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Retakaful in Europe- Is this different from conventional reinsurance

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Retakaful in Europe- Is this different from conventional reinsurance

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    1. Retakaful in Europe- Is this different from conventional reinsurance? Anila Preston Wickramasinghe CEO, ReOrient Legal www.reorient.co.uk

    2. DEFINITION OF “RETAKAFUL” An islamic alternative to conventional reinsurance based on a Shari’ah compliant approved concept for reinsurance THE THEORY Takaful Company pays an agreed sum (premium) to the Retakaful Company in return for the Retakaful Company providing security for the assurance that the Takaful Company is protected against adverse risks

    3. WHY IS IT IMPORTANT TO KNOW THE DIFFERENCE? TEMPORARY DISPENSATION TO TAKAFUL COMPANIES Many Islamic insurance companies presently cede their business to conventional reinsurers the reinsurance industry there are no retakaful companies that are sufficiently rated or adequately capitalised that can accept business from the Regions EXPANDING MARKET The takaful and retakaful market is expected to grow to $10-12 billion by 2010 There are 1 billion muslims in the world

    4. ESSENCE OF REINSURANCE The fundamental principle of a reinsurance arrangement is set out in the contract when the insurer cedes a risk on a proportional or non proportional basis Similarly the fundamental principles of retakaful are also governed by contract, but this contract between the insurer ( takaful company) and the reinsurer ( retakaful company) has to adhere to core Shari’ah principles and adopt a specific financial model There are two recognised financial models : - Al Wakala - Al Mudharaba

    5. WHERE WOULD RETAKAFUL BUSINESS FIT IN EUROPE? Retakaful “windows” or retakaful companies can be established in United Kingdom or Continental Europe, or even Offshore jurisdictions Syndicates providing takaful or retakaful business can be established in Lloyd’s of London These need entities not only need to comply with the requirements of the Regulators but also with requirements of Shari’ah law

    6. HOW DOES THE RETAKAFUL MODEL WORK? RETAKAFUL COMPANIES CAPITAL ( Mudarabah capital ) PREMIUM DIVIDEND COMMISSION (WAKALA FEE) RETURN ON PROFIT MUSHARAKA CONTRACT

    7. HOW DOES THE RETAKAFUL MODEL WORK? LLOYD’S OF LONDON UNDERWRITING CAPITAL ( Mudarabah capital ) DIVIDEND PREMIUM COMMISSION (WAKALA FEE) DIVIDEND RETURN ON PROFIT MUSHARAKA CONTRACT

    8. HOW DOES THE RETAKAFUL MODEL WORK? “RETAKAFUL” WINDOW PROVISION OF CAPITAL INTEREST FREE LOAN (no Riba) TO ENABLE CLAIMS TO BE MET PROVISION OF PROFITS SHARING OF SURPLUS BY WAY OF DIVIDENDS

    9. THE MAJOR ISSUE FOR RETAKAFUL COMPANIES PORTFOLIO MANAGEMENT There is a lack of shari’ah compliant investment products for Retakaful companies External investment managers who comply with Shari’ah principles

    10. WHAT DOES EUROPE OFFER TRADITIONAL RETAKAFUL COMPANIES? Expertise, financial discipline, good market practice & corporate governance Credibility to customers & regulators – proven track record Financial security rating & technical support Strategic positioning by entry into a new market

    11. HOW CAN CONVENTIONAL REINSURERS ENTER THE RETAKAFUL INDUSTRY? Joint ventures – with Islamic Banks, takaful companies or retakaful companies that are seeking technical partners from the Western world Provision of capacity to a Lloyd’s syndicate to enable a retakaful business to be written MBO or acquisition of small takaful companies that are inadequately capitalised Investment in emerging retakaful companies that are seeking additional capital

    12. WHAT IS REQUIRED? Understanding the cultural issues & perception of the end target audience. I.e the muslim consumer Working with the Shari’ah Scholars or Shari’ah consultants Co-ordination between legal documentation in the jurisdictions & the understanding of Shari’ah laws Understanding the regulatory & legal framework of the jurisdiction where the retakaful company will be located

    13. THE INVESTMENT TO MAKE NOW Carry out a feasibility study to ascertain whether it is what your company should consider Evaluate some of the opportunities that provide a good Business Case Consider some of the corporate structures that you can introduce to your own company Provide the technical support to the retakaful company

    14. The answer to my question is - “Yes - there is a conceptual difference, but the business is the same and the opportunity is better!”

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