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RETAKAFUL

Opportunities & Constraint

A Pre

Roh

Outline of Presentation

• Introduction

• ReTakaful worldwide

• Industry Statistics

• Recent Development

• ReTakaful Prospects in Pakistan

• Issues

• The way forward

• Takaful Windows

Introduction

• Preferred type is proportional

share or surplus).

• Non proportional permissible.

• If ReTakaful is unavailable, the

permissible to use a conve

reinsurer.

ReTakaful Worldwide

• Sudan (1979) National Reinsurance.

• Sudan (1983) Sheikhan Takaful Compan

• Bahamas (1983) Saudi Islamic Takaful a

ReTakaful Company.

• Bahrain/Saudi Arabia (1985) Islamic Ins

and Reinsurance Company.

• Tunisia (1985) B.E.S.T. Re

• Malaysia (1997) ASEAN ReTakaful

International.

• Dubai (2005)  TakafulRe.

ReTakaful World

• Some conventional reinsurance compa

recognizing the active demand for cap

from Takaful  companies have formed

ReTakaful Pools/Arms/Divisions. Som

these are:

• Swiss Re

• Mitsui Sumitomo

• Hannover Re

• Kuwait Re

• Trust Re

• Labuan Re

Industry Statistics

S. No. Name of Company Paid-up Established in Count

Capital

1 Takaful Re USD 2005 Duba

125

million

2 B.E.S.T. Re USD 55 1985 Tunis

million

3 ASEAN ReTakaful USD 14 1997 Malay

International million

Note : Data of other ReTakaful companies is not available

Recent Developments

• Salama has established a Re

Syndicate with Creechurch at Lloy

is expected to start operations in 20

• Tokio Marine ReTakaful also t

writing business in 2007.

• The above are expected to have ‘A’

ReTakaful Prospects in Pak

• Proliferation of Takaful companies.

• Strategic location.

• Professional expertise.

• PRCL – ReTakaful Pool.

Issues

• Only few globally active companies

• Capacity constraints.

• Large initial capital required.

• Need for strong and committed spo

Meetak Re failure a major blow.

• Reliance on Retrocession.

• Different Models.

The way forward

• IPOs.

• Retrocession Pools.

• Securitization/ART.

• Reconciliation of Different Models.

• Collaboration with Takaful Assoc

ICMIF/Asian Takaful Group.

Takaful Windows

• Background.

• Malaysian Example.

• Conflict of Concept.

• Low Paid‐up Capital.

• Dearth of Experienced Professional

• Regulatory issues.

• Transparency.

• Foreign Investment.

Takaful Windows

•Background.

Takaful Rules 2005 were notified last year after protracted deli

the issue of allowing window operations to the conventio

Despite considerable pressure from certain vested interests, co

logical arguments against window operations prevailed and

Ministry of Commerce notified the said rules specifically

window operations. Of late, however, the issue of allowi

operations is being raised again on the pretext that it will ‘give

to the Takaful industry. This, apart from being to the co

seriously undermine the Takaful concept in the country and

public will be misled and confused.

Takaful Windows

•Malaysian Example.

Malaysia, being the market leader, is looked upon as the ro

Islamic Banking and Takaful. Their regulators are on re

admitted their ‘mistake’ in allowing window Islamic Bankin

some 15 years back.  They subsequently rectified the situation

issued directive to all banks to convert their Islamic windows i

subsidiary companies/banks. Even when the allowed Islamic

banks, they still did not allow Takaful windows to conventiona

they strongly felt, and still do, that it would be detrimental to

Takaful itself.

Takaful Windows

•Conflict of Concept.

Unlike banks, there is a clear conflict in the concept of

insurance viz‐a‐viz the Takaful insurance. Conventional insura

transfer mechanism. This means, that the risk is transferr

individual/policy holder to the insurance company. This, acco

Shariah scholars, is not permissible in Islam. Takaful, on the o

risk sharing mechanism, which is in conformity with the S

these two conflicting concepts cannot be reconciled within th

single company.

Takaful Windows

•Low Paid‐up Capital.

Whereas the minimum paid‐up‐capital required for setting‐up

has already been enhanced to Rs.6 billion, the capital required

up a new Takaful/Insurance company is far too low i.e. Rs.8

general and Rs.150 million for Life/Family business. Although,

considering to increase these figures progressively to Rs.500 m

year 2011, it still very low compared to the banks. Hence, e

stand justified to be allowed window operations instead

subsidiaries, the same cannot be held as justifiable for Takaful o

Takaful Windows

•Dearth of Experienced Professionals?

This excuse put forward by the conventional insurance co

myth. There are a large number of young, competent a

professionals within the insurance industry who are not ge

exposure and respectable salaries. In fact, there is an enormo

between the salaries and perks enjoyed by the top‐most hier

insurance companies and those of their junior and middle

level employees. Due to such tendency of exploitation, a signifi

of such insurance professionals have moved to the Middle Ea

right incentives, they shall return and will be a valuable a

emerging Takaful companies due to their enriched experience.

in this area can be drawn from the banks which faced a similar

over the last ten years several Pakistani banking profess

returned from abroad and are currently serving in Pakistan.

Takaful Windows

•Regulatory issues.

In contrast with the banks in Pakistan which are very well re

monitored by the State Bank of Pakistan that itself incorporate

professionals to ensure that their stringent requirements are fu

with, the insurance regulatory regime has undergone several ch

recent past. First, the role of regulator was switched from the

office under the Ministry of Commerce to the Insurance Div

SECP just a few years back. Then in the year 2000 the age old I

1938 was repealed and replaced by the Insurance Ordinance 2

areas thereof still need correct interpretation and clarificatio

there are several loopholes that are being exploited by the

insurance industry. Several malpractices have also cropped

years within the conventional insurance circles who have co

these as ‘marketing techniques’ rather than malpractices. If su

are allowed to open up Islamic windows with the same minds

malpractices will be introduced in Takaful as well.

Takaful Windows

•Transparency.

It is argued that by the very reason of Life Assurance m

separate Policy Holders’ Fund, it stands to qualify to o

windows. If this argument is taken, then their next logical step

ask for Takaful windows in General Insurance on the plea of

separate Takaful Fund. Since the intentions would only be  not

clientele who would prefer to switch over to Takaful, they

setting‐up a separate fund would be able to hoodwink the

introduce malpractices in Takaful as well. Furthermore, it

possible to clearly segregate the expense allocation between

and Takaful operations within the same company as just

percentage allocation of expense is not an ideal solution. Thus

an inevitable mix between the ‘right’ and the ‘wrong’ which

even to the Quranic injunction: “And mix not, the Right with

and hide not the Truth when you know it” (Al Baqara, verse 42).

Takaful Windows

•Foreign Investment.

There are currently a number of foreign investment groups

companies who are actively contemplating and are in touch

local groups in Pakistan to jointly set up new Takaful c

windows are allowed to the local insurance companies, s

investors shall be discouraged.

End of Presentation

Jazakalllah al khair

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ReTakaful by Rohail Ali Khan - Revision history

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