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الرحمن الله بسمالرحيم

By: Chakib Abouzaid CEO - Takaful Re

New Retakaful:

Is it time to convert from conventional?

ICMIF, Bahrain - 5th & 6th of May 2009

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Agenda

Introduction

Islamic Takaful industry today

Retakaful

Technical & Shari'a requirements

Existing Retakaful

Capacity & demand Challenges for Retakaful

Conclusions: is it time to convert to Retakaful?

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Introduction

Three main questions:

Size of the Takaful market?

Is the existing Retakaful financially sound and reliable?

Are they having enough capacity?

Is the “darura” still the rule?

Is the increasing number of Retakaful and additional capacities a threat for established companies?

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The need for Retakaful

Technical requirement to spread the risk and avoid the insolvency risk;

Takaful companies cannot survive within Retakaful and/or reinsurance;

Is Retakaful a risk transfer or risk sharing? Takaful & Retakaful are risk sharing operations even if formally

the operation appears as a risk transfer; however:

Takaful & Retakaful is liable for all the claims occurred and falling under the contract,

In case of deficit, Takaful or Retakaful can only:• Ask the shareholders for “Qard al hassan”, • and/or adjust the pricing for the new or renewed

contracts.

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Shari’a requirement

Takaful are obliged to comply with all Shari'a requirements including the Retakaful;

Retakaful is completing the Takaful operation chain;

Using conventional when unnecessary is harmful for the credibility of Takaful;

Is “darura” still the rule? 10 Retakaful:

USD 1,150 Paid up capital 7 “A” rated, 2 “BBB”,1 Non rated Treaty capacity > USD 67,5 – 77.5 Million Fac. Capacity :

Non Marine >USD 165.5 Million Marine > USD

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Region 2005 2006 2007 Est.

Africa 181.1 215.2 246.4

East Indian Sub-Continent 7.8 11.2 12.8

Far East 536.7 695.4 872.4

GCC 1,547.1 2,088.5 2,560.8

Levant 14.7 17.7 21.7

Middle East (Non Arab) 2,372.4 2,880.1 3,505.0

Grand Total 4,659.8 5,908.1 7,219.1

Contributions per Region

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Africa3%

East Indian Sub-Continent

0%Far East

12%

GCC35%

Levant0%

Middle East (Non Arab)50%

Africa East Indian Sub-Continent Far East GCC Levant Middle East (Non Arab)

Contributions by Region

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Number of Islamic/Takaful companies

Africa, 26

East Indian Sub-Continent, 12

Far East, 35

GCC, 72

Levant, 9

Middle East (Non Arab), 18

Others, 7

Africa East Indian Sub-Continent Far East GCC Levant Middle East (Non Arab) Others

179 companies

* GCC: 72 companies including all licensed companies in KSA

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Motor42%

Property & Accident25%

Marine & Aviation8%

Family & Medical25%

Motor Property & Accident Marine & Aviation Family & Medical

Contribution Split 2007 by Line of business

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Contributions volume and split by LOB

Islamic insurance is growing all over the world: The contribution increased in 2007 from USD 5.9 to 7.2 billion There is no major change in the split by geographical area;

Cooperative KSA is the main component of the GCC Islamic/ Takaful markets;

The Iranian market represents over all 48%;

Motor remain the main line of business 42%, property 25% and Family + Medical 25%

The differences in statistics comes from the definition and whether cooperative Saudi model and Iranian markets are included or not.

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ARIL BEST Re Takaful Re Hanover Re

Labuan Re

Takaful

MNRBTakaful

Incorporation

1997 1985 Dec 2005 2006 Company - 1992

Retakaful Division –

2007

Dec 2006

Capital ($ million)

Authorized : USD 50Paid-up : USD14.1

100 125 Paid up500

Authorized

55 paid up135

Authorized

150 - Issued & Paid Up

50 – allotted but not called

(US 31m)

Rating Not Rated BBB+ (S&P)A- (AM Best)

BBB stable (S&P)

A stable(S&P)

AM Best A-

Fitch IFS A-(stable)

Parent company

A-

Existing Retakaful(*)

(*) Retakaful windows are not included in this presentation

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ARIL BEST Re Takaful Re Hanover Re

Labuan Re MNRBTakaful

GWP(Takaful) ($ Million)

10.876 (2005/06)

10 – 12 (2005

Estimate)

