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  BEST REINSURANCE –

FAR EAST REGIONAL OFFICE

                TAKAFUL :

          THE MALAYSIA CASE


       Development of Takaful

      – Worldwide Prospective

Takaful or Islamic Insurance is a new

 industry.

Takaful was initially undertaken in Sudan

 1979 and Malaysia in 1984.

Takaful operations open up in many

 countries in the past two decades especially

 in large Muslim community.

Currently more than 50 takaful operators

 worldwide including some non-Islamic

 countries.

                                            2


  Worldwide Muslim Population

(Based on 1998 Islamic Web.Com)

                                3


Potential of Takaful Business in Muslim Countries

Worldwide Muslim Population (Based on 1998 ISLAMIC Web.Com)

Area             Population    Muslim Population     Percentage

                   (Million)        (Million)

Worldwide           5,070             1,500              30%

South East Asia      363               226               62%

Malaysia              20              10.4               53%

      Total Insurance Premium (Based on 2003 Sigma Report)

Area            Total Premium   Life Insurance   Non-Life Insurance

                (USD ‘Billion)  (USD ‘Billion)     (USD ‘Billion)

Worldwide            2,940           1,670             1,270

South East Asia       194             137                57

Malaysia              5.6              3.4               2.2

Area             Total Takaful  Family Takaful    General Takaful

                 Contribution    Contribution       Contribution

                (USD ‘Million)  (USD ‘Million)     (USD ‘Million)

Malaysia              267             201                66

(Takaful)

                                                                  4


Potential of Takaful Business in Muslim Countries

 Insurance Premiums Per Capita (Based on 2003 Sigma Report)

 Area               Insurance      Life Insurance     Non-Life

                  Premiums Per      Premium Per     Premium Per

                  Capita (USD)      Capita (USD)    Capita (USD)

 Worldwide              470              267             203

 South East Asia         58               41              17

 Malaysia               227              140              87

 Area                 Takaful      Family Takaful     General

                 Contribution Per Contribution Per Contribution Per

                  Capita (USD)      Capita (USD)    Capita (USD)

 Malaysia                11               8               3

 (Takaful)

                                                                    5


Development of Takaful – Malaysia Case Study

     Takaful industry is relatively new

       compared to conventional insurance

       companies in Malaysia.

     The National Fatwa Committee of the

       Malaysian Islamic Affairs Council declared

       the conventional life insurance business

       contradicted with Islamic principles in

       1972.

     In 1985, the Fiqh Academy of the OIC

       made a declaration that all forms of

       conventional insurance do not conform

       with Islamic principles.

                                                  6


Development of Takaful – Malaysia Case Study

   Takaful Act 1984 was introduced to

     supervise the takaful activities since

     Insurance Act could not be applied to the

     takaful business in Malaysia.

   Takaful Malaysia Sdn. Bhd. was established

     in 1984 with paid-up capital of RM10 Million

     and there are four takaful operators in

     Malaysia.

                                                  7


Organisation Chart: Islamic Banking & Takaful

Department & Insurance Supervision Department

                                               GOVERNOR

                                                 DEPUTY

                                               GOVERNOR

                   ASSISTANT                                           ASSISTANT

                   GOVERNOR                                           GOVERNOR

                DIRECTOR ISLAMIC                                       DIRECTOR

                   BANKING &                      CHIEF               INSURANCE

                    TAKAFUL                     ACTUARY              SUPERVISION

                  DEPARTMENT                                         DEPARTMENT

  SENIOR  SENIOR                 SENIOR MANAGER           SENIOR       SENIOR      SENIOR     SENIOR

                      SHARIAH        BANKING

 ISLAMIC MANAGER                   OPERATIONS,

                                                         MANAGER     MANAGER      MANAGER    MANAGER

                     SPECIALIST                                     SUPERVISION  SUPERVISION ACTUARIAL

 BANKING TAKAFUL                 LEGAL & SERVICES       SUPERVISION

                                                                                                    8


Takaful Market Performance In Malaysia(2003)

   Four Takaful operators are :

     - Takaful Malaysia

     - Takaful Nasional Malaysia

     - Maybank Takaful

     - Takaful Ikhlas

   Number of Offices : 132

   Total Employment : 2,161

                    No. of       Total Net       Total Takaful

                   Agents   Contribution Income  Fund Assets

                              (USD’ Million)    (USD’ Million)

 Total             11,433           267             1,160

 Family Takaful     9,893           201             1,010

 General Takaful    1,540            66              150

                                                               9


                                        Performance of Takaful Business in Malaysia

                                  300

Net Contribution in USD Million

                                  250

                                                                                 66

                                  200                                  58

                                                         47

                                  150

                                             39

                                  100                                            201

                                                                       176

                                                         137

                                   50        98

                                    0

                                            2000        2001           2002      2003

                                                                Year

                                                       Family          General

                                                                                        10


Overview of the Takaful Performance

  The favourite economic conditions in 2003

    was positive for takaful industry in

    Malaysia.

