Oman’s Capital Market Authority (CMA) has published new rules for the marketing of insurance and takaful products in Oman (Decision E/69/2017). These replace the previous rules issued in 1983.

The new rules introduce a raft of additional requirements including:
– obliging insurers to complete CMA-issued application forms;
– expanding the documentation that an insurer needs to furnish in support of its application for product approval including: policy documents in Arabic, or Arabic translations (which are deemed to override their English counterparts); the insurer’s pricing policy for the product (which must be consistent with the insurer’s board approved underwriting and pricing policy); and marketing materials for the policy;
– recognition of fairness standards, which oblige insurers to ensure that policy documentation is balanced and fair;
– introduction of a time-bound application process (30 days in which to complete the application process from initial filing) and response process (30 days from filing of a complete application for the CMA to respond); and
– levying fees which insurance companies are required to pay the CMA for scrutiny of the product application (OMR 100) and for marketing it in Oman (OMR 500).

While overall the new rules bring structure to the previous practice-driven approach to obtaining CMA approval for marketing new products, insurers are likely to need further guidance on matters not specifically addressed by them. These include the procedure to be followed upon a refusal or deemed refusal of an application by the CMA, or the impact on insured parties and reinsurers of the cancellation by the CMA of consent for marketing a product.

For more on Oman’s insurance law, contact Ardeshir Patel.

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.

The State Council (Oman’s upper house) approved a draft law for Oman’s shariah-compliant insurance (takaful) market in mid-February.  The takaful law is one of a series introduced to regulate the country’s nascent Islamic banking and finance sector. The draft prepared by the insurance regulator, the Capital Market Authority, was reportedly amended after deliberation by the State Council and the Majlis Ash’shura (Oman’s lower house).  Once enacted by royal decree, the law is expected to spur confidence and growth in Oman’s emerging takaful market.

The law will regulate 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 last year doubling minimum capital requirements for conventional insurers from OMR5m to OMR 10m and requiring all insurers to list on the MSM within 3 years. Crucially, the new law restricts the conduct of takaful insurance business to dedicated takaful companies. This will prevent 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.  According to Moody’s rating agency these types of measures are effective to improve overall underwriting quality and are likely to lead to consolidation among smaller market players in a crowded market.

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.  Investor response to two takaful insurer IPOs at the end of 2013 indicate a strong appetite for takaful.  These successful IPOs, 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, were heavily over-subscribed. Both IPOs were handled by AMJ’s Corporate and Capital Market’s team.

Increased activity in the Islamic banking and finance sector overall is likely to raise awareness and fuel consumer appetite takaful insurance as well as other faith-based products and services. A main market driver in 2015 will be the issuance of several sukuk or Islamic bond offerings.  These include the long-awaited sovereign sukuk offering by the government of Oman and several banking sukuks.  The sukuks issuances will help to diversify the limited range of investment options currently available to the shariah-compliant sector within Oman and to soak up the excess liquidity.

The shariah-compliant index (SCI) launched by the MSM in mid-2013 to enable investors to identify suitable investable assets will come more to the fore  as an increasing number of shariah-compliant products and services come online in the coming years.  A the end of 2014, it  included more than 30 listed financial, industrial and services companies that comply with the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) requirements for Islamic investment principles.