(Reuters) – London-based Cobalt Underwriting said it was signingthe European unit of QBE to its sharia-compliant insuranceplatform, helping address capacity constraints in the takaful(Islamic insurance) industry.

The Cobalt platform is part of a range of initiatives aimed atboosting London's credentials in the Islamic finance industry,which follow religious guidelines such as a ban on interest andpure monetary speculation.

Cobalt will has increased its capacity to underwrite propertyrisks to $425 million from $300 million, construction to $160million from $100 million and an additional $50 million forcasualty risks, the firm said in a statement.

“It has long been our intention to broaden the range of productswe offer since our launch last year, and we will continue to doso,” said Cobalt chief executive Richard Bishop.

The platform uses a syndication model to help spread risk acrossa panel of underwriters, allowing multiple insurers to pool theircapacity while each can subscribe to the desired level of riskthough individual Islamic windows.

The risk is priced by a lead insurer and other firms must thensubscribe under similar terms, a similar approach to thesubscription model used in London's Lloyds insurance market.

Capacity
Cobalt, formed with capital from Capita insurance services and theBank of London and The Middle East, hopes to address gaps in thetakaful and re-takaful sectors.

Takaful is based on the concept of mutuality, where a companyoversees a segregated pool of funds contributed by policyholders.

The firm seeks to underwrite large transactions of no less than$30 million in value, and further capacity could be added for otherrisks including trade finance, Islamic finance institutions, energyand aviation.

Operators in the takaful sector, which has its core markets inthe Gulf and southeast Asia, have been limited in their ability totake on large commercial risks partly due to a lack of scale.

Reinsurance options are also scarce, with some takaful firmsforced to reinsure through conventional lines, a practice allowedunder the concept of darura, or extreme necessity.

Industry purists, however, are increasingly challenging whetherthe darura concept is still applicable in today's market and areencouraging alternatives.

(Editing by Eric Meijer)