Retakaful in Europe Is this different from conventional reinsurance

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 Shariah 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

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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 Shariah 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 Lloyds of London
• These need entities not only need to comply with
  the requirements of the Regulators but also with
  requirements of Shariah law

6
HOW DOES THE RETAKAFUL MODEL WORK?

• RETAKAFUL COMPANIES
• CAPITAL
• ( Mudarabah capital )
• 
  
• PREMIUM
• DIVIDEND COMMISSION (WAKALA FEE)
• RETURN ON PROFIT
• MUSHARAKA CONTRACT

RETAKAFUL POOL 1
SHAREHOLDERS
TAKAFUL COMPANIES
RETAKAFUL POOL 2
EXPENSES
RETAKAFUL COMPANY
RESERVES
CLAIMS
NET SURPLUS
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HOW DOES THE RETAKAFUL MODEL WORK?

• LLOYDS OF LONDON
• UNDERWRITING CAPITAL
• ( Mudarabah capital )
• DIVIDEND
• 
  
• PREMIUM
• COMMISSION (WAKALA FEE)
• DIVIDEND RETURN ON PROFIT
• MUSHARAKA CONTRACT

SYNDICATE INVESTORS
FUNDS AT LLOYDS (RETAKAFUL POOL 1)
PREMIUM TRUST ACCOUNT RETAKAFUL POOL 2
CEDENTS
EXPENSES
MANAGING AGENT
RESERVES
NET SURPLUS
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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

CONVENTIONAL REINSURANCE COMPANY
SUBSIDIARY PROVIDING RETAKAFUL BUSINESS
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THE MAJOR ISSUE FORRETAKAFUL COMPANIES

• PORTFOLIO
• MANAGEMENT
• There is a lack of
• shariah compliant investment products for
  Retakaful companies
• External investment managers who comply with
  Shariah principles

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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

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HOW CAN CONVENTIONALREINSURERS 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 Lloyds 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

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WHAT IS REQUIRED?

• Understanding the cultural issues perception of
  the end target audience. I.e the muslim consumer
• Working with the Shariah Scholars or Shariah
  consultants
• Co-ordination between legal documentation in the
  jurisdictions the understanding of Shariah
  laws
• Understanding the regulatory legal framework of
  the jurisdiction where the retakaful company will
  be located

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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

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The answer to my question is -Yes - there is
a conceptual difference, but the business is the
same and the opportunity is better!
THANK YOUMERCIGRACIAS