Fully Converted

How has Al Madina’s transition to a takaful operation progressed since the January 2014 conversion?

We have been able to convert 100% of our policy contracts from conventional to takaful on January 1st, 2014, putting to rest the fears that there could be resistance to such conversion and would result into potential loss of business. We also measure success by the fact that we received a fully compliant sharia certification at the end of 2014. This is in our opinion is an achievement as there were lot of complexities in the conversion process due to the size of our conventional book and absence of takaful law and regulations. We also had to convert to new accounting regulations from IFRS to AAOIFI, which had its own challenges.

How would you assess the health of the insurance sector in Oman in relation to the performance of Muscat Securities and the drop in oil prices?

The Oman insurance industry should take a serious look at how insurance business is being conducted, otherwise it will not be able to fulfill its role of being a positive contributor to the national economy notwithstanding the fact that the industry has achieved double-digit year on year growth rate in last five years. If you look at insurance as part of the GCC and the amount of income that is retained in the country, it is small. If I consider insurance as an industry that is supposed to contribute to the growth of the economy, I have some concerns. One of the reasons is not having regulations developed in line with the economy’s progress, and the changing environment of the country. It is partly due to the complacent attitude of insurance companies—particularly local companies. When you look at the insurance premium in Oman, almost 65-70% of the premiums come from motor and medical. When you look at property and engineering premiums, most of it is reinsured, so it goes out of the country. It is the motor and medical that stays in the country. Motor insurance has a claims ratio of 80-90% and medical is another 85-90%. After providing for management expenses and return on capital there is very little money available, if at all, for investing into training and development. There is income generated by way of reinsurance commission and fronting fees for large property and engineering policies which with investment income provides return to the shareholders on their capital. This model is unsustainable in the long run for the insurance companies as we have seen reinsurance commission being reduced over period of time.

What are your company’s expectations for the coming year and next five years?

We have been growing in the last three or four years at a rate of 15-20%, and we think there are enough opportunities in the market to maintain this rate of growth. Our main focus is on underwriting profitability and this becomes even more significant in takaful as shareholders operate as agents for Policy Holders’ Funds so there is a fiduciary obligation to ensure that the fund is managed in a proper manner. We have a long-term strategy for entering into Life or Family Takaful business. We have a strategic partnership with FWU to introduce unit linked family takaful plans. Expansion is a key driver of the company—we have a strategic stake in Abu Dhabi. This is done to diversify and find avenues of growth. We are open to organic and inorganic growth. In time we would like to create a takaful holding structure that can expand regionally operating out of a common platform that will give us a competitive advantage. This translates into profits for both shareholders and policyholders.