Issues in Rating Takaful Companies
Credit ratings have been used by conventional insurance companies for many years as a way to demonstrate financial strength, enhance transparency, and, in some cases, as a benchmark for management purposes. As the takaful industry develops and increases in maturity, more and more takaful and retakaful firms are considering credit ratings for these reasons and to compete more effectively with conventional insurance companies. Fitch Ratings and a number of other rating agencies have published information setting out their methodology for assigning credit ratings to takaful firms and how this methodology is different from that used in a review of a conventional insurance company.
Although rating agencies generally work in a similar way, their approach toward takaful firms does differ to some extent as the agencies have varying degrees of focus on the sector, and in some cases, also differ in their choice of key rating factors. This chapter provides a brief background on credit ratings as well as the main issues that Fitch considers to be especially important in the rating of takaful companies. The chapter does not include all the details of the agency's rating methodology; these are included in the published documentation available on the agency's website. It should also be noted that these views do not necessarily coincide with those of other agencies.
For clarity in this chapter, we highlight the distinction ...