The determinants of solvency and profitability of Takaful firms in the GCC and Malaysian markets

  • Jassem Mohamed Alokla

Student thesis: Doctoral Thesis

Abstract

This thesis investigates the determinants of solvency and profitability of Takaful (Islamic insurance) firms in the GCC and Malaysia. A database of financial accounting data was constructed by the author for a sample of 41 Takaful firms in the GCC and 11 Takaful firms in Malaysia for the period 2011 to 2016.
Robust regressions were run, using standard measures of solvency (Net Assets/Net Contributions) and profitability (ROA) for the dependent variables. A breakdown of the participants’ fund for both markets was undertaken in order to derive explanatory variables, including Wakala Fees, Commission Paid, and Risk Retention Ratio, expected to be significant in explaining variation in the dependent variables. Other explanatory variables, motivated by previous empirical studies, include selected macroeconomic variables and ratios computed from the financial accounting data.
The main results of the study indicate that gross claims, re-Takaful contribution ceded and Wakalah fees are the main factors that contribute to the GCC participants’ fund output. Their contributions are 33.3%, 24.35% and 8.44%, respectively. Gross claims paid, Wakalah fees, re-Takaful contribution ceded, management expenses and commission paid are the main factors contributing to the Malaysian participants’ fund output. Their contributions are 38.4%, 16%, 12%, 10% and 7%, respectively.
The findings show that risk retention, contribution growth, Takaful leverage and Wakalah fees are statistically significant determinants for the solvency of GCC Takaful firms, while, Wakalah fees, contribution growth, commission paid, management expenses and risk retention are statistically significant for the solvency of the Malaysian Takaful firms.
Company size and GDP are significant determinants for the profitability of GCC Takaful companies, while company age, Wakalah fees, investment income and contribution growth are important determinants to explain the profitability of Malaysian Takaful firms.
Date of AwardSep 2018
Original languageEnglish

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