Sri Lanka Islamic insurer hit by lack of compliant investments, bad weather
May 05, 2011 (LBO) - Amana Takaful, a Sri Lanka
based insurer operating on Islamic Shariah principles said it lost less
money in 2010 despite higher claims, but was hamstrung by the lack of
compliant instruments to generate higher investment income.
In 2010 gross
written premium was flat at 1.17 billion rupees. The group had tightened
underwriting in its Maldives business, resulting in a drop of revenue
to 2.5 million US dollars from 3.2 million a year earlier.
Maldives, which was an agency business, had also received a license from the country's central bank.
Meanwhile claims rose to 517 million rupees from 476 million a year
earlier. Re-insurance recoveries also fell to 27 million rupees from 175
million a year earlier.
In Sri Lanka the insurance industry in general is making underwriting
losses and the bottom line is propped by investment income. Industry
analysts have warned that lower interest rates will hit the industry and
general insurance premium may have rise.
Islamic insurers however lack compliant instruments to investments. Out
of 813 million rupees of investments 606 million rupees were in
government securities. But under Islamic finance principles interest income cannot be recognized.
The interest income has to be donated to charity.
"One of our main focuses has been to increase our Shari'ah compliant
investment income," chief executive Ehsan Zaheed told shareholders in
the annual report.
"In 2010 we were compelled to continue to have most of our funds in
treasury bills as Shari’ah compliant options were very limited due to
regulatory and solvency rules.
"We understand with our discussions with the regulators, that there
would be changes to the RII Act from the beginning of the 2nd quarter,
which we believe will facilitate us in investing in Shari’ah compliant
investment vehicles such as bullion and in Finance Companies that offer
Shari’ah compliant investments."
The firm had engaged NDB AVIVA Wealth Management Limited to get more returns from equity.
"This has paid results by giving us a growth of 189.4 percent on the
income from investments in equity from
7 million rupees in 2009 to 20.3 million rupees in 2010, which are
purely from white listed (Shariah compliant) companies," chairman Tyeab
Akbarally chairman
The group had ended with a 35.1 million rupees loss against a 51.9 million rupees loss in 2009.
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