1. PRESENTED BY
AHMAD SAUFE NAWI
MOHAMED ABDULLAHI JAMA
MOHAMED SAYED SADEQ
2. “takaful for takaful operators”.
It is a way for a primary insurer to protect
against unforeseen or extraordinary losses.
serves to limit liability on specific risks,
to increase individual insurers’ capacity,
to share liability when losses overwhelm the
primary insurer’s resources,
to help insurers stabilize their business in
the face of the wide swings in profit and loss
margin inherent in the insurance business.
5. Facultative / Treaty
Proportional Non-proportional
Quota Surplus Excess of Stop Loss
Share Loss
6. Fire/Property
Misc Accident
Marine
Motor
Engineering
Special risk
7. Total gross written premiums by Takaful
operators of approximately US$3.9 billion in
2006, and a total Re-Takaful capacity of about
US$400 million, it is evident that Takaful
operators must avail themselves of reinsurance
from conventional reinsurers.
Some Takaful companies depend on reinsurance
for as much as 65% to 85% of total coverage
written - except for auto coverage, for which
retention of risk generally ranges between 55%
and 80%.
Hence premium retention could be as low as 15%
of gross premiums written.
8. Bases of Re Takaful Scheme; Cooperation &
Solidarity.
Guidelines for Islamic reinsurance operations:
TO must give a portion of money as a donation based
premiums to establish a Re-takaful fund;
This payment shall be equal to the defined risks of
each TO
The person or individual who manage the fund will be
paid on the basis of ijara (hire contract) or according to
the rules of Profit Loss Sharing (mudharaba).
9. TO also may defer payment of their premium
instead of advanced payment of contributions
but with a pledge to settle their financial
obligation at a later date.
10. The insured (ceding company), that is, the
direct insurer, which desires to relieve itself
from the part of the risks, insured. This party
we call it as Takaful operator
The insurer that is the company, which
accepts that portion of risk, which is
reinsured. This party we call it as Retakaful
operator.
11. Protecting the Takaful operator from the threat of
insolvency, underwriting and interest of the participants, forging
co-operation among the participants and investing the
accumulated fund in an Islamic way
Provides underwriting flexibility and further consolidating the
financial stability of the Takaful operator in order to compete
with conventional insurance companies in accepting risks. This
means Retakaful “build a very close continuing business interest
in common between the Takaful ceding company and the
reinsurer because they are both at risk.”
It may allow the Takaful operator to utilize the retained deposit
reserves of the Retakaful fund in the interest of its clients
without paying interest as a process of making the reinsurance
industry an interest free business.
12.
13. Important elements of ReTakaful that must be
present for Shariah compliance:
Risk sharing within ReTakaful pools as between ceded
Takaful risks
Segregation of assets between ReTakaful operator and the
ReTakaful risk pool(s)
ReTakaful shareholder capital available to respond to
deficits in risk pool(s) through Qard Hasan
Supervision by Shariah supervisory board or Islamic
scholar knowledgeable in insurance/ reinsurance
Underwriting Shariah accepted risks.
14.
15. Some Islamic scholars have begun to raise serious
doubts as to whether contributions ceded to
ReInsurance are permitted under the Shariah.
The Islamic principles that apply to Takaful
operations apply equally to ReTakaful.
In other words, preference should be given by Takaful
operators to utilize reTakaful arrangements over
conventional reinsurance.
Shariah boards implementing a “right of first
showing” to Retakaful operator.
The transfer of these risk exposures to reTakaful
must follow the start-up of additional reTakaful
companies to allow for a diversity of geographic risks
and asset classes to individual reTakaful.
16. Regulated by the law of necessity (Darura) which
means the transaction is unavoidable and must
be carefully evaluated as to its purpose and
urgency;
No commission is paid to ceding Takaful
company from reinsurer. Ceding achieved on a
net (risk) premium basis profit-sharing
arrangement.
Portion of profit-sharing/annual surplus to be
distributed back to policyholders.
Contributions/premiums invested in Islamically
acceptable investments so that profit sharing
produces halal income.
