Takaful Presentation Full

TAKAFUL MALAYSIA &

ETIQA TAKAFUL :

A COMPARISON

PRESENTATION AGENDA

AGENDA Introduction on Takaful & Takaful

Industry Introduction on Takaful Malaysia and

Takaful Etiqa Takaful Malaysia Takaful Etiqa Comparisons on model Comparisons on accounting Suggestions Conclusion

INTRODUCTION ON TAKAFUL

WHAT IS TAKAFUL? Originates from the Arabic word Kafalah,

which means "guaranteeing each other" or "joint guarantee“.

Takaful is commonly referred to as Islamic insurance.

Based on principles of mutuality and co-operation, encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity.

UNDERLYING PRINCIPLES OF TAKAFUL Takaful system employs several Islamic

elements such as;Ta’awun (mutual help), Tabarru’at (willingly relinquish

individual rights over the contributions paid, for collective benefits)

Losses are divided and liabilities spread according to the community pooling system.

It does not seek to derive advantage at the cost of others.

WHY CONVENTIONAL INSURANCE IS PROHIBITED? Involves the elements of excessive

uncertainty (gharar); Gambling (maysir) as the consequences

of the presence of excessive uncertainty that rely on future outcomes;

Interest (riba) in the investment activities of the conventional insurance companies;

WHY CONVENTIONAL INSURANCE IS PROHIBITED? (CON’T) Conventional insurance companies are

motivated by the desire for profit for the shareholders;

Conventional system of insurance can be subject to exploitation. For example, it is possible to charge high premium (especially in monopolistic situations) with the full benefit of such over-pricing going to the company.

INTRODUCTION ON TAKAFUL

INDUSTRY

TAKAFUL HISTORY Takaful has been practiced in various

forms for over 1400 years. Takaful originated within the ancient Arab

tribes as a pooled liability that obliged those who committed offences against members of a different tribe to pay compensation to the victims or their heirs.

This principle later extended to many walks of life, including sea trade, in which participants contributed to a fund to cover anyone in a group who suffered mishaps on sea voyages.

TAKAFUL INDUSTRY More than 40 takaful operators worlwide. It is estimated that the combined total

assets of the operators stand at around USD1 billion.

The contributions (premium) of the operators stand at around USD500 million.

Possesses high potential to expand because the insurance and takaful penetration in Muslims countries is less than 1% of GDP.

In Malaysia, the insurance penetration rate is around 30% of GDP.

INTRODUCTION TO TAKAFUL

MALAYSIA

The descriptions on products, models and sales illustration.

SYARIKAT TAKAFUL MALAYSIA BERHAD (STMB)

Corporate info

Syarikat Takaful Malaysia Berhad (Takaful Malaysia) was incorporated on the 29th of November 1984.

The current authorised capital of Takaful Malaysia is RM500 million and paid-up capital is RM162.817 million.

It commenced operation on the 22nd of July, 1985 prior to its official launching on the 2nd of August 1985 by the then Prime Minister of Malaysia, Tun Dr. Mahathir Mohamed.

Corporate info (con’t)

The incorporation of Takaful Malaysia was based on the recommendation of the “Task Force on the Study for the Establishment of an Islamic Insurance Company in Malaysia” (Task Force) set up by the Government of Malaysia in 1981.

Takaful Malaysia was transformed into a public limited company on the 30th of July 1996.

BIMB Holdings Berhad is the major shareholder with 65.22% stake in Takaful Malaysia.

The corporate structure

STM PRODUCTS FAMILY TAKAFUL

•MYMEDICARE•MYRAWAT

• MYSISWA• MYSINAR•MYIMPIAN

• FUND• MYINVEST•MYGRADUAN

STM PRODUCT (CONT’D) GENERAL TAKAFUL

• BAITUL SAA’DAH• FIRE

•HOUSEOWNER’S &

HOUSEHOLDER’S

• MOTOR• PERSONAL

ACCIDENT• RUMAH DESA

STMB MODEL MUDHARABAH

The first Takaful Company in Malaysia, Syarikat Takaful Malaysia(STM) was established in 1985 as composite operation. It used the Mudharabah contract as the basis of its Takaful Model.

The idea was based on the contractual relationship between the ‘capital provider’ and the ‘entrepreneur’ in the Mudharabah contract. The participant (policyholder) was designated as the capital provider while the shareholders of the Takaful company was defined as the‘entrepreneur’.

STMB MUDHARABAH MODEL (CONT’D)

For nearly 10 years STM was the only Takaful Company operating in Malaysia.

This monopoly helped in easing competitive pressure on pricing (tend to be higher on this model) as it only had to compete with conventional insurance companies.

