|
|
| Line 1: |
Line 1: |
| − | Abdul Rahim Abdul Wahab, FSA
| |
| − | Director & Actuary
| |
| − | Actuarial Services Division
| |
| − | abdul.rahim@sidathyder.com.pk
| |
| − | Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − | Islamic Finance & Investment Symposium 6 - 7 Dec 2006, Karachi
| |
| | | | |
| − | What is covered
| |
| − | • Gap in Islamic Finance
| |
| − | • Conventional Insurance
| |
| − | • Takaful Concept
| |
| − | • Takaful Rules
| |
| − | • Retakaful
| |
| − | • Market Potential
| |
| − | • Islamic Banks and BancaTakaful
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Gap in Islamic Finance
| |
| − | • Islamic Banks contracts require assets to be insured
| |
| − | with a Takaful company as per Shariah requirement.
| |
| − | • Many potential consumers of Islamic Finance stay away due to Insurance
| |
| − | being on conventional basis.
| |
| − | • Doctrine of Necessity applied till Takaful was not available.
| |
| − | • Takaful Rules promulgated in September 2005.
| |
| − | • One General takaful operator since last one year. More to follow in coming
| |
| − | months giving consumers a choice within takaful.
| |
| − | • Takaful exists for almost 30 years – typically with 2 to 3 years lag with
| |
| − | Islamic banking development. Started with Sudan, later ME and Malaysia.
| |
| − | • Also number of synergies could be created with Islamic
| |
| − | banks distributing takaful products (BancaTakaful) or
| |
| − | setting up takaful companies with equity participation.
| |
| − | • Standing requirement of Islamic Banks for Islamic House Mortgage
| |
| − | schemes, Car Ijarah schemes as integrated benefits.
| |
| − | • Distribution of Takaful Savings and Protection plans in different forms.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | CONVENTIONAL INSURANCE
| |
| − | Indemnification against unforeseen financial losses
| |
| − | (not to profit from loss)
| |
| − | Commercial Risk Transfer
| |
| − | Law of Large numbers - Insurance company pools
| |
| − | risks/reinsures above capacity.
| |
| − | Recovers expenses for managing the pool
| |
| − | Investment return under life insurance shared with
| |
| − | PHs based on Actuarial Valuation or otherwise.
| |
| − | Profit for the shareholders based on Underwriting
| |
| − | results and Investment income
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | OBJECTIONS TO CONVENTIONAL INS
| |
| − | Objections to Conventional Ins
| |
| − | Elements of:
| |
| − | Uncertainty – Gharrar (non-existence of
| |
| − | goods, un-known quantity, timing) in a
| |
| − | commercial risk transfer contract.
| |
| − | Interest – Riba
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | BASIC CONCEPT OF TAKAFUL
| |
| − | Takaful means “Joint Guarantee” for mutual
| |
| − | assistance within a group. Each member of the group
| |
| − | pools to support the needy within the group.
| |
| − | Mutual protection contains elements of cooperation,
| |
| − | shared responsibility joint help – all encompassing in
| |
| − | takaful concept
| |
| − | Principle objective is the same as Insurance - to
| |
| − | indemnify against unforeseen financial losses.
| |
| − | Mechanism followed is however different.
| |
| − | An economic institution whereby the losses of the
| |
| − | unfortunate few are shared by the contribution of the
| |
| − | fortunate many who are exposed to the same risk on
| |
| − | “Co-operative Risk Sharing” basis.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | HOW IS IT DIFFERENT FROM INSURANCE
| |
| − | Concept of “Risk Manager” NOT “Risk Taker”
| |
| − | Underwriting Surplus belong to Participants
| |
| − | Underwriting Deficit may be shared by participants
| |
| − | Risk Management
| |
| − | Underwriting as usual
| |
| − | Ensure Risk premium adequate – not commercial
| |
| − | driven
| |
| − | Retakaful Pool instead of Reinsurance
| |
| − | Interest free loan by SH (Qard Hasnah)
| |
| − | Investments compatible with Shariah based on Profit
| |
| − | Sharing principles
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | CONVENTIONAL vs TAKAFUL
| |
| − | Issue Conventional Takaful
| |
| − | Organization Profit for shareholders/ Mutual for participants
| |
| − | Principle Risk transfer Risk remains with participants
| |
| − | No underwriting profits for SHs
| |
| − | Form of Commercial Cooperative, Shariah contracts of
| |
| − | Relationship Exchange/Contract of Wakala or Mudarabah with
| |
| − | compensation contribution for mutual assistance
| |
| − | Capital Shareholders Operator provides set-up capital.
