Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Determinants of Saudi Takaful Insurance Companies Profitability

Author(s): Abdelkrim Ahmed Guendouz, Saidi Ouassaf

The purpose of this paper is to investigate the main internal factors affecting the profitability of insurance Takaful companies in an Islamic insurance system. We collected the data from the quarterly reports of the six largest Saudi Takaful Insurance companies for the period 2010-2016, which represents more than 60% of the total assets of the Insurance market. Panel data techniques, namely, pooled ordinary least squares, fixed effects and random effects, were used to estimate the relationship between return on policyholders as a proxy of insurance company profitability and company-specific variables such as age, size, loss ratio, the rate of retention, risk level, and the written premium growth rate. The regression results indicate that age, size, written premium growth rate and loss ratio, have significant effects on the profitability of insurance Takaful companies. Many studies were conducted to determine variables affecting insurance Takaful companies profitability, but most of them were concerned with mixed insurance systems, in which conventional and Shariah-compliant companies operate together. A lack in studies dedicated to examining the fully Shariah-compliant system is obvious. Therefore, our study contributes to filling this gap in the literature by exploring the factors affecting the profitability of Takaful insurance companies in a full Shariah-compliant insurance sector.