PROFITABILITY DETERMINANTS IN REINSURANCE AND RETAKAFUL: A COMPARATIVE ANALYSIS

Abstract

This study investigates the determinants of profitability in retakaful and conventional reinsurance companies within the Gulf Cooperation Council (GCC) region, using Saudi Re and Kuwait Re as case studies. The research identifies key firm-specific and macroeconomic variables influencing financial performance and explores differences between Shariah-compliant cooperative and conventional models. Quarterly data from 2010 to 2024 are analyzed using the Autoregressive Distributed Lag (ARDL) approach, complemented by a two-sample t-test to compare average firm-level indicators between the two firms. Return on Assets (ROA) is used as the primary profitability metric, with explanatory variables including premium growth, risk retention, underwriting risk, liquidity, solvency, investment ratio, leverage, GDP growth, inflation, interest rates, and a dummy variable representing the Arab Spring shock. The results show that Saudi Re’s profitability is primarily driven by internal factors such as solvency and underwriting performance, while liquidity and investment ratios negatively impact outcomes. Macroeconomic variables are statistically insignificant. In contrast, Kuwait Re’s profitability is mainly influenced by investment performance and is more responsive to macroeconomic shocks and geopolitical events. The t-test reveals significant differences in several internal variables—including ROA, liquidity, investment ratio, solvency, leverage, risk retention, and underwriting risk—indicating clear operational divergence between the two firms. These findings offer practical insights for investors, regulators, and policymakers on what drives financial performance in Shariah-compliant and conventional reinsurance firms in the GCC.

Date of Award	2025
Original language	American English
Awarding Institution	HBKU College of Islamic Studies