| |
| − | Laws Regulations Regulations plus Sharia approval
| |
| − | Ownership Shareholders Participants of Takaful Fund
| |
| − | Investments Equity/debt-no Sharia compliant investments only /
| |
| − | restrictions No interest
| |
| − | Surplus Shareholders account Participants account
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Takaful Rules 2005
| |
| − | Capital requirement – 80 m for General and 150 m for
| |
| − | Family. Likely to be increased to Rs.300m for General
| |
| − | and Rs.500 m for Family. Board of Investment
| |
| − | requirement is $4 million (Rs. 240 million) at present.
| |
| − | Composite companies not allowed
| |
| − | Wakalah Model for Risk Protection
| |
| − | 100% Surplus distribution for participants (after
| |
| − | reserves etc)
| |
| − | Underwriting deficit – Qard Hasnah by SH or recover
| |
| − | Mudaraba or Wakala Model for Investment Sharing.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Takaful Rules 2005
| |
| − | Takaful company can also share risks on
| |
| − | coinsurance basis from outside Pakistan
| |
| − | Can use conventional reinsurance, only if
| |
| − | retakaful is not available and if Shariah Board
| |
| − | permits. Wakala based would be preferred.
| |
| − | Windows not allowed for atleast 5 years
| |
| − | Transformation of existing conventional general
| |
| − | companies is allowed in one year
| |
| − | Three member Shariah Board and Annual
| |
| − | Shariah Audit
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | RE TAKAFUL
| |
| − | Retakaful solutions evolving although not
| |
| − | enough capacity available.
| |
| − | Best Re (Tunisia), Asean Re (Labuan) and
| |
| − | Tokyo Marine are providing retakaful based on
| |
| − | Mudaraba model. Shariah scholars and SECP
| |
| − | have objections to Mudaraba model. Need to
| |
| − | look for Wakala based Retakaful solutions as a
| |
| − | preferred route.
| |
| − | Lloyds syndicate is setting up a Retakaful
| |
| − | solution for General Takaful.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | RE TAKAFUL
| |
| − | Takaful Re launched in Dubai by ARIG with $125 m capital.
| |
| − | Recently rated BBB by S&P becoming the 1st Retakaful operator
| |
| − | with a rating and Wakala based model.
| |
| − | Swiss Re recently launched Wakala based Family Retakaful Fund.
| |
| − | Hannover Re is working on Retakaful solutions.
| |
| − | Munich Re has also incorporated its Retakaful subsidiary in
| |
| − | Malaysia.
| |
| − | “Doctrine of Necessity” may no longer be justified hopefully
| |
| − | leading to Takaful being backed by RETAKAFUL rather than
| |
| − | Reinsurance.
| |
| − | Government/ SECP needs to encourage setting up of Retakaful
| |
| − | pools.
| |
| − | Possibly within NICL / PRCL for General Retakaful
| |
| − | State Life for Family Retakaful
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Market Potential
| |
| − | Pakistan’s insurance
| |
| − | density and insurance
| |
| − | penetration rates low.
| |
| − | Reasons – Lack of
| |
| − | awareness and religious
| |
| − | concerns.
