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| − | Calculated Risks, Measurable
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| − | Results
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| − | Sylvain Goulet, fcia, fsa
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| − | Developing New Risks,
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| − | Developing New Solutions
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| − | New Reinsurance Solutions
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| − | • 1 - Retakaful
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| − | – From “Takaful” or Shari’ah compliant
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| − | insurance
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| − | – How can reinsurance help?
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| − | • Traditional Risks, New Reinsurance
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| − | – 2 - Increasing client retention
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| − | – 3 - Vary Reinsurance portions (e.g. CI
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| − | products)
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| − | – 4 - Reinsurance derivatives
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| − |
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| − | New Reinsurance Solutions
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| − | • New Insurance Risks, New
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| − | Reinsurance Solutions?
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| − | – 5 - Avian Inluenza / Pandemic Risk
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| − |
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| − | 1 - Takaful Insurance - Potential
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| − | • Muslim Population
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| − | – Between 1/5 and 1/4 of the world
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| − | population
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| − | – Mainly Asia, Africa and Middle East
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| − | – About 1.6 million Muslims in Canada (5%)
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| − | – About 3.0 million Muslims in the USA (1%)
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| − | • Growth
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| − | – One of the fastest growing segments in
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| − | North America, particularly Canada
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| − |
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| − | 1 - Takaful Insurance
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| − | • Insurance in Compliance with Shari’ah
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| − | Law (Islam)
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| − | • Shari’ah Law
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| − | – Legal framework based on Muslim
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| − | principles of jurisprudence
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| − | – Legal theory established before the 19th
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| − | century, or
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| − | – Changing body and reflect current politics
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| − | and economic realities
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| − |
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| − | 1 - Takaful Insurance
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| − | • Insurance that is permissible under
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| − | Shari’ah Law
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| − | • Takaful
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| − | – Arabic word: “joint guarantee” or
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| − | “guarantee each other”
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| − | – Although “insurance” is technically
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| − | forbidden because it includes uncertainty,
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| − | “mutual cooperation” and “pool
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| − | contributions” are allowed for mutual
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| − | benefits
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| − |
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| − | 1 - Takaful Insurance
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| − | • Non-Permissible Elements
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| − | – Uncertainty (“Gharar”): timing of payment,
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| − | amount, or whether made or not
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| − | – Gambling (“Maisir”): premiums could be
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| − | seen as small when compared to the
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| − | potential payout
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| − | – Usury (“Riba”): not permitted under
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| − | Shari’ah Law (note: does not contradict
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| − | profits & capital gains)
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| − |
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| − | 1 - Takaful Insurance
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| − | • Some Structural Solutions
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| − | – Uncertainty (“Gharar”): ensure that some
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| − | payments are made in one form or another
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| − | – Gambling (“Maisir”): factor in some
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| − | guarantees, Return of Premiums,
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| − | participation in profits, etc.
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| − | – Usury (“Riba”): use Shari’ah compliant
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| − | funds (increasingly available)
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| − |
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| − | 1 - Takaful Insurance
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| − | • Other Characteristics of Takaful
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| − | – Must have a Shari’ah Board to uphold
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| − | Islamic Law, and connection with an
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| − | external Islamic Institute
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| − | – Full disclosure of contract terms and profits
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| − | distribution between the participants and
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| − | the “Operator”
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| − | – Reinsure with a Retakaful if available
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| − | – “Window Operations” may be permitted
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| − |
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| − | 1 - Takaful Insurance - Potential
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| − | Potential Takaful Distribution
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| − | Malaysi
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| − | a Pakista Singapor
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| − | n e
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| − | Indonesi Thailand
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| − | a 1% Sri Lanka
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| − | 0%
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| − | Bahrain
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| − | 1%
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| − | Jorda
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| − | n
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| − | Kuwait
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| − | 3%
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| − | Oma
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| − | n
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| − | Qata
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| − | r
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| − | Saudi Arabia
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| − | Bangladesh United 17%
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| − | 6% Yemen Syria
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| − | Arab 3%
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| − | 0%
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| − | Emirate
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| − |
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| − | 1 - Takaful Insurance - Wakalah Model
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| − | 1 - Takaful Insurance - Mudharabah
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| − | 1 - Takaful Insurance - Potential
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| − | • Opportunities for Reinsurance
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| − | – Takaful has been small but growing rapidly
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| − | abroad
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| − | – Growing demand because of “Shari’ah
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| − | compliance” and increasing wealth
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| − | – If Retakaful is available, then must use it
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| − | – Retakaful has been almost non-existent,
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| − | and therefore limiting the growth of Takaful
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| − | – Canadian banks and credit unions already
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| − | working on Shari’ah-compliant investments
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| − |
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| − | Traditional Risks,
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| − | New Solutions
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| − |
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| − | 2 -Increasing Client’s Retention
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| − | • Increasing Client’s Retention
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| − | – By calendar year (built-in annual
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| − | recapture)
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| − | – Reduce reinsurance costs
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| − | – Increase the partnership between the
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| − | ceding co. and the reinsurer
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| − |
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| − | 2 -Increasing Client’s Retention
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| − | 2,200
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| − | Traditional Net Amount at Risk "A"
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| − | 2,000
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| − | 1,800
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| − | 1,600
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| − | Funds & Face Amount ($000)
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| − | 1,400
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| − | 1,200
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| − | 1,000
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| − | 800
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| − | 600
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| − | 400 Ceded Amount
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| − | Cedant Retention
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| − | 200 Fund
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| − | 0
