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Investment - Under Different Regulatory Framework A.Rahman Tolefat

Investment - Under Different Regulatory Framework A.Rahman Tolefat Head, Islamic Financial Institutions Langkawi 23 – 24 February 2006. What Are Most Influential Factors Affecting Investment/Composition portfolio of Takaful Companies ?. Ownership or control. Regulations.

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Investment - Under Different Regulatory Framework A.Rahman Tolefat

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  1. Investment - Under Different Regulatory Framework A.Rahman Tolefat Head, Islamic Financial Institutions Langkawi 23 – 24 February 2006

  2. What Are Most Influential Factors Affecting Investment/Composition portfolio of Takaful Companies ?

  3. Ownership or control Regulations Investment Decision and portfolio composition Takaful Model Shari’ah restrictions Investment Department Size

  4. Research Question: Does the Regulatory framework for takaful companies restrict their investment freedom?

  5. Regulatory Framework: Current Practices Indirectly Directly • Amount to be invested: • Domestically • Local currencies • Solvency margin & capital adequacy. • Risk weighting method

  6. Indirect Restriction: Solvency Margin If a company invests in a single equity/company more than 5% of its capital, then the admissible assets must be restricted to only 5%. Admissible: 0.5Million If a company invests 10 million in a one single company and its capital is 15million. Inadmissible: 9.5Million

  7. Direct and Indirect Restrictions

  8. Research Question: Does the ownership of takaful companies affect their composition of their investment Portfolio/Investment decision? H: Ownership of the takaful firms is likely to influence investment decision in takaful companies.

  9. Ownership Many takaful companies are controlled by Islamic banks or dominated shareholders 46% and above Investment is concentrated with these related party

  10. There is a positive relationship between percentage of control and amount invested

  11. These investments are also concentrated in Investment Accounts (Deposits)

  12. Ownership Conflict of Interest Systematic Risk

  13. Research Question: Does the composition of investment Portfoliois difference between shareholders and participants funds? H: There is a significance difference between shareholders and participants funds in term of the percentage of different assets class in investment portfolio.

  14. Misleading interpretation Many takaful companies have been invested in equities and real estate? - In many sources shareholders investment has mixed with participants investment.

  15. Long term investment Shareholders fund Depend on insurance liabilities Participants fund - The regulation should not be applicable to shareholders fund or should be more flexible.

  16. Research Hypothesis: The ROI of takaful companies investment portfolio may either not allow takaful firms to compete in market or exposed them to higher risk compare to conventional?

  17. Conventional Takaful Charge higher premiums • Charge higher premium which reduce the competitiveness Investment Return Investment Return Underwriting Risk Underwriting Risk

  18. Conventional Takaful Charge same premiums • Increase risk. Investment Return Investment Return Underwriting Risk Underwriting Risk

  19. Research Question: Does the takaful model adopted by the compny affect the composition of their investment Portfolio? Which one is the best! Yes Need to unnify akaful model No But- Underwriting prospective

  20. Research Question: Does the size of takaful of affect their composition of their investment Portfolio and return on investment? H: The larger the size of the takaful firm, the higher the ROI it is likely to achieve. H: There is no signifcance diffences between the percentage of assets class in different investment portfolio of small, medium and large takaful companies.

  21. Research Question: Does the competencies of employees in investment department of takaful firms affect their composition of their investment Portfolio and return on investment?

  22. Current Practices • Investment department is treated as a back office function. • Many CEO have concentrated on underwriting profit. • Employees in investment department either come from conventional banks or underwriting experience.

  23. Other factors

  24. Research Question: Do takaful companies desire to change he current composition of their investment Portfolio? Hypothesis: There is no significance differences between the actual and desire composition of takaful companies investment portfolio.

  25. Thank You ..

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