| |
| − | Takaful can help push
| |
| − | the penetration rates up.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Growth of Life Insurance Premium
| |
| − | Billions
| |
| − | 20.00
| |
| − | 18.00
| |
| − | 4.65
| |
| − | 16.00
| |
| − | 14.00
| |
| − | 3.57
| |
| − | 12.00 3.11
| |
| − | Private
| |
| − | 10.00 1.93 State Ow ned
| |
| − | 8.00 1.35
| |
| − | 13.90
| |
| − | 6.00 11.11
| |
| − | 9.92
| |
| − | 8.39
| |
| − | 4.00 6.98
| |
| − | 2.00
| |
| − | 0.00
| |
| − | 2001 2002 2003 2004 2005
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Growth of General Insurance Premium
| |
| − | 25.00
| |
| − | 20.00
| |
| − | 2.77
| |
| − | 1.74 Misc
| |
| − | 15.00 6.96
| |
| − | 1.26 5.89 Motor
| |
| − | 10.00 1.23 4.28
| |
| − | 1.36 3.62
| |
| − | 1.20
| |
| − | 3.05
| |
| − | Marine
| |
| − | 3.00
| |
| − | 2.94
| |
| − | 3.13 2.40
| |
| − | 1.71
| |
| − | 5.00
| |
| − | 1.28
| |
| − | 1.63
| |
| − | 6.92
| |
| − | Fire
| |
| − | 5.96
| |
| − | 4.14 4.66
| |
| − | 3.22 3.59
| |
| − | -
| |
| − | 2000 2001 2002 2003 2004 2005
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | ROE OF INSURANCE INDUSTRY
| |
| − | GENERAL INSURANCE RETURN ON EQUITY (%)
| |
| − | Average Equity
| |
| − | Year Weighted (%) EFU AIC NJI Shaheen Askari
| |
| − | 2005 58 56 63 57 39 28
| |
| − | 2004 33 60 27 30 11 23
| |
| − | 2003 32 33 29 41 21 16
| |
| − | 2002 21 17 21 25 18 13
| |
| − | LIFE INSURANCE RETURN ON EQUITY (%)
| |
| − | Average Equity
| |
| − | Year Weighted (%) EFU NJI ALICO METRO
| |
| − | 2005 26 43 15 15 1
| |
| − | 2004 27 47 21 6 8
| |
| − | 2003 26 40 33 13 2
| |
| − | 2002 14 17 -4 21 4
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Islamic Banking
| |
| − | Dec 02 Dec 03 Dec 04 Dec 05 Mar 06 June 06
| |
| − | Number of full fledge Islamic Banks 1 1 2 2 3 4
| |
| − | Number of Islamic Bank Branches 6 10 23 37 39 48
| |
| − | No. of conventional banks operating - 3 7 9 10 11
| |
| − | Islamic Banking Operation
| |
| − | Number of stand alone Islamic - 7 21 33 34 39
| |
| − | Branches of conventional banks
| |
| − | Number of Branches expected to grow exponentially
| |
| − | Two new banks Emirates Global Islamic Bank Limited and First Dawood Islamic
| |
| − | Bank Limited
| |
| − | State Bank growth estimates for Islamic Banks
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Islamic Banking Growth
| |
| − | Table-5.2: Sources and Uses of Funds Rs. In billion
| |
| − | 2003 2004 2005 Mar-06 Jun-06
| |
| − | SOURCES
| |
| − | Deposits 8397.1 30184.8 49931.8 53667 59657.5
| |
| − | Borrowings 1899 6559.1 9005.8 8948.2 8539
| |
| − | Capital & Other funds 1993.7 5123.1 7811 10268.9 12284.5
| |
| − | Other 624.8 2276.1 4744.8 6416.9 7121.7
| |
| − | 12914.6 44143.1 71493.4 79301 87602.7
| |
| − | USES:
| |
| − | Financing 8652.2 27535.5 45786.2 48717.6 51602.8
| |
| − | Investments 1242.3 2007 1854.2 6034.8 6333.1
| |
| − | Cash, bank balance, placements 1978.5 11899.7 19314.3 19718.7 22877.4
| |
| − | Other assets 1041.7 2700.8 4538.7 4829.9 6789.3
| |
| − | 12914.7 44143 71493.4 79301 87602.6
| |
| − | Source: SBP Publication June 2006
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Opportunities – General Takaful
| |
| − | Islamic Banks have a mandated requirement / moral obligation to insure
| |
| − | assets from a takaful company if available.
| |
| − | • Islamic Banks had disbursed Rs.58 billion (approx) – June 2006 in
| |
| − | various assets
| |
| − | General Insurance market size 2005– GWP Rs. 20 Billion (approx.), 38
| |
| − | companies
| |
| − | • Even if 10% switch to this basis it is more than Rs. 2.0 billion.
| |
| − | Untapped Market - Individuals do not take insurance - Motor, PA, Health,
| |
| − | Home
| |
| − | • Even if 10% of existing market do not insure for religious reasons, its
| |
| − | over 2 billion.
| |
| − | A large number of industrial groups have shown interest in takaful.
| |
| − | Only one Takaful operator licensed in Pakistan, so far!! – More to follow
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Opportunities – Family Takaful
| |
| − | Islamic Banks require life cover for House financing etc.
| |
| − | Life Insurance market size 2005– GWP Rs. 18 Billion (approx.), 4
| |
| − | private sector companies. Talks of SLIC being privatised in some
| |
| − | form.
| |
| − | Even if 10% switch to this basis it is more than Rs. 1.8 billion.
| |
| − | Untapped Market - Individuals do not take insurance – Just 2.5
| |
| − | million individual life policies
| |
| − | Even if 10% of existing market do not insure for religious
| |
| − | reasons, its almost 2 billion.
| |
| − | A large number of industrial groups are interested in group life and
| |
| − | health benefits based on takaful.
