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Calculated Risks, Measurable

Results

Sylvain Goulet, fcia, fsa

Developing New Risks,

Developing New Solutions

New Reinsurance Solutions

• 1 - Retakaful

– From “Takaful” or Shari’ah compliant

insurance

– How can reinsurance help?

• Traditional Risks, New Reinsurance

– 2 - Increasing client retention

– 3 - Vary Reinsurance portions (e.g. CI

products)

– 4 - Reinsurance derivatives

New Reinsurance Solutions

• New Insurance Risks, New

Reinsurance Solutions?

– 5 - Avian Inluenza / Pandemic Risk

1 - Takaful Insurance - Potential

• Muslim Population

– Between 1/5 and 1/4 of the world

population

– Mainly Asia, Africa and Middle East

– About 1.6 million Muslims in Canada (5%)

– About 3.0 million Muslims in the USA (1%)

• Growth

– One of the fastest growing segments in

North America, particularly Canada

1 - Takaful Insurance

• Insurance in Compliance with Shari’ah

Law (Islam)

• Shari’ah Law

– Legal framework based on Muslim

principles of jurisprudence

– Legal theory established before the 19th

century, or

– Changing body and reflect current politics

and economic realities

1 - Takaful Insurance

• Insurance that is permissible under

Shari’ah Law

• Takaful

– Arabic word: “joint guarantee” or

“guarantee each other”

– Although “insurance” is technically

forbidden because it includes uncertainty,

“mutual cooperation” and “pool

contributions” are allowed for mutual

benefits

1 - Takaful Insurance

• Non-Permissible Elements

– Uncertainty (“Gharar”): timing of payment,

amount, or whether made or not

– Gambling (“Maisir”): premiums could be

seen as small when compared to the

potential payout

– Usury (“Riba”): not permitted under

Shari’ah Law (note: does not contradict

profits & capital gains)

1 - Takaful Insurance

• Some Structural Solutions

– Uncertainty (“Gharar”): ensure that some

payments are made in one form or another

– Gambling (“Maisir”): factor in some

guarantees, Return of Premiums,

participation in profits, etc.

– Usury (“Riba”): use Shari’ah compliant

funds (increasingly available)

1 - Takaful Insurance

• Other Characteristics of Takaful

– Must have a Shari’ah Board to uphold

Islamic Law, and connection with an

external Islamic Institute

– Full disclosure of contract terms and profits

distribution between the participants and

the “Operator”

– Reinsure with a Retakaful if available

– “Window Operations” may be permitted

1 - Takaful Insurance - Potential

Potential Takaful Distribution

Malaysi

a Pakista Singapor

n e

Indonesi Thailand

a 1% Sri Lanka

0%

Bahrain

1%

Jorda

n

Kuwait

3%

Oma

n

Qata

r

Saudi Arabia

Bangladesh United 17%

6% Yemen Syria

Arab 3%

0%

Emirate

1 - Takaful Insurance - Wakalah Model
1 - Takaful Insurance - Mudharabah
1 - Takaful Insurance - Potential

• Opportunities for Reinsurance

– Takaful has been small but growing rapidly

abroad

– Growing demand because of “Shari’ah

compliance” and increasing wealth

– If Retakaful is available, then must use it

– Retakaful has been almost non-existent,

and therefore limiting the growth of Takaful

– Canadian banks and credit unions already

working on Shari’ah-compliant investments

Traditional Risks,

New Solutions

2 -Increasing Client’s Retention

• Increasing Client’s Retention

– By calendar year (built-in annual

recapture)

– Reduce reinsurance costs

– Increase the partnership between the

ceding co. and the reinsurer

2 -Increasing Client’s Retention

2,200

Traditional Net Amount at Risk "A"

2,000

1,800

1,600

Funds & Face Amount ($000)

1,400

1,200

1,000

800

600

400 Ceded Amount

Cedant Retention

200 Fund

0

50 55 60 65 70 75 80 85 90 95

2 -Increasing Client’s Retention

2,200

Projection of Net Amount at Risk "A"

2,000

1,800

1,600

Funds & Face Amount ($000)

1,400

1,200

1,000

800

600

400 Ceded Amount

Cedant Retention

200 Fund

0

50 55 60 65 70 75 80 85 90 95

2 -Increasing Client’s Retention

4,500

Projection of Net Amount at Risk "B"

4,000

3,500

Funds & Face Amount ($000,000)

3,000

2,500

2,000

1,500

1,000

Ceded Amount

Cedant Retention

500 Fund

0

50 55 60 65 70 75 80 85 90 95

2 -Increasing Client’s Retention

• For the Cedant:

