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Oman’s Takaful Insurance Law,approved by Oman’s State Council (upper house) in February 2015, finally came into force on March 6, 2016 (Royal Decree 11/2016). The law is based on the AAOIFI guidelines and provides a robust and comprehensive framework covering all aspects of the shariah-compliant insurance sector. According to Oman’s insurance regulator, the Capital Market Authority (CMA), takaful insurance premiums in Oman totalled OMR39 million (US$101 million), representing a market share of 8.7% of the insurance sector as a whole in 2015.

The new law regulates all aspects of a takaful operator’s activities including oversight and reporting requirements, product standards and liquidity levels. It requires takaful insurers to be publicly listed on the Muscat Securities Market (MSM) with a minimum capital of OMR10 million. This aligns with regulations introduced in August 2014 doubling minimum capital requirements for conventional insurers from OMR5m to OMR 10m and requiring all insurers to list on the MSM by 2017.

Under the law the conduct of takaful insurance business is restricted to dedicated takaful companies. This prevents conventional underwriters from setting up Islamic insurance windows (in contrast with the Islamic banking sector where the regulations allow non-Islamic banks to own and operate Islamic ‘windows’). These combined capital-centred and market regulatory provisions aim to create a level playing field for Oman’s fledgling takaful industry which, like in other GCC markets, faces the challenge of an established and fiercely-competitive conventional insurance industry.

The CMA has extensive powers including to licence, control and oversee takaful operators. Takaful operator licences will be granted for renewable periods of five-years provided the regulator deems the issue of a licence in the economic interests of the country. The CMA may suspend issuance of new licences at any time if it is of the opinion that the market is saturated and may, at any tim, withdraw a licence for breach of a condition. The CMA also has powers to intervene in the management of a takaful insurer in certain circumstances, by conducting administrative investigations, requiring the company actuary or another actuary to report on the financial standing of the company, appointing an non-voting auditor to the board or dissolving the board and appointing a committee to run the company until a new board is constituted.

The law imposes obligations on the takaful operators to constitute a Shariah committee with a minimum of three members including Fiqh specialists in financial transactions and a takaful expert. Other provisions govern the maintenance of solvency margins, fund set-up and management and the transfer of takaful business from one company to another.

This latest regulatory development in the sector is expected to raise awareness and fuel consumer appetite for takaful insurance as well as other faith-based products and services. Industry analysts predict significant growth potential for takaful insurance in Oman due to the low current rate of insurance penetration (1.1%). The global takaful market led by Saudi Arabia and GCC (63%) and Malaysia and Indonesia (30%) has maintained double-digit growth since 2011 and is forecast to be worth $20bn by 2017.

Even prior to its enactment, investor response to two takaful insurer IPOs at the end of 2013 indicate a strong appetite for Shariah compliant insurance products. AMJ advised on these successful deals, one a conversion of Al Madina Insurance into Al Madina Takaful, and the other, Takaful Oman, a new company backed by investors including Kuwait’s T’azur Takaful. Both of these ‘first of a kind’ IPOs were heavily subscribed.