Family Retakaful Missions

1
Family Retakaful Missions

• Revisited in View of Current Financial Turmoil

2
Current Financial Crisis

• Introduction

• Triggered by US Housing-sub-prime crisis in
  august 2007.
• Became a huge Bank Liquidity Crisis within 6 to
  9 months.
• Worst Financial/Economic crisis since 1929 (Great
  Depression)
• Global, it is affecting all Economic sectors
  worldwide.
• Especially Banking and Insurance sectors are
  dramatically hit.

3
Current Financial Crisis

• Introduction

• Stimulus plans by Gvnts by injecting trillions of
  dollars in the global economic system.
• So far, no one knows how efficient these actions
  will be.
• Stock markets still responding in an erratic
  manner and confidence is yet to be regained.

4
Current Financial Crisis

• Impact on Conventional Financial sector

• Crisis spread to the rest of the world impacting
  stock market, banks and insurance industry.
• AIG case due to problematic investments in
  securitization products while their core business
  is sound.
• Yamamoto Life and other well known companies
  followed revealing toxic assets damaging their
  balance sheets.

5
Current Financial Crisis

• Impact on Islamic Financial sector

• Shariaa compliance prevented Islamic companies
  from investing in Financial instruments, lending
  transactions and project finance without tangible
  assets as a collateral security.
• Excepting some sukuks (85 of which were
  considered by AAOIFI as non shariaa compliant
  before this Financial crisis).
• There is no known exposure by Islamic Banks or
  Takafuls to risks of credit defaults, swaps or
  other derivative driven instruments.

6
Current Financial Crisis

• Impact on Islamic Financial sector

• Islamic Financial System showed a certain ability
  to remain largely safe.
• Only at the end of 2008, several Islamic
  Financial Institutions were impacted by this
  crisis.
• Mainly in the forms of Credit squeeze and greatly
  depressed asset and equity prices.

7
Current Financial Crisis

• Impact on Islamic Financial sector

• Some Takafuls showed a drop in their short term
  financial performances .
• Certain companies have already been put on
  negative watch by rating agencies.
• Decline in value is much less than that of
  developed countries conventional insurance
  companies.

8
Current Financial Crisis

• Impact on Islamic Financial sector

• Like the conventional sector, Takafuls have to
  overcome the difficulties generated by the
  economic crisis, especially on the investment
  front.
• Subsidizing technical losses with investment
  income is no more possible.
• Takaful industry will have to capitalize on
  their strengths that allowed them to be
  resilient to this crisis .

9
Current Financial Crisis

• Three Main Findings

10
Family Retakaful

• Back to basics

• Bottom line is generated from both technical and
  financials
• Family Retakaful caters for specific demands of
  Takafuls.
• Family Retakaful covers are mid to long term in
  nature
• Family Retakaful companies are committed to
  develop Family Takaful industry

11
Family Retakaful Missions

• Drivers of the demand

• Reduced volatiliy of the underwriting result
  (large risks or claims variation due to mortality
  deviation)
• Capital relief and flexible financing (Capital
  requirement reduction and free capital for
  expansion into new lines)
• Access to Retakaful expertise and services
  especially in
• Product development
• Pricing
• Underwriting
• Claims management

12
Family Retakaful Missions

• Structure and safeguard its portfolio

• Spread its activity over many countries.
• Keeps its probability of ruin low through
• Suitable acceptance and underwriting policy.
• Maintain long term client relationship to achieve
  compensation in time.
• Retrocede those risks which exceed its own
  capacity.

13
Family Retakaful Missions

• Financially secure

• Effective management of the three main activity
  risks
• Underwriting
• Capital management
• Asset management
• Efficient corporate governance

14
Family Retakaful Missions

• Underwriting

• Underwriting is the process of examining,
  classifying and pricing risks.
• Underwriting process aims to ensure that
• Risks are assessed properly and terms and
  conditions are adequate.
• Limits of assigned capacity are respected.
• Controls of accumulations and peak risks.
• Pricing and wording are appropriate.

15
Family Retakaful Missions

• Pricing

• Should be sufficient to cover
• Expected cost
• Acquiring the business, Administrating it
  (Wakala fee)
• Paying the claims.
• Finance a profit for the shareholders

16
Family Retakaful Missions

• Asset management

• Family Retakafuls invest the contributions
  received in the capital markets according to
  limits and guidelines (Financial and shariaa).
• Ensure that assets are allocated in a way that
  matches the features of the related liabilities
  and

17
Family Retakaful Missions

• Capital management

• Capital acts as a buffer against unexpected
  losses.
• Family Retakaful capital has to be appropriate to
  its risk profile and appetite.

18
Current Financial Crisis

• Three Main Findings

19
Regulation

• Young industry, evolving regulation

• Regulation at different evolution stages from
  market to market.
• RBC regimes at different stages of discussion or
  implementation in markets like Malaysia.

20
Shariaa compliance

• Towards more standardisation

• Standardisation of operating models is required..
• Varying interpretations in Islamic law remains a
  challenge.

21
Freedom of contract

• Legal security

• The contract determines what risks are covered.
  So freedom of contract is essential for an
  efficient Retakaful market.
• No retroactive application of a law.
• With this, the only limit of the list of covers
  will be its insurability.

22
International Risk transfer

• Free capital flow

• Family Retakafuls have to act globally to balance
  their portfolio (law of large numbers).
• Cross-border operations.
• Free to use worldwide premium income to pay
  worldwide claims.
• No restrictions (such as deposits requirements)
  are preferable for achieving the best value for
  money.

23
Capital requirements

• Take into account Retakafuls spec.

• Promote transparency and aknowledge Family
  Retakaful Cies Risk models are preferable.
• They take into account their broad portfolio
  diversification superior Risk Management
  capabilities.
• Preserves confidence in the robustness of the
  Family Retakaful companies.

24
Current Financial Crisis

• Three Main Findings

25
Opportunities

• 1/5th world population are muslims

Big Dev potential
26
Huge dev potential
PotentialBalance to reach developed countries
penetration levels
27
Huge opportunities

• Challenges

• Family Takaful could stimulate the underdeveloped
  life market in emerging and especially Middle
  East.
• Shortage of Islamic investment opportunities and
  the lack of liquid markets for Islamic bonds.
• Staff with insurance and shariaa expertise is
  scarce.
• Limited number of Shariaa scholars.

28
Huge opportunities

• Challenges

• Family Retakaful Companies, by providing sound
  financial support and needed expertise, can make
  it much easier for local Takaful Companies to
  achieve their forecast big development potential.

29
Thank you