The Mudharabah Model worked well for General Takaful (as ‘profit’ was realised yearly) but did not do show immediate results for the Family Takaful.

The Takaful Operator has a strong incentive to generate ‘profits’ as otherwise expenses are not covered and their efforts will go unrewarded.

The model has its detractors as surplus is not profit as intended under the Mudharabah

contract.

STMB MUDHARABAH MODEL (CONT’D)

Contribution (Premiums) less claims were deemed as ‘profit’ in the Tabarru’ Fund and shared in a

pre agreed percentage

All management expenses and any acquisition costs were met from

the shareholders fund and therefore not borne by the

policyholders.

If there were no ‘profit’ in the Tabarru’ Fund shareholders

expenses will effectively not be recovered.

The company basically used salaried agents and its parent bank

to distribute its products.

STMB MUDHARABAH MODEL (CONT’D) General Takaful Operation

Payment of Contribution by Participant (based on tabarru’ and Mudharabah contract)

Takaful Fund (TF)

LessUnderwriting cost & reserves•Retakaful•Claims (paid & outstanding + IBNR)•Reserves (UPR)

Provisions•doubtful debt•diminution in investment value

40 % of Profit

60 % of Profit

Qard Hassan to cover deficit

Investment income

Gro

ss pro

fit

(if any)

Gross profit (if any)

participant

Shareholder Fund (SF) + Share of profits (if any) + Investment income of SF - Actual Management expensess

STMB WAKALAH MODEL

The Wakalah model will allow STMB act as the agent (or Wakil) to manage Takaful funds on the behalf of participants.

The participant as a party to the wakalah contract agrees that the takaful operator may take a portion of the contribution as remuneration for services provided: Wakalah Fee; Performance Fee (if any);

The fee scale must be transparent and agreed to at the time of participation.

WAKALAH MODEL (CONT’D)

24

Wakalah for family takaful –one model

Contribution

Investment Account

Participant

Expenses Risk

Account

Profit

Investment Account

Risk Account

Surplus

100%

Wakalah

Fee

Takaful Operator

% Net Assets% Revenue

Funds management

There are three funds; Family Takaful Fund under the Family

Takaful Business; and General Takaful Fund under the General

Takaful Business.

These Takaful funds are kept separate from the Shareholders' Fund which was originally funded wholly by the paid-up

capital.

ETIQA TAKAFUL BERHAD (266243-D)

(formerly known as Takaful Nasional Sdn Bhd)

(Incorporated in Malaysia)

THE COMPANY Founded: 1993 Background

Registered under 1984 Act of Malaysia, its structured is that of a Modified Takaful whereby the surplus from its operation are divided 80% policyholder and 20% shareholder for life operations and 50% each for non-life products

BOD: Malaysian National Insurance Company + Malaysia Islamic Economic Development Foundation

THE COMPANY…CONT’

Provides individual life, group life, fire, motor, marine and aviation products through banking cooperative, agents and direct distribution.

The company made charitable donations as well as a number of community based projects including sponsoring school newspapers, covering the costs of books for poor student through the National Book Development Foundation and building mosques and hotels for orphans.

THE COMPANY…CONT’ Change name

On 31 October 2007, the Company's status was changed from a private limited liability Company to a public Company. Accordingly, its name was changed from Takaful Nasional Sdn Bhd to Takaful Nasional Berhad.

On 15 November 2007, the Mayban Fortis Holdings Berhad ("MFHB") Group rebranded the organisation under a new name and identity that symbolises the Group's efforts to humanise takaful operational process. In conjunction with this new branding exercise, the Company changed its name to Etiqa Takaful Berhad on 12 November 2007.

THE COMPANY…CONT’ The Shariah Committee

• Tan Sri Dato' Seri (Dr) Haji Harussani bin Haji Zakaria Chairma

n

• Dr Mohammad Deen bin Mohd NapiahAssistan

t Professor

• Dr. Ismail bin Mohd @ Abu Hassan

Assistant Professor

• Dr. Ahcene Lahsasna

THE PRODUCTS

HEALTH - Medic Save Rider

SAVINGS - Mesra + Warisan

EDUCATION - Sarjana

PROTECTION – Prima + Ehsan + Sakinah + Personal Accident + Femina Special

HOME – Homeowner / Householder

CAR – Private Car Takaful

PERSONALRETAIL SHOP

SERVICES

MANUFACTURING

CONSTRUCTION

COMMUNICATION

ENERGY

TRANSPORTATION

AGRICULTURE

CORPORATE

THE PRODUCTS

Features : All in-patient hospitalisation and surgical

benefits Emergency out-patient treatment benefits. Choice of extension of coverage. A medical card for hassle-free admission to

panel hospitals. Affordable contribution rates on excellent

benefits Guaranteed renewable up to age 75. Free and convenient auto-debit of

monthly/quarterly/semi-annually or yearly contributions from your Maybank Current/Savings account or credit card.

