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| − | Issues and Challenges In Retakaful
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| − | Azman Ismail
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| − | HIJRAH Strategic Advisory Group
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| − | Tel : 603.4260.1995
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| − | Fax : 603.4260.1994
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| − | Why Retakaful?
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| − | Same reason as takaful
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| − | Increase Capacity
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| − | Risk management
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| − | Spreading the risk
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| − | Will not make the “road” better but the
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| − | “driving” smoother
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| − | Why Retakaful…?
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| − | Profit Maximization?
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| − | Growth of Sales
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| − | Market Share
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| − | Solvency
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| − | Issues and Challenges
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| − | Technical Competence
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| − | Syariah Competence
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| − | Financial Strength
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| − | Market
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| − | Systems and Methods
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| − | Cooperation
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| − |
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| − | Hammurabbi
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| − |
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| − | 0001 Birth of Jesus (pbuh)
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| − | Conventional insurance have
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| − | 0600 Birth of Prophet Muhammad saw
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| − | ‘Aqilah &
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| − | Dhaman
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| − | developed over 500 years but
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| − | Ahl al-diwan
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| − | Italian traders
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| − | 1400
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| − | Technical Competence
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| − | Khilafah Othmaniah
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| − | takaful is less than 50 years old
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| − | Takaful & Insurance Compared
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| − | Islamic research Congress
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| − | International islamic Economic Conference
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| − | 2000
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| − |
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| − | Technical Competence …
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| − | Underwriting skills
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| − | Quantitative Analysis
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| − | Financial Analysis
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| − | Product Development
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| − | Shariah Competence
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| − | Apart from technical competence,
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| − | Takaful practitioners lack sufficient
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| − | shariah knowledge and shariah advisors
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| − | lack sufficient operational knowledge to
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| − | be able to develop the takaful industry
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| − | at par with conventional insurance
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| − |
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| − | Shariah knowledge …
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| − | Usul Fiqh
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| − | Qawaid Fiqhiyah
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| − | Fiqh Mu’amalat
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| − | Financial Strength
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| − | Conventional Retakaful
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| − | Premium = USD 2 Contribution < USD
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| − | trillion 1 billion
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| − | Equity > USD trillion Equity < USD 100
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| − | million (strictly
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| − | speaking < USD 5
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| − | million)
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| − |
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| − | Market
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| − | Insurance Takaful
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| − | Market Market
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| − | Systems and Methods
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| − | Processes and Procedures
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| − | IT Systems
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| − | Turnaround
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| − |
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| − | Cooperation
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| − | Common standards
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| − | Research
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| − | Product Development
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| − | Contract
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| − | Financial Models
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| − | On sharing risks
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| − | Pools
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| − | Takaful operators agree to cede risks to
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| − | share aggregate risks
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| − | Retakaful
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| − | With reinsurers
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| − | With retakaful operators
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| − |
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| − | Concept of Lesser Evil (Danger)?
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| − | For general business, a large proportion
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| − | is still with conventional reinsurers
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| − | For family business, retakaful is with
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| − | one major reinsurer
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| − | Applying the concept through fixing the
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| − | “right” retention amount.
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| − | One Way of Facing This
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| − | Challenge Is Through
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| − | Understanding The Retakaful
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| − | Impact On Business.
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| − |
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| − | Optimizing Retention
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| − | Through Scientific Approach
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| − | Quantitative Factor Apart From
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| − | Qualitative factors
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| − | Learn from conventional insurers and
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| − | reinsurers
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| − | Current Retention Ratio
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| − |
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| − | Fixing Retentions…
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| − | Rates & Investment
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| − | Loadings Retained Policy
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| − | Contribution
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| − | Contribution
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| − | Loss Income
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| − | Experience
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| − | Financial Retention Staff
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| − | Strength Limits Experience
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| − | Retakaful
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| − | Management Costs
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| − | Philosophy
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| − | Management Philosophy
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| − | Management Attitude Towards Risk
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| − | Knowledge of Management
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| − | Acceptable nature & range
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| − | Priorities
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| − |
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| − | Contribution Income
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| − | Gross Contribution
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| − | Risk Profile
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| − | Retention = k C
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| − | Per risk – 1% to 10%
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| − | Per event - depends
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| − | Staff Experience
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| − | Underwriting skills
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| − | Quantitative skills
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| − | Background
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| − | Training
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| − |
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| − | Loss Experience
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| − | Either on gross or net
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| − | Degree of fluctuation over
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| − | time
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| − | Effectiveness of retakaful
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| − | arrangements
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| − | Deviation …
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| − |
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| − | Retakaful Costs
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| − | Utility
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| − | Probability of Ruin
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| − | Expected Profits
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| − | Expected Profits
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| − | Probability of Ruin
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| − | Investment Policy
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| − | Cashflow - liquidity
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| − | Currently does not impact much on
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| − | takaful retention but should consider
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| − | long-tail business
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| − |
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| − | Rates & Loadings
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| − | Lower rated risks carry higher retentions
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| − | Loadings – expenses (including commission), profit -
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| − | depending on financial model, contingency and tax
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| − | (depending on the model & tax structure of the
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| − | country)
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| − | Retention Limit
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| − | Degree of Risk (Reflected by Contribution Rate)
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| − | Financial Strength
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| − | Shareholders Fund
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| − | Takaful Fund
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| − | Potential Variation In Claims Experience
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| − | Example, (study on 300,000 fire risks – largest 5
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| − | million and 1,000)
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| − |
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| − | Rule of Thumb
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| − | R = y X (Capital + Free Reserves)
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| − | where - 1% < y < 5%
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| − | R = 100/n X A
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| − | Where n is the # of times of large claims
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| − | per year requiring immediate payment
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| − | And A equals the liquid assets (should be 5
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| − | X max retention per loss in company’s
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| − | most important branch)
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| − | A more exhaustive method
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| − | R = X (S) (EC)
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| − | (GC) (L + E)
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| − | Where
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| − | X = 1% - 5%
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| − | S = surplus
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| − | EC = earned contribution
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| − | GC = gross contribution
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| − | L = loss ratio
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| − | E = expense ratio
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| − |
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| − | So,
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| − | Have we set the correct retention
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| − | limits?
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| − | Can we optimize our retention?
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| − | Can we improve the bottom line of
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| − | takaful and retakaful operators?
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| − | Conclusion
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| − | Retakaful challenges can be met with :
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| − | Greater knowledge
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| − | Enhanced skills
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| − | Higher financial strength
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| − | Political will
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| − | Greater cooperation
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| − |
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| − | Wassalam
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