Takaful in Pakistan Framework, Opportunities & Challenges by

Takaful in Pakistan

Framework, Opportunities &

      Challenges

      Shoaib Soofi

     August 11, 2007

        Lahore

 Introduction

 Started in 1979 from Sudan,

 Over 85 Takaful Operators in more than 25

 countries,

 Annual Premium over 3 billion dollars worldwide,

 In Pakistan, Takaful introduced in September 2005

 through Takaful Rules,

 Currently 2 General Takaful Operators in Pakistan

 and 4-5 in process.

Controlling Documents of

Takaful

 Insurance Ordinance, 2000

 Insurance Rules, 2002

 Takaful Rules,2005

 SECP Circulars

 Takaful Operators have to comply

 with all the above documents.

  Major Regulatory

Requirements for Takaful

 Business in Pakistan

Registration

 Registration under section 6 of the Insurance

 Ordinance is required to carry on Takaful

 Business,

 A company can be registered either as a

 Family Takaful Operator or General Takaful

 Operator but NOT both.

 Window Takaful Operations by existing

 Conventional Insurers are NOT ALLOWED,

 Shariah Board

 Takaful Operator shall appoint a Shariah Board,

 At least 3 high calibre scholars with knowledge

 of modern financial dealings,

 Responsible for approval of products,

 investment and operational practices,

 Provision of Central Shariah Board at SECP

 level

Minimum Paid up Capital

 Family Takaful Operator:

 Rs. 500 million

 General Takaful Operator:

 Rs. 300 million

Minimum Solvency Margin

 Admissible Assets less Liabilities,

 As per the Insurance Ordinance plus

 the condition that the securities must

 be approved by the Shariah Board,

 Solvency requirements being reviewed.

Minimum Statutory Deposit

 Takaful Operators have to deposit and keep

 deposited with State Bank a minimum

 amount in cash or approved securities.

 Currently the minimum amount is higher of

 Rs. 10 million or 10% of Paid-up-Capital,

 The securities for this purpose must be

 approved under the Insurance Ordinance and

 should be instruments of approved Islamic

 Financial Institutions.

Operational Models

 The principal model for insurance risk

 management component shall be based on

 “Wakala”,

 The principal model for investment

 components shall be based on “Modarba”,

 The Takaful product shall be based on the

 principal of Wakala or Modarba or both.

ReTakaful/Reinsurance

 Should be adequate and in accordance with

 the guidelines of Shariah Board of Takaful

 Operator,

 In case Shariah Compliant Re-Takaful is

 insufficient, conventional reinsurance can be

 arranged with the advice of Shariah Board,

 Risk sharing among Takaful Operators within

 or outside Pakistan with permission of SECP,

Maintenance of Funds

 Each Takaful Operator shall maintain two

 funds:

 Shareholder Fund (SHF),

 Participants Takaful Fund (PTF)

Investment

 Investments of the Funds must be Shariah

 Compliant under the advice of the Shariah

 Board,

 Should also comply with other

 requirements of the Insurance Ordinance.

Market Conduct

 Participants should not be mislead or

 deceived,

 Ambiguities in favor of participants,

 Agents’ Training,

 SECP may visit Takaful Operators and

 Agents to check their Market Conduct.

Opportunities

Challenges

Developments

Opportunities for Takaful

 Large untapped insurance market in Pakistan

 Religious beliefs about insurance,

 Important pillar of Islamic Financial Market,

 Few Strong players in the Pakistani Market,

 High Growth Rate Internationally – over 20%

Key Challenges

 Human Resource,

 Shariah Issues,

 Limited Investment Avenues,

 Limited Re-takaful options,

Recent Developments

 A comprehensive paper on issues in

 Takaful Regulation prepared by a joint

 working group of IFSB-IAIS

 A committee has been formed by SECP to

 review Takaful Rules including window

 operations by Conventional Insurers and

 certain accounting issues.

Thank You