– Reduce reinsurance costs

– Retain participation in future mortality

gains

• For the Reinsurer

– Increase the commitment of the reinsurer

towards the cedant over the long-term

3 - Vary Reinsurance Portions

• For Example: Critical Illness

– Reduce reinsurance costs

• Higher incidence, more predictable costs

(Heart Attack, Stroke, Cancer)

• Cedant could retain more

– Reduce uncertainty

• Lower incidence, more variable costs

(Alzheimer’s disease, Renal disease,

Parkinson’s disease)

3 - Vary Reinsurance Portions
3 - Vary Reinsurance Portions

• For Example: Critical Illness

– Could migrate to the same basis over time

(10 years)

• Can afford more risk over time

• Create more harmonization over time

• Develop more company experience

3 - Vary Reinsurance Portions
4 - Reinsurance Derivatives

• Derivatives - Oxford:

– (of a financial product) having a value

deriving from an underlying variable asset :

equity-based derivative products

– (often derivatives) an arrangement or

instrument (such as a future, option, or

warrant) whose value derives from and is

dependent on the value of an underlying

asset

• “Reinsurance” is a derivative

4 - Reinsurance Derivatives

Insurer “A” Insurer “B”

Reinsures with Reinsures with

“R” Positive CFs “R” Negative CFs

Reinsurer “R” mixes CFs from “A”

& “B”, optimizes ALM, and return

better derivatives in costs

Reinsurer “R” retains profit as well

4 - Reinsurance Derivatives

• Any Other Ideas of Reinsurance

Derivatives:

– Designed for Capital Efficiency

– To optimize buying power

– Use of captive capital markets (off-shore)

– Etc.

New Insurance Risks,

New Reinsurance Solutions

5 - Avian Influenza / Pandemic Risk

• pan=all / demos=people

• Past Pandemics

– Spanish Flu in 1918-19: ~40 m deaths

– Asian Flu 1957: 1 million deaths

– Hong Kong Flu 1968: 700,000 deaths

• SARS

– 8,098 people infected in 25 countries

– 774 deaths

– Large economic impact

5 - Avian Influenza / Pandemic Risk

• 3 Conditions for a Pandemic

– A new influenza virus for which there is no

immunity among people

– It must infect humans and cause illness

– It must spread easily and be sustainable

among humans

5 - Avian Influenza / Pandemic Risk

• Mortality Gains

– With possible cure of cancer and other

critical illnesses, life expectancy could

reach 120 years or more

– Reinsurers can potentially realize huge

mortality gains by deferral of payment or

lapses

– Huge asset base (reserves) on which to

earn investment income

5 - Avian Influenza / Pandemic Risk

• Mortality Losses

– However, an Avian Influenza / Pandemic

could easily eliminate mortality gains

– A Gamble? The two risks are essentially

different:

• “Normal” day-to-day mortality, improving

chances, slow process, or

• “Abnormal” spike in death rates that last 2-3

years (Spanish Flu in 1918-19:~40 million

deaths in 60 countries, incl. 700,000

Americans - that’s a 7/1000 death rate, or 1 in

150!)

5 - Avian Influenza / Pandemic Risk

• Because of lower financial resources,

low to medium income may be more

affected

– Smaller life insurance policies

– Significant portion below retention

• Can it be reinsured?

– Much like “catastrophe” risks

THANK YOU !

← Older revision		Revision as of 07:31, 11 November 2017
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−	[~~http~~://45.40.~~136.134~~/~~~hodhood~~/HodHoodDocuments/IslamicFinance/Takaful/Calculated%20Risks,%20Measurable%20Results.pdf Read the Full Document]	+	[https://www.hodhood.com/en/HodHoodDocuments/IslamicFinance/Takaful/Calculated%20Risks,%20Measurable%20Results.pdf Read the Full Document]

