Transcript PRESENTATION AU PDG DE LA BTS

The success of Retakaful
Arab Insurance, outlook and
actual new economical situation
Farid Benbouzid
Damas 01&02-06-2005
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Introduction
Conventional insurance
Takaful Concept
Retakaful concept
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Insurance not permissible
Uncertainty (Gharar)
Gambling (Maisir)
Interest (Riba)
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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
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Operating models
Pure mudharabah
(Sudan)
Modified
mudharabah
(Malaysia)
Wakala (Bahrain)
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Family takaful
General Takaful
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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
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Achievements
Takaful industry
Retakaful industry
Best Re’s position
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Takaful Industry in the World
World Premiums 2003

USD 2.6 trillions
Takaful contributions 2002

USD 2.1billions
Number of companies

 59
Number of countries
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Takaful Industry in the World
Geographical Spread
Mid-East
7% 1%
36%
56%
South &
East Asia
Africa
Others
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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

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>45
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Main EM Takaful Markets
GCC
Malaysia
Other Arab countries
Other South & East Asia
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Retakaful cessions drivers
Heavy exposure to cat events

> No exposure to cat events
Small local players
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> Larger international insurers
Specific line or customer Group focused
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> Multiline insurers
Commercial lines (Aviation)
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> Personal lines (Motor)
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Retakaful cessions drivers
Life protection lines
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> Life saving
Expansion into new products

Or regions
Exit from markets
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Run off market
Regulatory and rating considerations
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Solvency ratio and claims payment ability
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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
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Unsufficient supply
Very few Professionnal Retakafuls

2 (Best Re, ARIL)
Takafuls accept a small part of
Retakaful business from each other
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Takaful dilemma
Participants opt for the product because
it is islamic
Takafuls forced to cede business to
conventional reinsurance
Otherwise disappear !
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Retakaful dilemma
Retakafuls are Takafuls focused
Retakafuls forced to accept business
from conventional market
Retakafuls forced to retrocede business
to conventional market
Otherwise disappear !
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Best Re
Modified Mudharaba model
Permanent Shariaa Board
Avoids “Ribaa”


Interest on deposits are offset
Investments are compliant with “Shariaa”
requirements
Manages separate accounts
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Ceding companies account (Technical operations)
Shareholders’ account (Shareholders’ operations)
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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
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Standard & Poor’s
AM Best
: BBB (Stable Outlook)
: B++ (Very Good)
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Best Re
Accepted contributions from Takafuls (2003)

USD 8 millions
In % of whole portfolio

13%
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Markets
Number of Ceding Takafuls
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28
Number of Contracts
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319
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Challenges ahead
Mission statement
Takaful growth perspectives
Learn from conventionals
Retakafuls’ duties
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Mission statement
Pave the way for takafuls to achieve their
growth potential and build a strong and
sound industry
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Takaful growth perspectives
Non life insurance demand in EM
Life insurance demand in EM
Outlook
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Non-life insurance demand
Low Premium as % of GDP

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Min = 0.2% (Bangladesh)
Max=2.9% (Jamaïca, South Africa)
Low per-capita Spending
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Min = USD 8 (Africa)
Max = USD 54 (Latin America)
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Life insurance demand
Very low Premium as % of GDP

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Min = 0% (Saudi Arabia)
Max = 3.8% (Trinidad & Tobago)
Very low per-capita Spending
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Min = USD 14 (Middle East)
Max = USD 30 (South & East Asia)
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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
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which would not, otherwise, insure.
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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
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Good indicators of brand success
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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
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+15% p.a.
reasonable to assume
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Learn from conventionals
250 professional reinsurers
2003 ceded premiums : USD 176 billion
 Non life reinsurance :

USD 146 billion (13.7% insurance premiums)
 Life reinsurance :
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USD 30 billion (1.9% insurance premiums)
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Learn from conventionals
Top ten reinsurers market share :

54%
Shareholders equity of top 40 :
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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 :
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Negligeable bankrupties between 1980-2003
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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
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Product development
Pricing
Underwriting
Claims management
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Reinsurers have to be financially
secure
Part of underwriting risk
Insurer
Reinsurer
Counterparty credit risk
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Reinsurers’ risk management
Scope :

Underwriting
Long term survival of
the reinsurance
company
Underwriting and
investment risks are
aligned with capital
available (R.B.C)
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Risk
Management
Capital
management
Asset
management
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Risk modelling
Stock markets
Interest
rates
Exchange
rates
Tsunami
Earthquakes
Insurance risk
Credit risk
Market risk
Operational risk
Inflation
Credit risks
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Influenza
epidemic
Tropical
cyclones
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Diversification across time
Better
diversification
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Lower capital
need
or
Lower Cost
given the exposure
Less expensive
reinsurance cover
Higher level of
Protection _ given the
level of capital
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Retakafuls’ duties
Providers of secure covers
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Strong capital base
Focus on Risk Management models
Diversification across time
Expertise providers
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Product development
Pricing
Underwriting
Claims management
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Strategy – 1st step Establish an annual meeting of ArabTakafuls
and Retakafuls
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Networking benefits
Set up a « Takaful Association »
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Practitioners’ intelligence networks
Best practices’ exchange
Reinsurance placing facilities
Set up an informative Takaful & Retakaful
website
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Wise information exchange among members
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Strategy – 2nd step More and more cooperation between
Takafuls
Web site becomes transactional
« Takaful Association » is efficient
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Improved structures
Successful Annual Meeting
New well rated Retakafuls are set up
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2 to 3
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Strategy – 3rd step Design a framework of cooperation with
conventional reinsurers
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Associate members’ status
Interested in the Takaful market development
Set up a brokerage company focused on
Retakaful placing
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By the Association
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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
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Overview
Introduction
Achievements
Challenges ahead
Strategy
Conclusion
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Conclusion
To be or not to be?

Is no longer the question
Other questions prevail now
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How many?
How much strong? Capital, rating?
How much knowledgeable?
Successful answers to those questions
will involve a virtuous business cycle
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Takaful & Retakaful development
Benefits for overall economy and society
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Retakaful &Takaful’s virtuous cycle
Less expensive takaful products
Higher profitability
Enhanced Stronger
insurability growth
Retakaful
Takaful Company
Lower cost
of capital
Secure
industry
Overall economy
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Thank you
Sources
Islamic Insurance Conference, London,
Sept. 26-27, 2003
Swiss Re, Understanding reinsurance,
2004
Swiss Re, sigma N°6/ 2002.
Farid Benbouzid
Damas 01&02-06-2005
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