The Success of Retakaful by Farid Benbouzid
The success of Retakaful
Arab Insurance, outlook and
actual new economical situation
Farid Benbouzid Cairo 20 & 21-07-05 1
Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
Cairo 20 & 21-07-05 2
Introduction
Conventional insurance
Takaful Concept
Retakaful concept
Cairo 20 & 21-07-05 3
Insurance not permissible
Uncertainty (Gharar)
Gambling (Maisir)
Interest (Riba)
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Takaful concept
1985 Grand Council of scholars approved
Takaful
Method and means left to scholars and
practitioners
Must have :
Permanent Sharia Advisory Board
Sharia compliant investment strategy
Operating model based on Shariaa concepts
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Operating models
Pure mudharabah
(Sudan) Family takaful
Modified
mudharabah General Takaful
(Malaysia)
Wakala (Bahrain)
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Re-Takaful concept
Preferred reinsurance is proportional
(quota share or surplus)
Non proportional permissible
If Re-takaful is unavailable, then it is
permissible to use a conventional
reinsurer
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Achievements
Takaful industry
Retakaful industry
Best Re’s position
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Takaful Industry in the World
World Premiums 2003
USD 2.6 trillions
Takaful contributions 2002
USD 2.1billions
Number of companies
59
Number of countries
23
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Takaful Industry in the World
Geographical Spread
Mid-East
7% 1%
South &
East Asia
Africa
36% 56%
Others
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Takaful industry in EM
EM Takaful contributions 2002
USD 2 billions
EM/WW Takaful contributions
99%
EM Total Premiums
USD 217 billions
Number of Companies
>45
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Main EM Takaful Markets
GCC
Malaysia
Other Arab countries
Other South & East Asia
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Retakaful cessions drivers
Heavy exposure to cat events
> No exposure to cat events
Small local players
> Larger international insurers
Specific line or customer Group focused
> Multiline insurers
Commercial lines (Aviation)
> Personal lines (Motor)
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Retakaful cessions drivers
Life protection lines
> Life saving
Expansion into new products
Or regions
Regulatory and rating considerations
Solvency ratio and claims payment ability
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High demand for Retakaful
Many of Takafuls are local players
Many of them are also newly set up
Small takaful market
In number
In size
Rely heavily on Retakaful support
Demand for Retakaful expected to grow with
industry
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Unsufficient supply
Very few Professionnal Retakafuls
2 (Best Re, Asean Re - ARIL)
Takafuls accept a small part of
Retakaful business from each other
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Takaful dilemma
Participants opt for the product because
it is sharia compliant
Takafuls forced to cede business to
conventional reinsurance
Otherwise disappear !
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Retakaful dilemma
Retakafuls are Takafuls focused
Retakafuls forced to accept business
from conventional market
Retakafuls forced to retrocede business
to conventional market
Otherwise disappear !
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Best Re
Modified Mudharaba model
Permanent Shariaa Board
Avoids “Ribaa”
Interest on deposits are offset
Investments are compliant with “Shariaa”
requirements
Manages separate accounts
Ceding companies account (Technical operations)
Shareholders’ account (Shareholders’ operations)
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Best Re
Niche market player set up in 1985
Internationally recognized as Retakaful
Strong capital basis and claims-paying
ability
Well rated by well reputed agencies
Standard & Poor’s : BBB (Stable Outlook)
AM Best : B++ (Very Good)
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Best Re
Accepted contributions from Takafuls (2003)
USD 8 millions out of 62
In % of whole portfolio
13%
Markets
16
Number of Ceding Takafuls
28
Number of Contracts
319
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Challenges ahead
Mission statement
Takaful growth perspectives
Learn from conventionals
Retakafuls’ duties
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Mission statement
Pave the way for takafuls to achieve their
growth potential and build a strong and
sound industry
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Takaful growth perspectives
Non life insurance demand in EM
Life insurance demand in EM
Outlook
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Non-life insurance demand
Low Premium as % of GDP
Min = 0.2% (Bangladesh)
Max=2.9% (Jamaïca, South Africa)
Low per-capita Spending
Min = USD 8 (Africa)
Max = USD 54 (Latin America)
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Life insurance demand
Very low Premium as % of GDP
Min = 0% (Saudi Arabia)
Max = 3.8% (Trinidad & Tobago)
Very low per-capita Spending
Min = USD 14 (Middle East)
Max = USD 30 (South & East Asia)
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Outlook
Large potential
to be captured
Takaful is a specific answer
to an unfulfilled demand
Takaful could capture a large part of
the population
which would not, otherwise, insure.
