If you are looking for a local stock to add to your portfolio, Salama Islamic Arab Insurance is one that deserves a place on your watch list. Takaful, or Sharia-compliant insurance, is showing tremendous growth relative to its conventional counterparts, Rasmala Investment Bank wrote in a report published on Monday. Since the report, Salama's shares have risen 2.4 per cent to Dh0.83 a share on the Dubai Financial Market.
"I think the company has done a pretty good job at writing insurance. For the nine-month period ending in September, only one of their eight operating segments witnessed an underwriting loss," said Sameh Hassan, the director of research at Rasmala, which is based in Dubai. "One of the things that I like about the company is that policies are renewed each year, so there is less risk of mispricing a plan. The balance sheet is very clean and with the excess cash Salama could buy back a portion of its stock or make acquisitions, while paying out a decent dividend."
Takaful insurance is relatively simple: an insurance company manages a mutual fund or pool of funds collected by participants. The operator charges a fee to cover the costs of underwriting, sales and marketing, as well as managing claims. The claims are paid out of the takaful fund. Any surplus for the year is redistributed to the participants as cash dividends or discounts on their coverage. A lack of supply of Islamic insurance and its popularity in the region means Salama is well positioned in the global takaful segment as more institutions consider Sharia-compliant insurance. Salama underwrites all classes of non-life and life insurance on a retail and institutional level in the UAE. The company's life insurance portfolio is 5 per cent of its overall business. The remainder comprises non-life policies including health, fire and accident. Total premiums grew 19 per cent last year from the previous one to Dh1.38 billion and the company's operating profit reached Dh184 million from Dh154m the year earlier.