Indonesia’s sharia insurance industry continues to face challenges in the short to medium term. Global rating agency Fitch Ratings said the challenge stems from the requirement to transform the Sharia insurance business unit into an independent entity. Only a handful of Sharia insurance units have completed spin-offs, although the deadline for submitting a revised spin-off plan to the Financial Services Authority (OJK) is October 17, 2021.

The latest report from Fitch Ratings noted that most insurance companies would be slow to meet their short-term Sharia unit split obligations. The spin-off requires higher capital requirements and operating costs because it is the responsibility of the parent entity. On the other hand, profitability and financial viability are still uncertain.

Despite growing pressure from regulations on spin-offs, Fitch estimates that the performance of the Islamic insurance industry will remain stable in 2021-2022. “In the long term, the sharia insurance industry, or takaful insurance, is more forward looking based on a capital increase, as more and more insurance companies prioritize the business line of business. ‘sharia insurance,’ Fitch wrote in his report.

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Albert Caster

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