Title: Efficiency performance and the insolvency risk for Takaful insurance firms: evidence from the Gulf Cooperation Council countries

Authors: Ahmad Abu-Alkheil; Ghadeer M. Khartabiel; Walayet A. Khan; Bhavik Parikh

Addresses: GISMA University of Applied Sciences, Konrad-Zuse-Ring 11, 14469 Potsdam, Germany ' Brandenburg, Germany ' Schroeder Family School of Business Administration, University of Evansville, 1800 Lincoln Avenue, Evansville, IN 47722, USA ' Department of Accounting and Finance, Gerald Schwartz School of Business, St. Francis Xavier University, 3090 Martha Drive, Schw #382, Antigonish, Nova Scotia, B2G 2W5, Canada; Brian Mulroney Institute of Government, St. Francis Xavier University, 3090 Martha Drive, Schw #382, Antigonish, Nova Scotia, B2G 2W5, Canada

Abstract: We utilise the data envelopment analysis (DEA) and the distance-to-default concept (Z-score) to examine the efficiency performance and the insolvency risk (IR) of 54 Takaful firms (TFs) in the Gulf Cooperation Council (GCC) countries. We also use the robust regression model to investigate the relationship between IR and its determinants. Results reveal that TFs are not fully efficient, and inefficiencies are large-scale. Poor management, to some extent, is the source of inefficiencies. Low allocative scores contribute to the firms' cost inefficiency, indicating that 'input proportions' do not guarantee the minimum possible cost. Room for improvement is evident by shrinking the operations and better managing the 'input resources' and 'output mix'. Moreover, efficiency is vital in determining the TFs' insolvency risk. Furthermore, we find Takaful firms were significantly and adversely affected by the 2008 global financial crisis but exhibited speedy recovery and an increasing trend in the efficiency scores.

Keywords: efficiency; Gulf Cooperation Council; GCC; data envelopment analysis; DEA; Takaful insurances; crisis; Solvency II.

DOI: 10.1504/AAJFA.2024.140945

Afro-Asian Journal of Finance and Accounting, 2024 Vol.14 No.5, pp.645 - 667

Received: 26 Apr 2023
Accepted: 23 Jun 2023
Published online: 04 Sep 2024 *

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