling company, with plans already afoot to expand into the north African and south Asian markets which account for 95% of the retakaful market worldwide.

Improved regulation and supervision of takaful and retakaful in the region will give more confidence on the part of the consumer and propel the current growth rate. This is in addition to strongly capitalised regional players; noticeable interest from major international institutions in takaful; and greater international integration which will bring strategic alliances and professionalism to this area.