FAITH VS FINANCE: A COMPARATIVE STUDY OF TAKAFUL AND CONVENTIONAL INSURANCE FIRMS ON FINANCIAL STABILITY METRICS

Abstract

The purpose of this paper is to perform a comparative analysis of Takaful (Islamic insurance) and conventional insurance companies, both companies based in Pakistan, using the secondary data, covering the period of 2021 to 2024. The comparison is carried out between two insurance models in terms of financial performance utilizing four types of financial ratios: profitability, liquidity, solvency, and capital adequacy. The results show that conventional insurers perform better than Takaful operators in profitability ratios, reflecting better efficiency in the generation of returns on assets and equity. On the other hand, Takaful firms indicate significant better overall financial performance in term of liquidity, solvency and capital structure which indicates that Takaful firms has better short-term financial stability, less risky in debt management and has robust capital structure. Nonetheless, with respect to overall financial performance (mean value of all the ratios selected), conventional insurance companies have relatively stronger position immediately than their Takaful counterpart. The findings of this study have important policy implications for various parties (policyholders, investors, shareholders employees and regulators) by offering them statistical evidence to make informed decision concerning their investments and strategic involvement in Pakistan's insurance industry.