From capacity to capability: The value of strategic retakaful and reinsurance partnerships - ICIEC - المؤسسة الإسلامية لتأمين الاستثمار وائتمان الصادرات

As financing needs grow across emerging markets, reinsurance is being asked to do more than supply capacity. ICIEC’s Mr Mohd Ferdaus Mohd Khasim looks at how retakaful and reinsurance partnerships can strengthen underwriting, data and portfolio management.

For an export credit insurer, capacity determines how much business can be supported, how much exposure can be taken to a country or obligor, and whether a large transaction can proceed without creating excessive concentration on one balance sheet.

This matters as financing needs across emerging and developing economies continue to grow. Infrastructure, energy, food security and cross-border investment can require insurance commitments beyond what one institution can prudently retain. Many transactions also involve sovereign and political risk, credit risk, long financing periods, or significant concentrations by country, sector or obligor.

For ICIEC, this raises a practical question: how can retakaful and reinsurance provide the capacity required for these transactions while strengthening underwriting discipline, market understanding and institutional capability?

ICIEC’s retakaful-reinsurance initiative seeks to connect Shariah-compliant risk-sharing principles with the technical depth and market reach of the international reinsurance market. The retakaful dimension matters because many institutions in ICIEC Member States, as well as Islamic finance transactions, require solutions consistent with Takaful principles while meeting the underwriting and portfolio-management standards expected by professional reinsurers.

In practice, the initiative combines outward reinsurance for ICIEC’s portfolio, inward retakaful support for partner institutions, and technical engagement with reinsurers, brokers and export credit agencies. The aim is to move beyond simply purchasing or providing capacity towards partnerships that strengthen how risks are assessed, priced and managed.

Reinsurance as a capacity multiplier

Through treaty and facultative reinsurance, exposure can be shared with other risk carriers according to their appetite and financial capacity.

Facultative arrangements can provide additional support for individual transactions where size, tenor or risk characteristics require specific market participation. Treaty arrangements provide a more systematic way of sharing risks across a broader portfolio.

Capacity, however, is only one part of the value created by these relationships.

Sharing risk, sharing expertise

Credit and political risk underwriting requires more than financial analysis. Country developments, transaction structures, security arrangements, payment mechanisms and policy terms can materially influence the assessment of a risk.

International reinsurers bring experience from global portfolios, different economic cycles and claims situations. Their participation can challenge assumptions and provide another perspective on transaction structures and underwriting decisions.

The exchange works in both directions. International reinsurers contribute global experience, while ICIEC brings knowledge of Member State markets, local institutions and business conditions.

Reinsurance discussions can therefore compare perspectives on risk and transaction structure rather than simply negotiate capacity.

Building capability through inward retakaful

The same principle applies when ICIEC acts as a risk-sharing partner to other institutions. Through inward retakaful, additional capacity can be combined with technical engagement that supports stronger underwriting and portfolio management.

ICIEC’s cooperation with Indonesia Eximbank provides a useful example. The relationship provides additional reinsurance capacity for export credit business, helping the institution support transactions while managing the risk retained on its own balance sheet.

The relationship also provides a platform for technical exchange on credit risk assessment, underwriting and portfolio management. It has supported the development of Shariah-compliant export credit solutions, where Takaful principles need to work alongside the practical requirements of trade credit underwriting.

The wider lesson is that additional capacity is most effective when accompanied by a clear framework for deciding which risks to support, how much exposure to retain, and how concentrations across buyers, countries and sectors should be monitored. The relationship between cedant and reinsurer can therefore build underwriting capability alongside the transfer of risk.

A similar principle can be seen in ICIEC’s strategic Quota Share Retakaful arrangement with Export-Import Bank of Malaysia Berhad (MEXIM). For an institution writing export trade credit Takaful, a quota share provides a structured mechanism for sharing a portfolio as it develops.

Because risks are ceded on an ongoing basis, the arrangement creates regular interaction between the two institutions. Discussions can cover risk selection, obligor and country exposures, market developments and emerging underwriting concerns. Portfolio experience can then inform future underwriting decisions and risk appetite.

Over time, this dialogue can support better decisions on underwriting, retention and exposure management while giving the reinsurer greater visibility into the underlying risks.

The broader lesson is that retakaful works best when risk-sharing and knowledge-sharing develop together.

Connecting local knowledge with international capacity

Insurance capacity and specialist expertise are not distributed evenly. Some institutions have strong local knowledge and access to transactions but limited specialist credit and political risk capacity. International reinsurers may have substantial capital and global experience but less direct access to individual markets.

Strategic partnerships can help bridge this gap. Outward reinsurance connects local portfolios with international capacity and expertise, while inward retakaful allows capacity and experience to be shared with partner institutions.

These relationships can help institutions improve data and make more informed decisions about risk appetite, retention and accumulation management. The objective is stronger institutions that better understand and manage their own portfolios.

What makes these partnerships work?

Capacity alone does not make a reinsurance partnership effective. Cedant and reinsurer need a common understanding of risk appetite, underwriting standards and information requirements.

Differences over country limits, tenor, obligor quality, pricing or Shariah-compliance requirements can slow execution. What matters is whether these differences are identified early and discussed transparently.

Reliable data is equally important. Exposure information gives both parties a clearer view of accumulations across countries, sectors and obligors. Timely portfolio reporting helps reinsurers understand how ceded risks are developing, while their feedback can provide useful external perspectives to the cedant.

Trust is built through consistent reporting, clear underwriting rationale, transparency when risk conditions change and regular technical dialogue.

Where the market goes next

The next stage of retakaful development will require greater cooperation among retakaful operators, commercial reinsurers, export credit agencies and multilateral institutions. Each brings different strengths: capital, technical experience, local market knowledge and access to transactions.

Singapore’s position as a major Asian reinsurance centre makes it a natural meeting point for this discussion. Bringing reinsurers, brokers, export credit agencies and other specialist institutions together creates opportunities to compare risk appetite, exchange technical experience and explore how international capacity can respond to needs across emerging and developing markets.

For retakaful, this dialogue is particularly important. Expanding the market will require solutions that remain consistent with Shariah principles while being commercially workable and technically credible to international risk partners.

From capacity to capability

Capacity will always matter. Large transactions and growing portfolios cannot be supported without sufficient capital behind them. But the quality of the relationship behind that capacity matters as well.

Reinsurance should not replace local underwriting judgment. A stronger model is one where each party contributes something the other may not have: capital, market knowledge, portfolio experience, technical expertise or access to transactions.

When these elements come together, reinsurance does more than distribute risk. It can help institutions make better underwriting decisions, understand their portfolios more clearly and support trade and investment on a sustainable basis.

Capacity allows us to take more risk. Capability allows us to take it better.