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Takaful Growth Perspectives
New markets likely to introduce Takaful
in the near future
Philippines, Bangladesh, Former Soviet Union,
South Africa etc.
Takaful windows set up by conventional
insurers
Good indicators of brand success
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Takaful Growth Perspectives
Strong growth trend in South & East
Asia
+30% p.a. in Malaysia
likely to continue
Sustained average growth in double
digits in the coming years
+15% p.a.
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Learn from conventionals
250 professional reinsurers
2003 ceded premiums : USD 176 billion
Non life reinsurance :
USD 146 billion (13.7% insurance premiums)
Life reinsurance :
USD 30 billion (1.9% insurance premiums)
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Learn from conventionals
Top ten reinsurers market share :
54%
Shareholders equity of top 40 :
USD 249 billion
Of top ten, 6 have a financial strength rating:
At least “AA-” by S&P (very strong financial security)
Stable and sound capital base for reinsurance
industry :
Negligeable bankrupties between 1980-2003
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Reinsurance cessions drivers
Reduced uw results volatility
Escape from insolvency in case of cat event
Capital relief and flexible financing
Accept more business with the same capital
Access to reinsurers’ expertise and
services
Product development
Pricing
Underwriting
Claims management
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Reinsurers have to be financially
secure
Part of underwriting risk
Insurer Reinsurer
Counterparty credit risk
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Reinsurers’ risk management
Scope : Underwriting
Long term survival of
the reinsurance
company
Underwriting and Risk
Management
investment risks are
aligned with capital Capital Asset
available (R.B.C) management management
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Risk modelling
Exchange
Stock markets rates Tsunami
Interest Earthquakes
rates
Insurance risk Credit risk Market risk
Inflation Operational risk Influenza
epidemic
Credit risks Tropical
cyclones
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Diversification across time
Less expensive
Lower capital reinsurance cover
Better need
diversification or
Lower Cost Higher level of
given the exposure Protection _ given the
level of capital
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Retakafuls’ duties
Providers of secure covers
Strong capital base
Focus on Risk Management models
Diversification across time
Expertise providers
Product development
Pricing
Underwriting
Claims management
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Strategy – 1st step -
Establish an annual meeting of ArabTakafuls
and Retakafuls
Networking benefits
Set up a « Takaful Association »
Practitioners’ intelligence networks
Best practices’ exchange
Reinsurance placing facilities
Set up an informative Takaful & Retakaful
website
Wise information exchange among members
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Strategy – 2nd step -
More and more cooperation between
Takafuls
Web site becomes transactional
« Takaful Association » is efficient
Improved structures
Successful Annual Meeting
New well rated Retakafuls are set up
2 to 3
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Strategy – 3rd step -
Design a framework of cooperation with
conventional reinsurers
Associate members’ status
Interested in the Takaful market development
Set up a brokerage company focused
on Retakaful placing
By the Association
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Specific position of Middle East
Homogenious religious status
Oil producer countries generating
financial surplus
Eligible to play a major role in this
strategy
Strategy could benefit from the financial
synergy existing in Dubai & Bahrain
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
Cairo 20 & 21-07-05 45
Conclusion
To be or not to be?
Is no longer the question
Other questions prevail now
How many?
How much strong? Capital, rating?
How much knowledgeable?
Successful answers to those questions
will involve a virtuous business cycle
Takaful & Retakaful development
Benefits for overall economy and society
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Retakaful &Takaful’s virtuous cycle
Less expensive takaful products
Higher profitability
Retakaful Lower cost
Enhanced Stronger Secure
insurability growth of capital industry
Takaful Company
Overall economy
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Thank you
Sources
Islamic Insurance Conference, London,
Sept. 26-27, 2003
Swiss Re, Understanding reinsurance,
2004
Swiss Re, sigma N°6/ 2002.
Farid Benbouzid Cairo 20 & 21-07-05 48
