Development of Takaful and Retakaful by Mahomad Akoob
From HodHood
The Development of Takaful &
Retakaful
Mahomed Akoob
CEO of Hannover ReTakaful B.S.C ©, Bahrain
Africa Islamic Finance Conference
Johannesburg, 31st October 2007
Contents
Introduction to Takaful
Coventional Insurance v.s. Takaful
Timeline of Takaful
Global Presence of Takaful and Global Contribution
Retakaful
Takaful in South Africa
Expected Market Development
Challenges Ahead
Hannover ReTakaful
1
TAKAFUL
An Introduction
Takaful is an Islamic Insurance concept which is
grounded in Islamic muamalat (man-to-man
relationships), observing the rules and regulations
of Islamic Law (Sharia).
This concept has been practised in various forms
for over 1400 years.
It originates from Arabic word Kafalah, which
means "guaranteeing each other" or "joint
guarantee".
In principle, the Takaful system is based on mutual
co-operation, responsibility, assurance, protection
and assistance between groups of participants.
2
INSURANCE AND TAKAFUL IN RISK MANAGEMENT PROCESS
Insurance and Takaful as financial tools to control risk
Risk Management is the process of dealing with
risk that threaten life, asset or earning capability
Three main steps of Risk Management are
• Risk identification
• Risk evaluation
• Risk control
Both Insurance and Takaful are tools to financially
control risk
3
CONVENTIONAL INSURANCE
Islamic Scholars' Objections
RISK TRANSFER
Ob
C o j ec
nv tio
RIBA In e n GHARAR
su n t s o
(usury) ra ion n (uncertainty)
nc a
e l
MAISIR
(gambling)
4
ISLAMIC REFERENCES TO TAKAFUL
Basis of Co-operation
• Help one another in virtue, righteousness and piety (Surah Al-Maidah, Verse
2)
• Allah will always help His servant for as long as he helps others. (Hadith
narrated by Imam Ahmad bin Hambal and Imam Abu Daud)
Basis of Responsibility
• The Believers, between each other, is just like the body; (Hadith Narrated by
Imam al-Bukhari and Imam Muslim)
• The believers is just like a building and strengthen each other. (Hadith
narrated by Imam al-Bukhari and Imam Muslim)
Basis of Mutual Protection
• Nobody will enter Paradise if he does not protect his neighbour who is in
distress. (Hadith narrated by Imam Ahmad bin Hanbal)
5
TAKAFUL WITHIN ISLAMIC FRAMEWORK
ISLAM
AQIDAH SHARIAH AKHLAQ
Faith & Belief Practices & Activities Moralities & Ethics
IBADAH MUAMALAT
Man-to-God Worship Man-to-Man Activities
Political Activities Economic Activities Social Activities
Risk Management
Takaful
6
ISLAMIC INSURANCE/TAKAFUL
Some Definitions
• Islamic Insurance is a system through which the participants donate
part or all of their contributions which are used to pay claims for
damages suffered by some of the participants. The company’s role is
restricted to managing the insurance operations and investing the
insurance contributions.
• A scheme based on brotherhood, solidarity and mutual assistance
which provides for mutual financial aid and assistance to the
participants in case of need whereby the participants mutually agree to
contribute for that purpose.
7
TAKAFUL & CONVENTIONAL INSURANCE: HEAD-TO-HEAD
CONVENTIONAL INSURANCE TAKAFUL
Risk transfer mechanism from the risk owners to Risk Sharing mechanism amongst the risks owner
other party (the insurance company) that is administered by the company
The risk owner is the Insured The risk owner is the participant of the group/pool
that share risk among themselves (guarantee
each other)
The company is the Insurer that bear the risk The company is the operator or administrator of
the risk sharing system
The whole premium belong to The company The Contribution (premium) belong to participants
collectively or in waqf model, belong to nobody
All Profit or Surplus goes to the company Profit or surplus belong to the participants or the
waqf fund
Deficit will be borne by the company Deficit of the fund is responsibility of the
participants, but the company is required to deal
with it by giving Qard Hasan (benevolent loan)
8
CONVENTIONAL INSURANCE
Risk Transfer
Risk Transfer RISK TRANSFER
INSURANCE COMPANY
Profit Oriented Profit Oriented
