Takaful and Retakaful

Takaful and Retakaful
Why conventional Insurance Problematic
Prohibited Risk mitigation through buying insurance policy

Elements
Insured receive money in excess and irrespective of premiums
paid either upon maturity of the policy or for occurrence of
Riba
the insured event (both Riba Fadl & Riba Nasiah).
Subject matter of insured event is not certain until the same

Gharar has taken place.
Betting premiums on the condition of insurer contingent

Mysir commitment.
Exchange Contract
Evolution of Takaful
Aqilah is practiced in non-commercial transactions aimed at helping needy

Aqilah- Blood Money
without demanding consideration during prophetic period
1979 The first Taawuni model in Sudan
Mudarabah model in Malaysia

1984 Wakalah model in the Gulf
Wakalah model and Waqf fund in Pakistan

1996
Kafalah The word Takaful roots from Kafalah (Responsibility, Guarantee or Suretyship)
Takaful Mutual help, mutual responsibility, mutual protection
Islamic insurance is a process of agreement among a group of persons to handle

AAOIFI SS No. 26
the injuries resulting from specific risks to which all of them are vulnerable.
Payment of contributions as donations and leads to the establishment of an

Process involves insurance fund that enjoys the status of legal entity and has independent financial
liability
Tabarru
Non-Exchange Contract
Ibraa Tanazul
Sadaqah
Hadiay
Waqf
Heeba
Taa`wun
Ariyah
Wasiayh
Mannat
Takaful Fund : Tabarru
Legal entity with independent financial liability
Takaful Operator Tabarru Fund Total

Company (BDT) (BDT) (BDT)
Assets 1000 1000 2000
Liabilities 1000 1000 2000

Contractual relationship among the Tabarru Fund Participants
Mutual Indemnity
Participants
Participants Donations TakafulDFund Donations
Mutual indemnity
Relationship between the Tabarru Fund and Takaful Operator Company
• Mudarabah
• Wakalah
• Waqf
• Jualah Investment
Takaful
Operator
Participants Manage
Takaful Fund
Donations
Takaful Activities
There is no insurer-insured relationship between the TOC and Participants. Participants insure themselves.
Takaful Classification
General Takaful Short term:

Motor, Marine, Fire etc
Long term:
Family Takaful Education, Health, Marriage, Accident, Death etc
Takaful Operations
Managing Tabarru Fund Investing Tabarru Fund
• Underwriting
• Claims Investing fund in accordance
• Reserve with the principles of Shariah
• Retakaful
Agency fee Share Profit/Commission

Mudarabah Application: General Takaful
Participants Operators
4 Surplus
Takaful Fund
3
2 • Claims
3
• Retakaful
Deductions
• Reserve
Investment • Management fee
Profit
Mudarabah: Profit sharing as per agreement

Mudarabah Application: Family Takaful
Participants
Operators
1
Takaful Fund 6
Surplus
2
4
• Claims
5
• Retakaful
Deductions • Reserve
Investment Tabarru
Account Fund • Management fee
3 3
4
Investment
Profit
Wakalah Application: General Takaful
Participants 1a Operators
Agency Fee
4 Surplus
Takaful Fund
3
2
3 • Claims
Deductions • Retakaful
• Reserve
Investment
Profit
Distribution of Surplus Fund
Accumulation of Reserves Reductions on the future contributions
Partial /Full distributions to the

participants
Charity
AAOIFI SS 26 (5/5): The TOC is not entitled to any share of the surplus
Retakaful/ Reinsurance
Islamic Reinsurance refers to the agreement among

insurance companies, on behalf of the insurance funds
AAOIFI SS No. 41 under their management, to devise a mechanism for the
avoidance of part of the risks which the insurance funds
may encounter.
Retakaful with Conventional Reinsurance
Shariah rulings on reinsurance with traditional reinsurance companies:
It is impermissible for Islamic insurance companies to reinsure with

traditional reinsurance companies unless compelled and as a matter of
transitional arrangement …
Methods of Reinsurance
Selective method Comprehensive method
Sole discretion of insurer as to accept or Reinsurance Company assumes to

reject presented individual risk profile by accept all the risks fall under the scope
the insurance company of agreement
Forms of Reinsurance
Risk Sharing Excess Risk Loss Reinsurance
% of total policies Beyond Tolerance Large amount

Benefits from Conventional Reinsurance
Permissible Impermissible
Reinsurance commission
Receive amount of insurance coverage
Redistribution of insurance surplus

Right to seek premium discounts
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Takaful and Retakaful

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Takaful and Retakaful

Why conventional Insurance Problematic

Prohibited Risk mitigation through buying insurance policy

Subject matter of insured event is not certain until the same

Betting premiums on the condition of insurer contingent

Aqilah is practiced in non-commercial transactions aimed at helping needy

1979 The first Taawuni model in Sudan

Mudarabah model in Malaysia

Wakalah model and Waqf fund in Pakistan

Takaful Mutual help, mutual responsibility, mutual protection

Islamic insurance is a process of agreement among a group of persons to handle

Payment of contributions as donations and leads to the establishment of an

Legal entity with independent financial liability

Takaful Operator Tabarru Fund Total

Assets 1000 1000 2000

Liabilities 1000 1000 2000

General Takaful Short term:

Managing Tabarru Fund Investing Tabarru Fund

Agency fee Share Profit/Commission

Mudarabah: Profit sharing as per agreement

Accumulation of Reserves Reductions on the future contributions

Partial /Full distributions to the

Islamic Reinsurance refers to the agreement among

Shariah rulings on reinsurance with traditional reinsurance companies:

It is impermissible for Islamic insurance companies to reinsure with

Selective method Comprehensive method

Sole discretion of insurer as to accept or Reinsurance Company assumes to

Risk Sharing Excess Risk Loss Reinsurance

% of total policies Beyond Tolerance Large amount

Redistribution of insurance surplus

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