34.2 (2008) 15 (2007) 11.0 (2007 Estimate)

Start operation

Aug 1st 07

Takaful Model

Mudharaba - Wakala policyholder’sMudharaba

for investment

Wakala/

Mudharaba

Wakalah for both retakaful and investment

(Window)

Wakalah, optional

mudharabah/wakalah on

investment

Business Model

Takaful /Conventional

Mix

Conventional / Takaful Mix

Takaful Co’s only

Outsourcing agreement

with Arig

Retakaful only

Conventional

+

Takaful

Takaful Cos only for treaty. Allowed fac on halal risks from conventional

Existing Retakaful

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Existing Retakaful

ACRME + SEA

AL FAJER Re SAUDI Re Tokio Marine

Incorporation 2008 May2008

2008 September 2004

Capital Mln $ 300 188 270 Auth 170Paid 17

Shareholders Khazana + Dubai Group

GFH + Dubai Group

Al Ghosaibi, Jordan Islamic Bank (listed)

Tokyo Marine Holding

RATING A- AM BEST

A-AM BEST

BBB+S & P

AAS & P

GWP na 36 million2008

2009 first year of complete operations

na

Takaful model

Wakala+ Mudharaba

Wakala + Mudharaba

Cooperative

Business Model

Takaful + Conventional

Takaful+ Conventional

Takaful+ Conventional

Life only

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ARIL BEST Re

Takaful

Re

Hanover Re

Labuan Re

MNRBTakafu

l

ACR Saudi Re

Al Fajer

Re

Prop/Eng•Prop•N. Prop

23

22

55

30 3 1

3 5-155-10

7.53

Variable

Marine•Prop•N. Prop

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24

30 1.5 1.5

3 3

5-155-10

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Variable

Family 0.1 1/Life

1/Life

1.66 to 3.33

0.7 no

Fac.

•Property

•Marine

12 PML12

6 20 PML

430

PML3 3 50

20255

7.5

Million USD

Available Capacities (*)

(*) Tokio Marine write only Family Takaful, and capacity non available(**) Retakaful windows are not included in this presentation

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Cedant Property Engineering Accident Marine N.M XL Marine XL Motor XL

• Africa

Sudan 30 12,5 9   0.5 10

• Middle East              

KSA 1 122 122   26     13

KSA2 60 60 10 8     4

Kuwait 11,2 11,2 1,5 1,5     1,5

UAE 1 34 34 2,5 8,5     2,5

UAE 2 17,75 17,75 20,5 2,4 4

• Far East              

Company 1 30 9 7 5      

Company 2 39 16,8 2,4 16,2 9    

Company 3 73,80 29,7 9 15,7 7,5   6

Mln USD

Sample for requested capacities

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Treaties: few big players are asking for huge capacities: USD + 67 million Only 2 companies needs capacity exceeding USD 45 million

Facultative: Property & Engineering: Available capacity 156.5 million, which

can accommodate more than 95% of the Facultative business Marine: USD 81.5 million

The need for conventional capacity will only remain for very large risks or special lines; as Retakaful/ Reinsurance are global activities by nature

Capacity vs. demand

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The Retakaful must:

Provide the needed capacity for the development of the industry;

To move from the follower position to lead the companies programs;

To be able to price all lines of business; To have a dual strategy:

For personal lines: to develop Family Takaful offer, For industrial risks, to have the expertise, the tools & the

pricing models,

Retrotakaful: Till now “darura” is still the rule (with limitations to XOL only)

to complete the chain: 2 options; GTG Lloyd syndicate; And/or Retakaful pool

Challenges for Retakaful

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The Takaful operators are required to cede to the existing Shari’a compliant capacities and “Darura” cannot/no longer invokes as a rule:

The obligation to cede to Retakaful will be implemented gradually by Takaful; Takaful will continue relaying on conventional and London market for some LOB

and for retrocession.

Treaty capacity exceeds the need for almost 90% of the existing Takaful / cooperative operators, and can absorb almost all the treaty programs.

However, there is still a gap to be fulfilled by Retakaful: Specialty lines Aviation Energy, petrochemical Very large property and engineering risks

The 10 Retakaful and the global players’ windows are now operational.

The available Retakaful is encouraging the Takaful companies to convert to Retakaful.

The time o convert to Retakaful has come; and it is up to the Retakaful by

their professionalism and commitment to attract Takaful.

Conclusion

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Thank you