  The contributions of both family and

    general increased by 14% to USD267m and

    total assets fund increased by 22% to

    USD1.16 billion.

  These increased has expanded the market

    share for Takaful business to 5.40% in

    terms of total insurance industry premium

    production and to 5.60% for total insurance

    assets fund.

                                                11


Overview of the Takaful Performance

  In 2003, the market penetration of family

   takaful business has improved to 4.50%.

  The Takaful industry is in strong position to

   move forward to expand further in an

   environment of stronger economic growth

   projected in 2004 and more conducive

   business environment in Malaysia.

                                                 12


            Performance of Family Takaful in Malaysia

                              160

Contribution in USD Million

                              140                               134

                                                         119

                              120

                                            97

                              100

                                     78

                               80

                               60

                               40

                               20

                                0

                                    2000   2001          2002   2003

                                                  Year

                                                                       13


Performance of Family Takaful Business

      The new business contributions

       shown strong growth in all family

       takaful plans.

      The increase due to new plans

       such as mortgage reduce term

       and new education fund takaful

       plans.

                                         14


Performance of Family Takaful Business

   The performance of the annuity

     takaful plans also shown positive

     growth and it is expected to increase

     given the demographic transition

     towards an ageing society.

   The development of the first

     investment-linked takaful plan has

     opened a new window of growth for

     family takaful business in Malaysia.

                                           15


Distribution Channel for Family Takaful

Business

            Direct Marketing and Agents: 86.3%

            Bancassurance: 13.0%

            Brokers: 0.7%

 Types of Family Takaful Business in Malaysia for Year 2003

                        Annuity Investment-

                          1%       Linked

             Ordinary                1%

           Family Group

               10%

                                             Ordinary

                                              Family

                                            Individual

                                               88%          16


      Assets of Family Takaful Fund in Malaysia

                                       (2003)

                 Other Assets,                                      Islamic Private

                      10.8%                                         Debt Securities

                                                                     and Equities,

                                                                         34.6%

                                           Investments,

                                              45.3%

  Investment

Accounts and

Islamic Money

Market, 35.6%

                                                  Government

                                                Islamic Papers,

                                                     10.5%

                                                                       Other

         Financing, 2.4%

                          Investment                            Investments, 0.2%

                        Properties, 5.9%

                                                                                 17


Performance of General Takaful in Malaysia

             for Year 2003

                               120

                                                                    106.05

Contribution in USD 'Million

                               100

                                                            87.55

                                80           70.21

                                60   53.34

                                40

                                20

                                 0

                                     2000    2001           2002    2003

                                                     Year                    18


Distributions Channel for Family Takaful

Business

             Direct Marketing And Agents: 70.1%

             Bancassurance: 10.0%

             Brokers: 19.6%

    Types of General Takaful Business in Malaysia (2003)

                                          Marine,

              Misc                      Aviation and

             20.0%                        Transit

                                            8.7%

                                               Fire

        Motor

                                              41.5%

        29.9%

                                                         19


   Assets of General Takaful Funds in Malaysia

                               (2003)

                                                       Islamic Private

             Other Assets,                             Debt Securities

                 10.8%                                  and Equities,

  Investment

                                                            34.6%

Accounts and

Islamic Money

Market, 35.6%                       Investments,

                                       45.3%

                                     Government

                                   Islamic Papers,

                                        10.5%

                                                       Other

           Financing,

                                                   Investments,

              2.4% Investment

                      Properties,                      0.2%

                         5.9%

                                                                    20


Basic Concepts of Takaful

1. Al-Mudharabah – means ‘profit sharing’.

2. Al-Takaful – means ‘joint guarantee’.

3. Tabarru – refers to elements of ‘donation’.

Why Conventional Insurance does not

   conform with the requirement of the

   Syairah?

1. Al-Gharar – refers to ‘unknown’ or ‘uncertain’ factors in

   a conventional insurance contract.

2. Al-Maisir – refers to ‘gambling’ element and is said to

   derive from the ‘gharar’ element.