TAKAFUL MEDIRIDER

Co-Takaful : Co-takaful is the sharing of medical charges.

For Takaful MediRider, co-takaful is 10%. This means you only pay 10% of your medical bills; the remaining 90% will be paid directly to the hospital when you are discharged.

E.g.: If you have taken up Takaful MediRider 100 and your Room & Board expenses are within coverage, you only pay 10% of the eligible medical expenses. Total amount of hospital bill : RM 9050 Payment by Takaful Operator: RM8,245 ( 90

% ) Payment by Participant: RM805 (10 % )

TAKAFUL MEDIRIDER

Co-Payment : If you choose to be hospitalised at a Room &

Board rate higher than your eligible benefit, co-payment requires you to pay only 20% of your medical bills. Co-takaful is also applicable to the remaining 80% of the outstanding medical bills. In total, you pay 28% of your medical bills.

E.g.: If you have taken up Takaful MediRider 100 but you choose to upgrade to Room & Board expenses of RM300, co-payment is applicable. Total amount of hospital bill : RM 10,200

Payment by Takaful Operator: RM6,184 ( 72 % ) Payment by Participant: RM4,016 ( 28 % )

TAKAFUL MEDIRIDER

Wakalah Fee A fixed proportion of the contribution will be

deducted as Wakalah Fee as follows:

Certificate Year Wakalah fee 1st year 35 % 2nd year onwards 15 %

Surplus Sharing Surplus arising (if any) at the end of each financial

year will be shared between you and Etiqa Takaful Berhad at a 20%:80% ratio. The surplus will be payable only upon death or maturity, whichever is earlier, subject to no claim.

TAKAFUL MEDIRIDER

Takaful Participants

Takaful Funds

Takaful Operator

Investment Pay Claims

Donation

Manage

Contracts•Mudarabah•Wakalah•Ji’alah•Wadi’ah yad damanah

BASIC OPERATIONAL MODEL

MODIFIED TAKAFUL Mudharabah Wakalah

BALANCE SHEET AS AT 30 JUNE 2007…CONT’

BALANCE SHEET AS AT 30 JUNE 2007…CONT’

INCOME STATEMENT AS AT 30 JUNE 2007

COMPARISON ON TAKAFUL

MODEL

TAKAFUL MALAYSIA VS TAKAFUL ETIQASimilarities:

Both takaful are using modified Wakalah Model for Family Product for example MyMedicare offered by TM while Takaful Medirider from TE.

SIMPLE MODIFIED WAKALAH MODEL

Participants

Surplus (RM290)

Claim (RM700)

Investment Profits (RM90)

RM900Contribution___________

FeeRM100

Takaful Operator


FeeRM90

Eg: 50%=RM145

Wakalah Management

Tabarru’

Eg: 50%=RM145 (As Performance Fee)

(Profit sharing ratio e.g: 50:50)

Fee

SIMPLE PURE WAKALAH MODEL

Participants

Surplus (RM290)

Claim (RM700)



FeeRM100

Takaful Operator


FeeRM90

Fee

Wakalah Manageme

nt

100% (Profit sharing ratio e.g: 50:50)

Tabarru’

Similarities:

Both takaful are using modified Mudharabah Model for general Product for example Personal (Baitul Saadah Fire and Houseowner Plan), Community, Engineering and Corporate organization Takaful from TM while Takaful Medirider from TE.

Contribution

($1,000)

Contribution +

Profit ($1,000 +

$70)

Claims($700)

Surplus

($370)

Mudharabah Investment

Profit = RM100

(PSR: 70:30)

Takaful

Operator

Participants


Surplus100%

Tabarru’

Eg: 70%=RM70

Claims

Eg: 30%=RM30

PURE MUDHARABAH

MODEL

Contribution

($1,000)

Contribution +

Profit ($1,000 +

$100)

Claims($700)

Surplus

($400)


Profit($100)

Takaful

Operator

Participants

Tabarru’

Eg: 70% (RM280)

Eg: 30% (RM120)

MODIFIED MUDHARABAH MODEL


Modified Mudharabah

Modified Wakalah Vs Mudharabah Model

Contribution

($1,000)

Contribution +

Profit ($1,000 +

$100)

Claims($700)

Surplus

($400)


Profit($100)

Takaful

Operator

Participants

Tabarru’

Eg: 50% (RM200)

