Morgan Stanley has initiated coverage on the Islamic Arab Insurance Co (Salama) with price targets suggesting a potential upside of 32 per cent.

The forecast recommends Salama as a rare opportunity for investors to gain exposure to the takaful and re-takaful markets, which are expected to grow at least 20 per cent per annum for the next three to five years.

In the firm’s report, Salama - Interesting Opportunity in Niche Takaful Market, Kathy Fear, an insurance analyst at Morgan Stanley, predicts a growing demand for takaful and retakaful products as insurance penetration in the MENA region increases.

As the demand for these products develops, Fear believes that Salama is ideally placed to capitalise on the double digit growth forecast for both the takaful and re-takaful markets.

“Currently, regional penetration of conventional insurance products is well below that seen in more developed markets in both life and non-life insurance. For instance in the GCC alone insurance penetration as a percentage of GDP is just 0.9 per cent versus 9.45 per cent in the G7 countries (US, Canada, UK, France, Germany, Italy and Japan). Takaful penetration is even lower. For this reason, these markets offer substantial growth opportunities.”

Fear believes that “the youthful demography, with 60 per cent of the global Muslim population being under 25 years old, increasing awareness, a greater desire for Sharia compliant offerings, and increasing asset based Sharia compliant financing will drive growth in the takaful marketplace.”

In addition, Salama is one of the few pure plays available to investors who wish to gain exposure to these regions.

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. 

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