Kenya Reinsurance Corporation (Kenya Re) plans to operate a re-Takaful window to grow its current income and to tap into the expanding Islamic finance sector as part of the company’s five year plan of product diversification.
“The intention is to have a department that fully complies with all… re-Takaful requirements so that Takaful firms are not shy to give us business” according to Jadiah Mwarania, chief executive officer of Kenya Re. By expanding its product offerings to include re-Takaful, Kenya Re is responding to regional insurance market dynamics following this year’s launch of Takaful Insurance of Africa, a fully fledged Shariah compliant insurance company that plans to expand its operations into Tanzania and Uganda.
Competitive market
Last year, its direct competitor Africa Re launched its own re-Takaful subsidiary, Africa re-Takaful, in order to tap into the burgeoning African Takaful market. In September 2010, Africa Re launched a subsidiary company based in Egypt to offer exclusive re-Takaful services while Comesa-owned reinsurer ZEP-RE, where Kenya Re is also a shareholder, set up a Sudan-based re-Takaful subsidiary in September 2009.
The shift towards re-Takaful will mean more business flows into the company from predominantly Muslim regions like Sudan and particularly North Africa, where Kenya Re is deepening its presence.
Africa Trade Insurance Agency (ATI) also partnered with the Islamic Cooperation for the Insurance of Investment and Export Credit in March, effectively enabling ATI to offer re-Takaful services for imports and exports between Africa and the Middle East.
But, Kenya Re will have to reinvest income from their re-Takaful department outside the country because Kenya does not currently have the necessary Shariah compliant capital market products for reinvestment.
Kenya Re currently underwrites business for all 47 insurance companies in Kenya, which are by law required to cede 18% of their reinsurance to the company up to 2015. This valuable revenue stream currently accounts for 40% of Kenya Re’s gross premium income.
Growth will also be driven by an expected tripling of mortgage lending, which shot from an annual KES100 million (US$1.1 million) to KES300 million (US$3.3million) as of January 2011.
Despite market prospects, Kenya’s only other Takaful underwriter, Takaful Insurance of Africa, has continually raised concerns over the inability of Kenya’s capital markets authority to license Shariah compliant products.
Its re-Takaful focus will also enable Kenya Re to widen its business partnerships in the West African market, where it has reopened its offices after the end of the civil war in Ivory Coast.
There are many obstacles that continue to cause concern for the budding industry; for instance the lack of qualified Takaful professionals in the region and the absence of the necessary Shariah compliant legal framework for investment and Shariah compliant instruments.
Premium potential
Morgan Stanley has previously stated that Kenyan Takaful premiums could potentially reach KES20 billion (US$221.73 million) by 2014, or 31% of total insurance premiums.
Barclays Bank was the first financial institution to test the market with a Shariah compliant product in December 2005, and since then Islamic financial products have exploded with at least eight commercial banks tapping into the market.
Two Islamic-driven banks with roots in the Middle East are Gulf African and First Community. Both banks opened up shop in 2007 and have since moved to the profit zone, illustrating the vibrancy of the halal economy in the country. They are seeking to deepen penetration in a market where conventional insurance has suffered from consumer apathy and ignorance, with uptake remaining at below 3% over the decade.