Eg: 50% (RM200)


MODIFIED WAKALAH

Participants

Surplus (RM290)

Claim (RM700)



FeeRM100

Takaful Operator


FeeRM90

Eg: 50%=RM145

Wakalah Management

Tabarru’

Eg: 50%=RM145 (As Performance Fee)


Fee

TAKAFUL MALAYSIA VS TAKAFUL ETIQADifferences:

1. Profit Sharing Ratio2. Plan & Benefits

TM vs TE: 60:40 , 80:20 (Product MyMedicare:MediRider)

Comparison On Profit Sharing : TM vs TE

Takaful Malaysia

Comparison On Product & It’s Benefit: Family Plan

Takaful Malaysia

Takaful Etiqa

COMPARISONS ON

ACCOUNTING

BALANCE SHEETTAKAFUL MALAYSIA

BALANCE SHEETETIQA TAKAFUL

INCOME STATEMENT

TAKAFUL MALAYSIA

INCOME STATEMENT

ETIQA TAKAFUL

FINANCIAL REPORTING

STANDARD (FRS) AND AAOIFI STANDARDS

DOES THIS TWO COMPANIES COMPLY WITH ABOVE

STANDARDS?

FINANCIAL REPORTING STANDARD (FRS) Compliance with FRS are legislated

under Financial Reporting Act 1997 [Section 26D]

MASB approved Accounting Standards for entities other than private entities

For insurance contracts - Financial Reporting Standard 4 (FRS4)

Both Takaful Malaysia and Etiqa Takaful comply with this standards

AAOIFI STANDARDS Shariah Standards for Islamic Insurance

and ReinsuranceContractual relationships

Musharaka, Wakalah, MudarabahForm of reinsurance

Selective risk or comprehensive reinsurance

Both Takaful Malaysia and Etiqa Takaful mentioned the contractual relationship and the proportion for reinsurance

AAOIFI STANDARDS..CONTD Accounting Standards for Islamic

Insurance companiesGeneral Presentation and Disclosure in

Financial StatementDisclosure of Bases for Determining and

Allocating Surplus of DeficitProvisions and ReservesContributions

Takaful Malaysia and Etiqa Takaful comply with the requirements of FRS4 enacted by BNM, but they does not fully applies AAOIFI Standards

FINANCIAL PERFORMANCE

ANALYSIS• LIQUIDITY RATIO

• PROFITABILITY RATIO (OPERATING PROFIT MARGIN)

• DIVIDEN PAYOUT RATIO

LIQUIDITY RATIO = TOTAL ASSETS / TOTAL LIABILITIES

TAKAFUL MALAYSIA

• Group [4047299/3711264 = 1.09]

• Company [3796260/2467430 = 1.09]

ETIQA TAKAFUL

• [5033318/4757675 = 1.05]

OPERATING PROFIT MARGIN = OPERATING PROFITS / NET SALES

TAKAFUL MALAYSIA

• Group [37910/1121650 = 3.37%]

• Company [46119/927694 = 4.97%]

ETIQA TAKAFUL

• [83095/1156969 = 7.18%]

DIVIDEN PAYOUT RATIO = DIVIDEND PER SHARE / EARNINGS PER SHARE

TAKAFUL MALAYSIA

•Group [2.61/18.7 = 13.96%]

ETIQA TAKAFUL

•60.3 cent

SUMMARY OF FINANCIAL

PERFORMANCE FOR BOTH

COMPANIESIS IT BENEFICIAL TO OPERATOR

OR PARTICIPANTS?

OPERATOR The high liquidity ratio means the

company able to meet its financial obligation

The lower dividend payout ratio indicates that the company injects some portion out of the profits generated for its grow activities needs

Hence, the operator is said to be more beneficial from these accounting perspective

Takaful Malaysia rewards operators

PARTICIPANTS The higher ratio of operating profit

margin, the better Earning per share is based on net profit

divided by unit of shares issued Higher earnings received by the

participants indicates that company actively operate the capital to generate lucrative revenue

Thus, Etiqa Takaful rewards participants

SUGGESTIONS TO IMPROVE

TAKAFUL INDUSTRY

SUGGESTIONS TO IMPROVE TAKAFUL INDUSTRY Increase promotion activities through

effective and interesting methods.

SUGGESTIONS TO IMPROVE TAKAFUL INDUSTRY

The World Takaful Conference scheduled on 12 & 13 April 2010 should be fully utilized in structuring or restructuring takaful products as well as promoting takaful industry.

CONCLUSION Instead of being TAKAFOOL, we need to

put our efforts to make it TAKAFULL, in which is full of attractions and justice to people.

Documents

Takaful Presentation Full