Despite regulator Securities and Exchange Commission of Pakistan (SECP) allowing up to half of a firm’s Takaful premium pool to be invested in listed equities, Islamic insurance firm Salaam Takaful prefers to minimize such holdings, Managing Director and CEO Syed Rizwan Hussain shared with IFN Investor.
According to Syed, the equity market carries a risk potential which may reduce the value of invested capital. “The premiums are people’s contributions, meant for their protection.”
Drawing on his almost three decades of experience in Pakistan’s general insurance industry, Rizwan noted that even a good investment committee can make maybe a negligible 1-2% difference in terms of returns. “But you don’t have any control over that gain or loss from a risk management perspective.”
As such, Salaam Takaful prefers to count on government-issued Sukuk and treasury bonds for long-term gains and is glad for regulator SECP’s ceiling on equities investment – to ensure any Takaful firm’s cashflow doesn’t get overly stuck in the market, especially when equity values are down.
This focus on Takaful premium investments came to the fore with the firm obtaining SECP approval in April 2024 to offer life policies – after in-house actuaries achieved a possible global first with a new product, Rizwan explained.
“We came up with a very disruptive model for Life Takaful where , from day one, your policy stays as 100% cash value of the premiums contributed, with no deduction for agency commission. I know this sounds too good to be true.”
Premiums received are transparently invested in government-issued money market instruments and the values are updated daily. To illustrate how this policy works, Salaam Takaful has developed a dedicated app for this product – which is currently being beta-tested among a small group of invited customers.
“If we calculate the earnings by the end of the year, your premiums should have gained around 15-16% in value, based on the current central bank’s rate. We take around 4-5% from the investment earnings on the last day, not the first day.”
On the choice of investments for this Life Takaful product, Rizwan said returns are guaranteed with government-issued instruments “We need to be very cautious where your money is being invested. I would not want Salaam Takaful to put this money in the equity market or other risky ventures.”
With the consumer able to see premium values growing daily via the app, Salaam Takaful is aiming to win trust and draw more individuals to purchase its Life Takaful product. Rizwan noted the retail sector is untapped as about 95% of Pakistan’s insurance is now in corporate-related products.
The consumer segment potential is huge as the UN’s estimate of Pakistan’s largely Muslim population is about 245 million in 2024 and expected to surpass Indonesia in 2048 as the world’s fourth most populous nation with 331 million residents.
Aiming to garner a bigger slice of this Islamic insurance pie, Rizwan said plans are in progress to set up a reTakaful entity next year to complete the group’s offerings. “With the Shariah advisory board granting its approval, we can accept reTakaful risk from conventional insurance companies as well.”