← Older revision	Revision as of 02:20, 21 September 2016
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	+
	+
	+	== Top 20 FREQUENT WORDS ==
	+	reinsurance 18
	+	insurance 15
	+	takaful 15
	+	retention 11
	+	amount 10
	+	risk 10
	+	shari 9
	+	derivatives 8
	+	increasing 8
	+	pandemic 8
	+	avian 7
	+	client 7
	+	influenza 7
	+	cedant 6
	+	costs 6
	+	mortality 6
	+	deaths 5
	+	gains 5
	+	potential 5
	+	reinsurer 5
	+	risks 5
	+	solutions 5
	+
	+
	+
	+	== DOCUMENT KEY POINTS ==
	+	*new reinsurance solutions a c retakaful a from takaful or shari ah compliant insurance a how can reinsurance help a c traditional risks new reinsurance a increasing client retention a vary reinsurance portions e
	+	*ci products a reinsurance derivatives
	+
	+	*million muslims in the usa a c growth a one of the fastest growing segments in north america particularly canada
	+	*takaful insurance potential a c muslim population a between and of the world population a mainly asia africa and middle east a about
	+
	+	*takaful insurance a c some structural solutions a uncertainty gharar ensure that some payments are made in one form or another a gambling maisir factor in some guarantees return of premiums participation in profits etc
	+	*a usury riba use shari ah compliant funds increasingly available
	+
	+	*increasing client s retention a c increasing client s retention a by calendar year built in annual recapture a reduce reinsurance costs a increase the partnership between the ceding co
	+	*and the reinsurer
	+
	+	*avian influenza pandemic risk a c mortality losses a however an avian influenza pandemic could easily eliminate mortality gains a a gamble the two risks are essentially different a c normal day to day mortality improving chances slow process or a c abnormal spike in death rates that last years spanish flu in million deaths in countries incl
	+	*americans that s a death rate or in
	+
	+
	+	''Please note, This is an auto generated summary based on sentances position in the document and other factors''
	+	== DOCUMENT WORD ANALYSIS ==
	+	=== Main Category ===
	+	: AlHuda Material\takaful
	+
	+
	+	=== KeyWords ===
	+	taka islam insur malaysia productdeferred shariah countries muslim financial retakaful model growth custom partner developed service mutual bankable provided scheme
	+
	+
	+
	+	== RELATED DOCUMENTS ==
	+	:[[A Review of Takaful by Prof. Khawaja Ahmed Saeed]]
	+	:[[Agency Management,Training and Incentive Programme]]
	+	:[[Audit Issue of Islamic Banking]]
	+	:[[Banca Takaful by Faisal Shahzad Abbassi]]
	+	:[[Best Practices from e- Insurance to e-Takaful by Sami Guello]]
	+	:[[Calculated Risks, Measurable Results]]
	+	:[[Challenges & Issues Faced by Takaful Industry by Mr. Imtiaz ]]
	+	:[[Co-Operative Insurance and Takaful]]
	+	:[[Current Achievements of Takaful by Dr. S. J Malaikah]]
	+	:[[International Cooperative & Mutual Insurance Federation]]
	+	:[[Islamic Banking And Finance Malaysia’s Experience And Achiev]]
	+	:[[Islamic Finance & Investment Symposium by Sohail Jaffar]]
	+	:[[Islamic Insurance in 21st Century by Ahmad Feizal]]
	+	:[[Islamic Insurance Opertunities and Challenges]]
	+	:[[Issues and Challenges in Retakaful by Azman Ismail]]
	+	:[[Leveraging BancaTakaful as a Key Growth Channel by Mr. Rohai]]
	+	:[[Life Family Takaful by Mr. P Ahmed]]
	+	:[[Micro Insurance Co-Operative and Takaful]]
	+	:[[Micro Takaful by Shabir Patal]]
	+	:[[Microinsurance and Takaful]]
	+	:[[Microinsurance, cooperatives and Takaful]]
	+	:[[MicroTakaful – the way forward by Capt. M. Jamil Akhtar]]
	+	:[[Opertunities in Islamic Insurance]]
	+	:[[Present Scenario and Future Potentials of Takaful by Kazi Md]]
	+	:[[ReTakaful by Rohail Ali Khan]]
	+	:[[Syariah Compliant General Takaful Products by Sami Guellouz]]
	+	:[[Takaful and Mutuality by Mohd. Masua Billah]]
	+	:[[Takaful by Abdul Rahim]]
	+	:[[Takaful for Microfinance]]
	+	:[[Takaful Opperunities and Challenges By Azeem Pirani]]
	+	:[[Takaful Products Family Takaful Linked Investment Plans by S]]
	+	:[[Takaful World Prospective Middle East & North Africa]]
	+	:[[Takaful]]
	+	:[[Takful - Zubair Mughal]]
	+	:[[Takful Report]]
	+	:[[The Islamic Vision Presentation]]
	+	:[[The Success of Retakaful by Farid Benbouzid]]
	+
	+
	+
	+	== DOCUMENT REFERENCES ==
	+
	+
	+	=== Number of Pages ===
	+	34
	+
	+
	+	=== Published Date ===
	+	2016-09-17 01:17:29
	+
	+
	+	== Full Document ==
	+
	+
	+	[http://45.40.136.134/~hodhood/HodHoodDocuments/IslamicFinance/Takaful/Calculated%20Risks,%20Measurable%20Results.pdf Read the Full Document]
	+
	+
	+	[[Category:Islamic Finance]]
	+
	+	[[Category: Takaful]]