| |
| − | No Life takaful operator so far!! – Some under formation
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | TAKAFUL IN THE WORLD
| |
| − | • World Takaful Conference Dubai April 2006
| |
| − | • Around 70-80 companies are now operating in 28 countries.
| |
| − | • Takaful is one of the fastest growing sectors of the insurance
| |
| − | industry with around 20 per cent annual growth compared to
| |
| − | less than 10% for conventional.
| |
| − | • Global Takaful premiums are estimated at $3 billion, of which
| |
| − | 60 per cent is general takaful and the remaining is family
| |
| − | takaful.
| |
| − | • Middle East accounts for 36 per cent of premiums and about
| |
| − | 56 per cent is generated in South East Asia.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | SYNERGIES AMONGST ISLAMIC
| |
| − | FINANCE PARTICIPANTS
| |
| − | Takaful Operators,
| |
| − | banks and Capital
| |
| − | market players
| |
| − | continuously focus on
| |
| − | product building to
| |
| − | offer more attractive
| |
| − | products that fulfill the
| |
| − | differentiated needs of
| |
| − | the customers.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Synergies in Islamic Financial System
| |
| − | • Islamic Banks, Capital Markets and Takaful Operators work together to develop
| |
| − | products using each others strengths leading to competitive products.
| |
| − | • Takaful Operators fill the gap by providing Shariah compliant protection for Islamic
| |
| − | Financing Products.
| |
| − | • Islamic Banks and takaful operators work together to distribute takaful savings
| |
| − | and protection products under bancatakaful arrangements in a more cost effective
| |
| − | manner leading to better consumer values.
| |
| − | • Takaful Operators need longer term investments which fulfill the long term
| |
| − | financing needs of Islamic financial institutions
| |
| − | • Long term investments enable takaful operators to offer better returns to its
| |
| − | customers and shareholders.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | BANCATAKAFUL
| |
| − | • A mechanism for distribution of takaful products through banks.
| |
| − | Advantages for banks:
| |
| − | • Additional fee income from existing customers received upfront.
| |
| − | • Additional product offering
| |
| − | • Increase customer retention by offering long term plans
| |
| − | • Simple examples are:
| |
| − | • Motor Takaful policy with Car Ijarah of Islamic Bank
| |
| − | • Family Takaful cover with Housing or other financing facility.
| |
| − | • Depositors protection
| |
| − | • Credit card protection
| |
| − | • More complex products include:
| |
| − | • Savings products
| |
| − | • Education products
| |
| − | • Retirement products
| |
| − | • Protection products
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | BANCATAKAFUL TRENDS IN ASIA
| |
| − | • Based on research conducted by Swiss Re Sigma report (2002)
| |
| − | “…by 2006, bancassurance could potentially account for 13% of total
| |
| − | premiums collected in Asia’s life insurance sector and 6% in the non-life
| |
| − | sector”.
| |
| − | • A large interest from insurers at this time as they seek to diversify
| |
| − | from traditional and less productive agency channels.
| |
| − | • Distribution agreements appear to be increasingly common as a
| |
| − | business model in Asia Pacific but increasing focus by major banks
| |
| − | in JVs and ownership models.
| |
| − | • Most of the larger banks in each country have an interest in a
| |
| − | bancassurance operation, or plans to enter the ‘manufacturing’ area
| |
| − | – moving from ‘fee income’ to ‘value creation’, by setting up its own
| |
| − | insurance company.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | Recap
| |
| − | • Protection against unforeseen financial losses is a
| |
| − | concern for many. Religious prohibition stops.
| |
| − | • Takaful Offers a huge potential market by filling the
| |
| − | gap which remains untapped at present.
| |
| − | • Competitive Pricing of Takaful products would remain
| |
| − | a key factor along with quality service.
| |
| − | • Bancatakaful could fast track efficient distribution and
| |
| − | better customer value.
| |
| − | • Adherence to Shariah principles in operational
| |
| − | practices would be the long term driver for success.
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − |
| |
| − | THANK YOU
| |
| − | Abdul Rahim Abdul Wahab, FSA
| |
| − | Director & Actuary
| |
| − | Actuarial Services Division
| |
| − | abdul.rahim@sidathyder.com.pk
| |
| − | Sidat Hyder Morshed Associates (Pvt) Ltd
| |
| − | Islamic Finance & Investment Symposium 6 - 7 Dec 2006,
| |
| − | Karachi
| |
| − | Actuarial Services Division Sidat Hyder Morshed Associates (Pvt) Ltd
| |