3. Riba – refers to the ‘interest’ factor present in the

   investment activities of conventional insurance

   companies.

                                                             21


Takaful Models

1. Non-Profit Model - Social governmental owned

   enterprises and programme operating on a non-

   profit basis. The contributions paid by the

   participants are wholly for tabarru (donation) to

   unfortunate members.

2. Al-Mudharabah Model - The co-operative risk

   sharing where participants and operators share

   in the distribution profit.

3. Al-Wakala Model - In this model, the co-

   operative risk sharing occur among the

   participants with a takaful operator whereby a

   fee is agreed to be paid to the operators for the

   services rendered. The operator shall not

   participant in the underwriting results.

                                                     22


Types of Takaful Operation

1. Family Takaful (Chart 1) – The plans available

   is quite similar to the endowment policy in

   conventional life insurance practice where

   participants may choose a fixed period of

   coverage. Installment payment can be in

   Participants Account (PA) and Participant

   Special Account (PSA).

2. General Takaful Operation (Chart 2) – The

   protection on short term basis. The participants’

   contribution is wholly on tabarru (donation)

   basis and sharing of profits is on underwriting

   surplus and investment income. Surplus is

   derived after deducting company’s expenses

   from this fund.

                                                     23


              Chart 1: Operation Flowchart of the Family

                                            Takaful Plan.

                                                                 PROFITS

                                                                 ATTRUBUTED TO

                                                                 SHAREHOLDERS

                                                                 COMPANY'S

 COMPANY                                                         ADMINISTRATRTION

                                                                 & MANAGEMENT

                                                                 EXPENSES

        TAKAFUL

                                              INVESTMENT    PROFITS         30% (Example only)

        CONTRACT BASED

                                                   BY        FROM

        ON PRINCIPLE OF                         COMPANY   INVESTMENT        70% (Example only)

        AL-MUDHARABAH

                                 PARTICIPANTS             PARTICIPANT        PARTICIPANT    PAYMENT TO

PARTICIPANT                        ACCOUNT                  ACCOUNT           ACCOUNT       PARTICIPANT

                TAKAFUL

                                                 FAMILY

              INSTALLMENT

                                                TAKAFUL

                 PAID BY

                                                  FUND

               PARTICIPANT

                                 PARTICIPANTS            PARTICIPANTS

                                                                               TAKAFUL      PAYMENT TO

                                   SPECIAL                  SPECIAL

                                                                              BENEFITS      PARTICIPANT

                                   ACCOUNT                  ACCOUNT

             Source: BIRT (1996)                                                                      24


            Chart 2: General Takaful Operation

                                          Flowchart                          PROFITS

                                                                             ATTRUBUTED TO

                                                                             SHAREHOLDERS

                                                                             COMPANY'S

                                                                             ADMINISTRATRTION

COMPANY                                                                      & MANAGEMENT

                                                                             EXPENSES

         TAKAFUL

                                INVESTMENT     PROFITS

         CONTRACT BASED

                                     BY          FROM

         ON PRINCIPLE OF          COMPANY    INVESTMENT

         AL-MUDHARABAH

                                                        OPERATIONAL

                                                          COST OF                  SHARE OF

                                                          TAKAFUL               SURPLUS FOR

                                                                                THE COMPANY

PARTICIPANT     TAKAFUL           GENERAL      GENERAL  OPERATIONAL

              CONTRIBUTION         FAMILY       FAMILY    COST OF   SURPLUS       40% (Example only)

                 PAID BY          ACCOUNT      ACCOUNT     FAMILY   (PROFIT)

                                                                                  60% (Example only)

                                                        OPERATIONAL                SHARE OF

                                                          COST OF                SURPLYS FOR

                                                                               THE PARTICIPANT

                                                          TAKAFUL

            Source: BIRT (1996)

                                                                                               25


Challenges and Opportunities in Malaysia

   The future prospects of the takaful business

      depend on our ability to convert challenges

      into opportunities.

   The challenges that takaful operator face are

      lack of uniform terminology, Sharifah

      interpretation, human resources development,

      product innovation, retakaful, promotional and

      marketing.

   A large market remains untapped and takaful

      operators need to keep pace with their

      conventional counter parts in developing

      comprehensive range of takaful products that

      are innovative and Shariah compliant.

                                                     26


Challenges and Opportunities in Malaysia

  Takaful operators shall develop and

    explores new marketing tools and

    channels to promote their products and to

    reach the untapped market.

  The implementation of Takaful system

    should be accepted by other races as well

    since Malaysia is a multiracial country.

                                              27