Explanation and Need of Re-Takaful
Retakaful of Takaful business on Islamic principles is known as Retakaful. Retakaful
is a form of Takaful whereby a Takaful Operator can transfer to another Takaful
Operator (the ReTakaful Operator) all or part of its liabilities in respect of claims
arising under the contracts of Takaful that it writes. This enables a Takaful Operator
to protect itself against the risk that its total claims costs in any one year maybe
so large wiping out its profits, or even cause it to be insolvent. This is the essence
of the concept of social solidarity, cooperation and mutual indemnification of losses
of members whereby there is joint indemnification of the loss or damage that may
occur, out of the fund that is collectively contributed to. The main problem worldwide
is the lack of Retakaful Operators that are capitalized to the levels required by
Takaful Operators and more particularly the lack of ‘A’ rated Retakaful Operators.
This has resulted in Takaful Operators having to reinsure on a conventional basis,
contrary to the preferred option of seeking cover on Islamic principles.
The Shari’ah scholars have allowed dispensation to Takaful Operators to reinsure
on conventional basis so long as there are no Retakaful alternatives available.
Takaful Operators therefore actively promote co-takaful. A number of large conventional
ReTakaful Operators from Muslim countries take on retrocession. Therefore a large
proportion of risk is placed with international ReTakaful Operators that operate
on conventional basis.
The retrocession from Takaful Operators ranges from some 10% in the Far East where
Takaful Operators have relatively smaller commercial risks (so far), to the Middle
East where up to 80% of risk is reinsured on conventional basis.
Retakaful Operators need to ensure that they are capitalized sufficiently to enable
• Protect the financial stability of takaful Operators from adverse underwriting
• Stabilize claims ratios from one year to the next
• Minimize claims accumulation from losses within and between different classes
• Geographically spread risk
• Increase capacity
• Increase the profitability of insurers through permitting greater flexibility
• Size and type of risks accepted
• Secure technical support and help
In addition to our financial strength, technological prowess, and expert human resources,
the stakeholders can now further their confidence and trust in our ability to perform
and deliver by virtue of our Re-Takaful arrangements with ‘Munich Re’ and ‘Takaful
Re’ for our Corporate and Individual Takaful Plans.