Islamic finance: Takaful posed for takeoff
The UK’s Prudential and Bank Aljazira, Saudi Arabia’s smallest bank, have signed a memorandum of understanding to promote takaful or Islamic insurance in the kingdom.
The agreement means Prudential will take on a significant stake, and become the largest shareholder, in a new venture that will also acquire Bank Aljazira’s market-leading life insurance business, Takaful Ta’awuni.
The new operation will be listed on the Saudi Arabian stock exchange, the Tadawul, and will focus initially on distributing Takaful Ta’awuni to the home market, before spreading across the Middle East and northern Africa. The new partnership wants to form a joint venture company by end-2007, pending regulatory approval.
The Saudi Arabian insurance market is relatively small, with an estimated $1.5 billion in annual gross premiums, with more than 70% of this being related to motor, medical and property insurance. However, as GDP per capita grows to more than $13,200 and life insurance penetration at less than 1%, there is significant room for growth. Mishari Al Mishari, chief executive of Bank Aljazira, says: "Saudi Arabia has one of the lowest levels of life and general insurance per capita spends in the world – and so some of the highest potential for growth."
Bank Aljazira’s Takaful Ta’awuni life insurance division is already well established but, under new Saudi Arabian Monetary Agency insurance regulations, the bank is required to separate insurance from banking via a new holding company.