Inconsistent regulation across the Gulf's takaful (Islamic insurance) industry is hurting profit margins and credit ratings, while leaving the door open to regulatory arbitrage, according to global insurance rating agency A.M. Best.
New rules in Oman and updated ones in Bahrain are expected this year, but lack of coordination among regulators is making life difficult for takaful operators, said Vasilis Katsipis, Dubai-based general manager for market development at the firm.
"Regulators have little interest in coordinating among themselves, but there is growing recognition of the importance of takaful. We are seeing regulators thinking about it," he told Reuters.
In some cases companies are having to establish complex and expensive safeguards, such as ring-fencing assets, to make up for weaknesses in regulatory regimes, increasing their funding costs by as much as 1 percentage point, Katsipis said.
Loose regulation can also affect ratings. "In lax regimes, unless they put safeguards, the rating will be deep in the unsecured level. Five to six notches could be the extreme."
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