Shariah compliant investments can be a challenge for Takaful operators seeking to maximize returns on premium funds received. IFN Investor’s Kamal Bayramov gets an insight into Takaful Oman’s perspective.
In Oman, Takaful operators have their investment portfolio under the diligent oversight of an internal Shariah supervisory committee. This has led to much of the available funds being allocated to fixed deposits, followed by government fixed income securities.
Takaful Oman Head of Finance and Investments Syed Muhammad Haider Hussain said on average, over 70% of the industry’s portfolio is invested in stable, high-quality and liquid fixed income securities. He explained this strategic allocation underscores the industry’s mandate for a high-quality and stable investment portfolio. Such a portfolio is crucial in ensuring the industry’s ability to meet potential demand for liquidity arising from unforeseen claim events.
Because such an investment plan has to be submitted annually to the regulator, the Capital Market Authority, together with quarterly reports, Syed Muhammad said that at Takaful Oman, “we mitigate portfolio risk by investing in investment-grade Sukuks and high-quality equity securities”.
“We manage our treasury function effectively by proactively investing surplus business cash flows and controlling the working capital cycle. These principles guide our investment activities, ensuring a balanced approach to risk and return.”
Takaful Oman practices diversification across asset classes — including bank deposits, real estate, funds and more — investing locally as well as in international markets.
This has resulted in the company charting in Q1 2024 a combined shareholders fund and participants fund investment income of OMR340,000 (US$880,858) — a 21% increase year-on-year compared with OMR280,000 (US$725,413) recorded in Q1 2023.
As of the 31st December 2023, the company’s combined investment portfolio was valued at OMR24.3 million (US$62.96 million). Therefore, the return on investment based on audited financial statements is 5.3%.
On a broader perspective, Syed Muhammad shared that the aggregate investment portfolio of the insurance and Takaful industry in Oman stood at an estimated OMR838 million (US$2.17 billion) as at the 31st December 2023. But the investment portfolio pertaining to the Takaful industry stood at OMR51 million (US$132.13 million), with OMR35 million (US$90.7 million) being invested in fixed deposits and government Sukuk, he added.