RISK TRANSFER
Risk Transfer
INSURANCE COMPANY
REINSURANCE COMPANY
9
TAKAFUL
Risk Sharing
Risk Sharing
Delegation of Risk and Delegation of Risk and
Fund Management TAKAFUL OPERATOR Fund Management
Delegation of Risk and
Fund Management
Delegation of Risk and
Fund Management
TAKAFUL OPERATOR
RETAKAFUL OPERATOR
Risk Sharing
10
TIMELINE OF TAKAFUL
1st Takaful
Fatwa of Higher Company
Council of Saudi in Sudan The first 1st Retakaful
Arabia Malaysian (ARIL)
Malaysian Takaful
Takaful Act Company
1976 1984
1984
1979 1997
622 1977 1984 1985 11 Ramadan 1427/
3 October 2006
1st Constitution of Fatwa of Muslim Hannover ReTakaful
Madina
World League Maja Al-Fiqh, awarded License
• Al-diyah/Al-Aqila
• Fidyah Makkah 1st International
• Cooperatives Retakaful Operator
Fatwa of OIC
11
OPERATIONAL MODELS IN TAKAFUL
Mudharaba, Wakala and Waqf
No any single 'best' models globally agreed
Three basic models are applicable in the
market:
• Mudharaba
• Wakalah
• Waqf
12
GLOBAL PRESENCE OF TAKAFUL
13
GLOBAL TAKAFUL CONTRIBUTION
The Big Five: Iran, Saudi, Sudan, Malaysia, UAE
WORLD GROSS TAKAFUL PREMIUM 2005 Senegal
6.78
(IN US$ MILLION)
Sudan 0.12%
Srilanka
383.84 Jordan
3.82
6.80% 14.40
Malaysia 0.07%
0.26%
380.00
6.74%
Bahrain
UAE 26.00
Saudi Arabia 196.00 0.46%
1,894.00 3.47%
Egypt
33.58%
Tunisia 3.30
108.30 0.06%
1.92%
Qatar
Kuwait 35.24 Bangladesh
71.39 0.62% 2.04
1.27% 0.04%
South Africa
2.00
Brunei 0.04%
Other
35.83
166.45
0.64% Yemen
2.95%
0.96
0.02%
Iran
2,441.00
43.27% Indonesia Pakistan
TOTAL: US$. 5.64 BILLION 36.00 0.08
0.64% 0.00%
14
REINSURANCE AND RETAKAFUL
Reinsurance
Retakaful
Retakaful roles
15
RETAKAFUL OPERATORS WORLDWIDE
5 full-fledges Operators
Full-fledge Operators
Hannover ReTakaful B.S.C © - Bahrain
Takaful Re – Dubai, UAE
Asean Retakaful International Limited (ARIL) – Labuan, Malaysia
MNRB Retakaful – Kuala Lumpur, Malaysia
Tokio Marine Retakaful –Singapore
Window Operations
Munich Re – Retakaful Division – Kuala Lumpur, Malaysia
Labuan Re – Labuan, Malaysia
Converium – Labuan, Malaysia
Best Re – Tunis
ReINDO – Jakarta, Indonesia
Nasional Re – Jakarta, Indonesia
Marein – Jakarta, Indonesia
16
TAKAFUL IN SOUTH AFRICA
Premium
Number of Operator
17
WHY TAKAFUL FUTURE SHOULD BE BRIGHT?
Moslem Population
Demography
Infrastructure
Insurance Penetration
International Consensus
Understanding
18
EXPECTED MARKET DEVELOPMENT
Takaful/ Retakaful
Growth Rates
Saudi-Arabia
The size of takaful
Retakaful
19
EXPECTED MARKET DEVELOPMENT
Takaful Drivers
Oil Price
Infrastructure Development.
Alternative
Asset Management
Bancatakaful
20
TAKAFUL
Challenges Ahead
Misconception
Financial strength
Service level
Micro-takaful
Human Resources
Retakaful
Operational standard
21
Premium-league table
WE ARE AMONG THE TOP REINSURERS IN THE WORLD
(2006 figures in million USD1))
Rank Group Country GWP NPW
1 Swiss Re CH 28,415 25,808
2 Munich Re D 27,337 25,453
3 Berkshire Hathaway2) USAUnited States of America 14,126 13,474
4 Hannover Re D 12,265 9,361
3)
5 Lloyd's GB 10,887 8,726
6 RGA Re USAUnited States of America 4,732 4,346
7 Everest Re BDA 4,001 3,876
8 Transatlantic Re USAUnited States of America 3,983 3,633
9 SCOR F 3,875 3,620
10 Partner Re BDA 3,734 3,689
11 XL Re BDA 3,682 2,960
12 Korean Re ROK 3,413 2,373
13 London Re CDN 3,287 2,979
14 Assicurazioni Generali SpA I 2,853 n.a.
15 Odyssey Re USAUnited States of America 2,336 2,161
"Volume is vanity, profit is sanity"
1) Source: A.M. Best 2) GenRe Group; Berkshire Hathaway Re Group (National Indemnity)
3) 64 syndicates (as of Jul 2006) n.a. = not available
22
Hannover ReTakaful
OUR ADVANTAGE EDGES
Know-how, Expertise and Experience of
involvement in various markets
The tag-line of "Somewhat Different" will
drive to strive in providing the unique and
the best-fit solution to each customer
Being part of Hannover Re Group
Base in Bahrain, the prominent financial
centre in the Middle East
23
CONCLUSION
Takaful has many years ahead
Back up by Islamic Banking
Takaful has double digit
Infrastructure Investments increase takaful
contribution
24
Thank you for your attention!
