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ZUG, SwitzerlandConverium Holding Ltd. plans to write international retakaful--Islamic reinsurance--business in South and Southeast Asia through its Malaysian office.
The Zug, Switzerland-based reinsurer has obtained regulatory approval from the Labuan Offshore Financial Services Authority in Malaysia to provide reinsurance services that comply with Islamic principles, or Shariah. Takaful entities resemble mutual insurers.
Benjamin Gentsch, Converium's executive vp for specialty lines, said: "We look forward to offering our clients in the Islamic world reinsurance solutions which are Shariah compliant. Our decision to write retakaful business demonstrates our strong commitment to serve fast growing markets, with innovative and culturally sensitive products."
According to Converium, global premiums for the takaful insurance market in 2005 were an estimated $1.5 billion.
The market is expected to develop substantially in the coming years, with demand for retakaful products set to increase, the reinsurer said in a statement.
Meanwhile, according to a report by Moody's Investors Service, the takaful insurance market is showing impressive growth as takaful insurers take business from traditional insurers that face difficulties in providing products that comply with Islamic law.
The takaful market has had growth rates of about 20% in recent years, with premiums of more than $2 billion written in 2005, according to "Takaful: A Market with Great Potential," released this month by Moody's Investors Service. Takaful premiums are expected to reach $7.4 billion annually by 2015, the report predicts.
Takaful business is growing because conventional insurance conflicts with Islamic law in two meaningful ways, said Timour Boudkeev, a vp with Moody's and author of the report.
"Firstly, traditional insurance is thought to have a large element of 'gharar', a term that denotes uncertainty, ambiguity or deception," he said in a statement announcing the report's release.
"As the payoff from an insurance policy is dependent on occurrence of uncertain events in the future, the amount of compensation has no predictable relationship with the insurance premium, which disqualifies conventional insurance as an acceptable financial product under Islamic law," Mr. Boudkeev said.
Investment strategies by conventional insurers also run afoul of Islamic law, according to Mr. Boudkeev. Interest is forbidden under Islamic law, which means conventional bonds and other sources of funding are not acceptable, he explained.