Bermuda is keen to attract Middle Eastern Takaful and re-Takaful companies as part of its strategy to bolster the island’s stature as a leading Islamic finance center. CHERYL PACKWOOOD discusses.
Bermuda has grown into the world’s largest insurance and re-insurance center. The island is constantly alert to changes in the organization of global business that may have implications for how companies choose to organize their insurance requirements. As a result, Bermuda has the world’s most supportive legal and regulatory framework, an established captive insurance and reinsurance market and all the support services that a business may need.
Bermuda’s Islamic finance sector is large and growing fast. Its working partnerships with the financial centers in the Middle East such as Bahrain have been diligently fostered in order to develop synergies and mutually beneficial partnerships. Business Bermuda, Bermuda’s promotional organization for finance and business, was a participant at the recent World Islamic Finance Conference held in Bahrain in November 2011.
Bermuda has invested resources and expertise in providing a highly supportive framework for the Takaful and re-Takaful industry.
This talent and expertise has enabled Bermuda to become an increasingly trusted jurisdiction for structured financial transactions, such as Sukuk and Shariah compliant funds, including private equity funds.
The island has become a global pace-setter for Sukuk issuance for aircraft financing. It is the first international financial center integral to the first issuance of a Sukuk by a Fortune 500 company.
Takaful opportunities
The next logical step is to achieve the same central role in Takaful. Although the global downturn slowed the growth of Takaful, as it affected every aspect of the insurance industry, this has not offered a visible deterrent, and evidence still overwhelmingly suggests that Takaful is set to continue as the fastest accelerating area of insurance.
Growth for Takaful companies
Bermuda is well placed to welcome Islamic financial structures, not least in Takaful and re-Takaful. The government of Bermuda signed a double taxation agreement with Bahrain in 2010 which opened up structural opportunities for both conventional and Shariah compliant investors eager to access the oil and gas rich nations of the GCC.
Bermuda’s traditional links with a range of different regions enables it first to identify and then supply the requirements of a remarkably diverse range of users of Takaful and other Islamic products and services. In spite of a widespread assumption that Takaful on any large scale is confined to the GCC markets, the reality is much more interesting.
It is certainly true that Takaful remains a strong market in Saudi Arabia because of the continued roll out of compulsory medical insurance. But, as measured by regions, the latest comparative figures for 2011 indicate that Takaful contributions in the Indian subcontinent grew by no less than 85%, making it the world’s fastest growing Takaful market.
Following some way behind has been the Levant (comprising Lebanon, Syria, Jordan, Israel, Palestine, Turkey and Iraq) with 40%. The GCC, at 31%, comes in only third – barely ahead of Southeast Asia and Africa. In terms of individual countries, Indonesia topped the Takaful market, closely followed by Bangladesh and with Saudi Arabia in third place. In future, the GCC could be the most competitive market in the world, with the largest number of players and the greatest capacity for growth.
Challenges
But as the market grows, problems will arise that will preclude many jurisdictions from benefiting to the degree they might expect. For instance, the primary Takaful market cannot keep growing – and be truly compliant, in the judgment of many Islamic scholars – unless it is matched by the development of a reasonably sized re-Takaful market.
This is where Bermuda is ahead of the competition, because it already has in place the legislative and regulatory structures to accommodate re-Takaful as well as primary Takaful structures.
These structures are practical, realistic, and responsive to industry needs as they are the result of cooperation between the Bermuda Monetary Authority and the industry. As a result, Takaful and re-Takaful operators can tap into Bermuda’s resources to leverage access to capital as well as expertise, products and systems.
This can be done without the risks of uncertainty, excessive profit, usury and gambling that can be problematic for conventional insurance.
The Bermudian authorities appreciate how important it is to honour the key distinction between conventional insurance and Takaful – namely the relationships between the insurance company and the policyholders.
Bermuda is also sensitive to the fact that there is no ‘one-size-fits-all’ approach to Takaful and the most suitable structure will depend on the particular product in question.
Cheryl Packwood is the CEO of Business Bermuda and she can be contacted at
[email protected]
.