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Insurer AIG UK has underwritten the first Shariah-compliant Warranty and Indemnity (W&I) insurance policy issued in the London M&A insurance market – a move that is part of a growing demand for policies from financial institutions run on Islamic principles.
The £5,000,000 policy was placed by broker Risk Capital Advisors through AIG’s strategic MGA partner, Cobalt Underwriting, which offers an ‘Islamic Window’ solution.
Shariah-compliant policies, or Takaful insurance, account for around 2% of the $1.8 trillion (£1.4 trillion) Islamic finance market, AIG’s head of M&A for the UK and London Market, said.
“We have quite a large focus on emerging markets, hence why we were keen to innovate and move into Shariah-compliant M&A insurance,” Angus Marshall told Insurance Business.
Shariah law is the code of religious teachings for the religion of Islam, and Shariah-compliant policies are designed specifically to comply with its principles.
“In effect, Shariah-compliant insurance is not really that different from any other type of insurance, save for a couple of important features which can really be explained by the three principles which guide Shariah insurance: purity, certainty, and mutuality,” Marshall explained.
While from both a product and process standpoint, a Shariah-compliant policy is largely the same as a traditional one, there are some significant key requirements. Insurers must not invest funds, or be in the business of investing, in companies which derive income from anything that would offend Islamic principles, such as alcohol.
Policies are also likely to require the warrant of an Islamic scholar; AIG’s policies are reviewed and approved by a certified Shariah scholar in consultation with their Shariah supervisory board.
The insurer has had capabilities in providing Shariah-compliant policies for a number of years, but its move into the M&A space is particularly ground-breaking, according to Marshall.
“AIG has been innovative and forward thinking on Shariah-compliant insurance for quite a while now,” he said. “In particular for M&A insurance, this is a nice gracenote to our overall emerging markets capabilities, and really demonstrates our commitment to the emerging markets.”
Speaking of the deal, Ben Brindle, director of Risk Capital Advisors, added: “We are seeing an increasing demand for W&I insurance from financial institutions run on Islamic principles. This is particularly the case in the UK, and we were very pleased to be able to provide a solution to the buyer on this transaction with a UK-issued Shariah-compliant policy.”
