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Sun 6 Aug 2006 04:00 AM

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Re-insuring a religion

Swiss Re, the largest reinsurance company in the world, is the latest Western superpower looking to take a slice of the rapidly growing Islamic insurance cake. CEO Middle East hears what the man behind the company’s new Shariah-compliant package has to say

|~||~||~|The unlikely partnership between a respected Islamic scholar and a Western financial powerhouse would hardly seem like the ideal recipe for a successful business venture. It is exactly this combination however, that has lead to the latest foray by a non-regional institution into the rapidly growing Middle Eastern Islamic finance sector.

With the backing of prominent Shariah scholar Sheikh Muhammad Taqi Usmani, Swiss Re — the largest reinsurance company in the world — has launched a fully Shariah-compliant family Retakaful product.

“The global life Retakaful market as it stands today is very, very small indeed — significantly less than US $10 million (AED 36.7 million) — however, the potential is huge going forward,” says Chris Singleton, head of life and health for Swiss Re in Turkey, the Middle East and Asia.

Swiss Re, a company with over 70 offices in over 30 countries and a history in the Middle East going back before the First World War, decided to enter the Retakaful market after a number of Islamic clients expressed their desire for such a Shariah compliant product.

In simple terms, the difference between commercial re-insurance and Shariah compliant Retakaful ‘solutions’ is based around the principle of shared risk, as Singleton explains: “In a commercial world, the insurer and the re-insurer take much of the risk, so it’s only reasonable that they should be allowed to make underwriting and investment profits while providing cover to clients,” he says.

“Of course, in terms of Shariah law, these aspects are not acceptable and the principles of mutuality and sharing are of paramount importance,” he adds.

With approximately 40 Takaful operators in the Middle East and around 60 businesses in total across the globe, Singleton believes Swiss Re is well equipped to capitalise on what he calls a “burgeoning” industry. “The key advantages that we have are that we are the largest re-insurer in the world, we have capital that is second to none and we have the competence in product development to be able to help the industry grow.”

Singleton admits however, that the latest move by Swiss Re, that bought General Electric’s insurance arm for US $8.5 billion and assumed US $1.7 billion of the corporate giant’s debt in 2005, hasn’t been easy.

Citing his concern and awareness of the fact that Swiss Re is a Western and commercial business entering an already competitive Islamic industry, he says: “We looked at whether we could get involved in an entirely Shariah compliant entity, but the numbers simply didn’t add up.

“We were concerned (about being a Western company), which is why we worked so closely with Sheikh Muhammad Taqi Usmani and we feel confident now that we have his backing and approval, and ongoing commitment,” adds
the head of life and health.

Before appointing Sheikh Usmani as the chairman of the Swiss Re Shariah board, the company had to weigh-up the commercial merits of the varying interpretations of Islamic re-insurance. “We examined both the Wakalah and Mudharabah models and, although the Mudharabah model works well, it isn’t universally accepted in the Middle East, so we adopted the Wakalah model to select a solution with universal acceptance.”

Once the Wakalah model was chosen as the most profitable route, Swiss Re took its time in entering a sector where reputation and the faith of customers in the moral foundation of the product are key elements to success. “We began investigating this about two and a half years ago as we had to take a very cautious approach — it has taken a long time, but Swiss Re has been around for 140 years so a couple of years is nothing.”

While launching Swiss Re’s latest product may have been an arduous and drawn out process of careful planning and preparation, if the partnership between the insurance experts and the wise old Sheikh proves to be a success, then it will have all been worth it.||**||

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