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| − | 50 55 60 65 70 75 80 85 90 95
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| − |
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| − | 2 -Increasing Client’s Retention
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| − | 2,200
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| − | Projection of Net Amount at Risk "A"
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| − | 2,000
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| − | 1,800
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| − | 1,600
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| − | Funds & Face Amount ($000)
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| − | 1,400
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| − | 1,200
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| − | 1,000
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| − | 800
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| − | 600
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| − | 400 Ceded Amount
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| − | Cedant Retention
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| − | 200 Fund
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| − | 0
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| − | 50 55 60 65 70 75 80 85 90 95
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| − |
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| − | 2 -Increasing Client’s Retention
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| − | 4,500
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| − | Projection of Net Amount at Risk "B"
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| − | 4,000
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| − | 3,500
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| − | Funds & Face Amount ($000,000)
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| − | 3,000
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| − | 2,500
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| − | 2,000
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| − | 1,500
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| − | 1,000
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| − | Ceded Amount
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| − | Cedant Retention
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| − | 500 Fund
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| − | 0
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| − | 50 55 60 65 70 75 80 85 90 95
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| − |
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| − | 2 -Increasing Client’s Retention
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| − | • For the Cedant:
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| − | – Reduce reinsurance costs
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| − | – Retain participation in future mortality
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| − | gains
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| − | • For the Reinsurer
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| − | – Increase the commitment of the reinsurer
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| − | towards the cedant over the long-term
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| − |
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| − | 3 - Vary Reinsurance Portions
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| − | • For Example: Critical Illness
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| − | – Reduce reinsurance costs
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| − | • Higher incidence, more predictable costs
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| − | (Heart Attack, Stroke, Cancer)
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| − | • Cedant could retain more
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| − | – Reduce uncertainty
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| − | • Lower incidence, more variable costs
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| − | (Alzheimer’s disease, Renal disease,
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| − | Parkinson’s disease)
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| − |
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| − | 3 - Vary Reinsurance Portions
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| − | 3 - Vary Reinsurance Portions
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| − | • For Example: Critical Illness
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| − | – Could migrate to the same basis over time
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| − | (10 years)
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| − | • Can afford more risk over time
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| − | • Create more harmonization over time
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| − | • Develop more company experience
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| − |
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| − | 3 - Vary Reinsurance Portions
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| − | 4 - Reinsurance Derivatives
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| − | • Derivatives - Oxford:
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| − | – (of a financial product) having a value
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| − | deriving from an underlying variable asset :
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| − | equity-based derivative products
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| − | – (often derivatives) an arrangement or
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| − | instrument (such as a future, option, or
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| − | warrant) whose value derives from and is
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| − | dependent on the value of an underlying
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| − | asset
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| − | • “Reinsurance” is a derivative
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| − |
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| − | 4 - Reinsurance Derivatives
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| − | Insurer “A” Insurer “B”
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| − | Reinsures with Reinsures with
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| − | “R” Positive CFs “R” Negative CFs
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| − | Reinsurer “R” mixes CFs from “A”
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| − | & “B”, optimizes ALM, and return
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| − | better derivatives in costs
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| − | Reinsurer “R” retains profit as well
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| − |
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| − | 4 - Reinsurance Derivatives
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| − | • Any Other Ideas of Reinsurance
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| − | Derivatives:
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| − | – Designed for Capital Efficiency
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| − | – To optimize buying power
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| − | – Use of captive capital markets (off-shore)
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| − | – Etc.
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| − |
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| − | New Insurance Risks,
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| − | New Reinsurance Solutions
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| − |
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| − | 5 - Avian Influenza / Pandemic Risk
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| − | • pan=all / demos=people
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| − | • Past Pandemics
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| − | – Spanish Flu in 1918-19: ~40 m deaths
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| − | – Asian Flu 1957: 1 million deaths
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| − | – Hong Kong Flu 1968: 700,000 deaths
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| − | • SARS
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| − | – 8,098 people infected in 25 countries
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| − | – 774 deaths
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| − | – Large economic impact
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| − | 5 - Avian Influenza / Pandemic Risk
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| − | • 3 Conditions for a Pandemic
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| − | – A new influenza virus for which there is no
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| − | immunity among people
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| − | – It must infect humans and cause illness
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| − | – It must spread easily and be sustainable
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| − | among humans
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| − |
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| − | 5 - Avian Influenza / Pandemic Risk
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| − | • Mortality Gains
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| − | – With possible cure of cancer and other
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| − | critical illnesses, life expectancy could
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| − | reach 120 years or more
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| − | – Reinsurers can potentially realize huge
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| − | mortality gains by deferral of payment or
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| − | lapses
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| − | – Huge asset base (reserves) on which to
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| − | earn investment income
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| − | 5 - Avian Influenza / Pandemic Risk
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| − | • Mortality Losses
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| − | – However, an Avian Influenza / Pandemic
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| − | could easily eliminate mortality gains
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| − | – A Gamble? The two risks are essentially
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| − | different:
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| − | • “Normal” day-to-day mortality, improving
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| − | chances, slow process, or
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| − | • “Abnormal” spike in death rates that last 2-3
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| − | years (Spanish Flu in 1918-19:~40 million
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| − | deaths in 60 countries, incl. 700,000
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| − | Americans - that’s a 7/1000 death rate, or 1 in
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| − | 150!)
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| − | 5 - Avian Influenza / Pandemic Risk
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| − | • Because of lower financial resources,
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| − | low to medium income may be more
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| − | affected
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| − | – Smaller life insurance policies
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| − | – Significant portion below retention
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| − | • Can it be reinsured?
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| − | – Much like “catastrophe” risks
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| − | THANK YOU !
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