17. 1. Limited Capacity – Insufficient to cover all
Takaful needs.
Peak risk capacity - Takaful operators should be
able to rely upon their ReTakaful providers for
significant risk capacity under treaty associated
with certain peak risks – especially in energy
risks.
Natural disasters capacity- adequate capacity to
absorb financial shocks from such natural
catastrophic events as
earthquake, tsunami, windstorm, flood, fire, etc.
Certain regions with high concentration of
Muslim populations suffer such misfortunes
regularly - Iran, Turkey, Indonesia, parts of
China, Bangladesh, etc.
18. Re-takaful companies have an advantage in terms of Shari
'a compliance, but insufficient to counter competition from
conventional insurers, because of the size and expertise of
conventional reinsurers and their historical and/or
personal relations within the markets.
Pricing risks and treaties are the keys to enable Re-takaful
companies to gain substantial market
share, supplementing capacities with expertise, pricing
tools and the ability to explore specialized, niche markets.
Re-takaful operators must find their own way to increase
penetration by anticipating and meeting the demand from
direct Takaful companies, and building partnerships with
new takafulstart-up companies from the beginning, to
secure business.
19. none of the ReTakaful providers today carry an A
rating, which is the minimum rating demanded by some
regulators to approve the risk sharing treaty for a Takaful
operator.
ReTakaful companies must strengthen their financial
condition and improve their underwriting practices in
order to qualify for A or better ratings, and hence position
themselves to compete effectively with long-established
conventional reinsurers. The ratings will enhance the
attractiveness as established securities.
The Re-takaful operator must insist, and the direct takaful
operators understand, that the first requirement for
a, takaful company from a Re-takaful operator is Shariah
compliance. The security or the rating is a general
requirement for all of the insurance industry.
20. The lack of human resources is one of the major
weaknesses of the industry. This is visible
especially in the MENA region. The backgrounds
of underwriting, accounting and marketing staff
are in conventional insurance. This tends to
negatively affect their ability to develop an
appropriate takaful profile needed for better
service to the clients and the cedant companies.
The takaful industry must develop a proper
educational tools to ensure professionals within
the industry are able to fully develop and market
takaful products and the concept of takaful. Only
then can differentiation develop within the
industry.
21. Globalization requires the standardization of
accounting methods, management and corporate
governance. Takaful operators, as financial
corporations looking for credibility, must comply
with internationally accepted corporate
governance principles.
As takaful and re-takaful operators are in a sense
the promoters of Islamic values, they must pay
maximum attention to and have great respect for
the ethical aspects of takaful operation.
Transparency and corporate governance are the
basis of this approach
22. Product development and innovation
offer innovative products addressing consumer demands.
Underwriting support and capacity
Re-Takaful can also play an important role in providing
underwriting support and capacity.
Commitment to syariah compliance
necessary to set some benchmarks for Syariah compliant
re-Takaful practices and a more consistent application of re-
Takaful. E.g: Malaysia Takaful Association
Involvement of syariah scholars
Syariah scholars need to be better informed about re-
Takaful so that they can understand and highlight
questionable re-Takaful practices.
Favorable Re Takaful regulation
New regulation has to ensure the “ease of doing” Re Takaful
business is maintained.
23. Re-Takaful operation is a must for Takaful operators to share their risk
and protect against unforeseen and extraordinary losses.
The method of Re-Takaful is actually similar to method of Conventional
Reinsurance.
The only differences between the two reinsurances ie; Conventional
Reinsurance and Islamic Reinsurance (Re-Takaful) are in term of the
operational procedures where in Conventional Reinsurance, it involve a
high degree of gharar and riba through reinsurance commission which
the direct reinsurance company get from the reinsurance treaty.
On the other hand, the Re-Takaful operation is depend on actual
expenses spent by the Takaful operator in the process of Re-Takaful.
Furthermore in Conventional Reinsurance, insurable interest is vested.
On contrary, under Islamic laws, the reinsured party doesn’t get an
insurable interest or to reinsure the property of the original insured
party without permission from the policyholder.
