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The success of Retakaful. Arab Insurance, outlook and actual new economical situation. Overview. Introduction Achievements Challenges ahead Strategy Conclusion. Introduction. Conventional insurance Takaful Concept Retakaful concept. Insurance not permissible. Uncertainty (Gharar)

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the success of retakaful

The success of Retakaful

Arab Insurance, outlook and actual new economical situation

Damas 01&02-06-2005

overview
Overview
  • Introduction
  • Achievements
  • Challenges ahead
  • Strategy
  • Conclusion
introduction
Introduction
  • Conventional insurance
  • Takaful Concept
  • Retakaful concept
insurance not permissible
Insurance not permissible
  • Uncertainty (Gharar)
  • Gambling (Maisir)
  • Interest (Riba)
takaful concept
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
operating models
Pure mudharabah (Sudan)

Modified mudharabah (Malaysia)

Wakala (Bahrain)

Family takaful

General Takaful

Operating models
re takaful concept
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
overview1
Overview
  • Introduction
  • Achievements
  • Challenges ahead
  • Strategy
  • Conclusion
achievements
Achievements
  • Takaful industry
  • Retakaful industry
  • Best Re’s position
takaful industry in the world
Takaful Industry in the World
  • World Premiums 2003
          • USD 2.6trillions
  • Takaful contributions 2002
          • USD 2.1billions
  • Number of companies
          •  59
  • Number of countries
          • 23
takaful industry in em
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
main em takaful markets
Main EM Takaful Markets
  • GCC
  • Malaysia
  • Other Arab countries
  • Other South & East Asia
retakaful cessions drivers
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)
retakaful cessions drivers1
Retakaful cessions drivers
  • Life protection lines
          • > Life saving
  • Expansion into new products
          • Or regions
  • Exit from markets
          • Run off market
  • Regulatory and rating considerations
          • Solvency ratio and claims payment ability
high demand for retakaful
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 expected to grow with industry
unsufficient supply
Unsufficient supply
  • Very few Professionnal Retakafuls
          • 2 (Best Re, ARIL)
  • Takafuls accept a small part of Retakaful business from each other
takaful dilemma
Takaful dilemma
  • Participants opt for the product because it is islamic
  • Takafuls forced to cede business to conventional reinsurance
  • Otherwise disappear !
retakaful dilemma
Retakaful dilemma
  • Retakafuls are Takafuls focused
  • Retakafuls forced to accept business from conventional market
  • Retakafuls forced to retrocede business to conventional market
  • Otherwise disappear !
best re
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)
best re1
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)
best re2
Best Re
  • Accepted contributions from Takafuls (2003)
          • USD 8 millions
  • In % of whole portfolio
          • 13%
  • Markets
          • 16
  • Number of Ceding Takafuls
          • 28
  • Number of Contracts
          • 319
overview2
Overview
  • Introduction
  • Achievements
  • Challenges ahead
  • Strategy
  • Conclusion
challenges ahead
Challenges ahead
  • Mission statement
  • Takaful growth perspectives
  • Learn from conventionals
  • Retakafuls’ duties
mission statement
Pave the way for takafuls to achieve their

growth potential and build a strong and

sound industry

Mission statement
takaful growth perspectives
Takaful growth perspectives
  • Non life insurance demand in EM
  • Life insurance demand in EM
  • Outlook
non life insurance demand
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)
life insurance demand
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)
outlook
Outlook
  • Largely untapped 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.
takaful growth perspectives1
Takaful Growth Perspectives
  • New markets likely to introduce Takaful in the near future
          • Philippines, Bangladesh, Former Soviet Union States, South Africa etc.
  • Takaful windows set up by conventional insurers
          • Good indicators of brand success
takaful growth perspectives2
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.
          • reasonable to assume
learn from conventionals
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)
learn from conventionals1
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
reinsurance cessions drivers
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
reinsurers have to be financially secure
Reinsurers have to be financially secure

Insurer

Reinsurer

Part of underwriting risk

Counterparty credit risk

reinsurers risk management
Reinsurers’ risk management
  • Scope :
    • Long term survival of the reinsurance company
  • Underwriting and investment risks are aligned with capital available (R.B.C)

Underwriting

Risk

Management

Asset management

Capital management

risk modelling
Risk modelling

Exchange rates

Stock markets

Tsunami

Interest rates

Earthquakes

Insurance risk

Credit risk

Market risk

Operational risk

Inflation

Influenza epidemic

Tropical cyclones

Credit risks

diversification across time
Diversification across time

Less expensive

reinsurance cover

Lower capital

need

or

Lower Cost

given the exposure

Better

diversification

Higher level of

Protection _ given the

level of capital

retakafuls duties
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
overview3
Overview
  • Introduction
  • Achievements
  • Challenges ahead
  • Strategy
  • Conclusion
strategy 1st step
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
strategy 2nd step
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
strategy 3rd step
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
specific position of middle east
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
overview4
Overview
  • Introduction
  • Achievements
  • Challenges ahead
  • Strategy
  • Conclusion
conclusion
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
retakaful takaful s virtuous cycle
Retakaful &Takaful’s virtuous cycle

Less expensive takaful products

Higher profitability

Retakaful

Lower cost

of capital

Stronger growth

Enhanced insurability

Secure industry

Takaful Company

Overall economy

thank you

Thank you

Sources

Islamic Insurance Conference, London, Sept. 26-27, 2003

Swiss Re, Understanding reinsurance, 2004

Swiss Re, sigma N°6/ 2002.

Damas 01&02-06-2005