© Allianz MENA Holding 2008 Key Corporate Governance Issues for Takaful Operators Dr. A.Rahman...

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Key Corporate Governance Issues for Takaful Operators

Dr. A.Rahman Tolefat, CEO of Allianz Takaful

ICMIF Takaful Network “Takaful-Beyond the Hype”5 and 6 May 2009Manama

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Agenda Outline

Takaful Structure

Corporate Governance Issues

Overview about Takaful marketSolvency Margin and Capital Adequacy Issues

Allianz Takaful

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3

Structure of General Takaful

Two segregated funds, one for shareholders and the other for policyholders.

Takaful company manages the takaful fund on behalf of participants on an agency basis.

The investment of takaful fund is conducted by the takaful company on a profit sharing basis or an Agency.

Funds

Underwriting

Investment

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Contributions

(premiums)

Participants Fund

Investment

Profit

Retakaful

Claims

Operating Expenses

Surplus

Reserves

Dividends

Shareholders Fund

Wakalah (Agency) Fee

Investment Profit Share

Surplus Share

Shareholders fund investment

Operating Expenses

Profit

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Structure of Family Takaful

The investment fund for participants (Saving Fund). It is similar to assets management fund.

The risk protection fund which covers the mortality risks. It is similar to general fund.

Shareholders assets and liabilities.

Participant’s Fund

Shareholder’s Fund

Participant’s Special Fund

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Contributions (premiums)

Participants Special Fund (Protection

Fund)

Investment

Profit

Retakaful

Claims

Operating

Expenses

Surplus

Reserves

Dividends

Shareholders Fund

Wakalah(Agency)+other Fees

Investment Profit Share

Shareholders fund investment

Operating Expenses

Profit

Surplus Share

Participants fund (Saving Fund)

Investment

Profit

Distribute profit for each

participant

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Shareholders fund

Participants fund

Insurance operation

Deficit

Option(2): Interset free loan

Investment

Participants

(Policyholders)

Option (1):Pay additional premiums

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Agenda Outline

Takaful Structure



Allianz Takaful

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Who is protecting the interests of Participants?

• There are two parties:

– Regulator- thought the current regulations & supervision. (Corporate Governance and Business Conduct)

– Shari’ah Board- from the ethical prospective

• Regulator:

_ The regulation need to be adopted to cater for unique characteristics of takaful.

• Shari’ah Board:

_ The shari’ah Board has not the right competencies to perform this job.

– It is not stated in the Shari’ah Board Mandate.

Corporate Governance

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Elements of conflict of Interests (1/2)

• The shareholders are in preference to charge higher fee.

• Distribute profit to participants before take reserves.

• Charge incentive fee before take reserves or distribute anything to participants

• The company may place shareholders fund in better investment opportunities vis-à-vis takaful funds

• The competition could lead the operator to pas the risk to takaful pool without proper pricing.

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• The deficit incurs in takaful fund could be resulted from mismanagement or misconduct by the operator.

• The amount that goes to risk pool and the remaining amount which goes to saving pool.

Elements of conflict of Interests (2/2)

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Deficit

Unaffordable

Deficit

Mismanagement & Misconduct

Qarad Hassan from shareholders fund

Independent

Parties

Liable to cover

deficitQarad Hassan

Deficit Debate

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• Distribute profit to participants before take reserves.

• Charge incentive fee before take reserves or distribute anything to participants

Takaful

Fund

Surplus

Incentive Fee

Distributed

50%

50%

Reserves

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Premiums

Competition

TakafulConventional

Contributions

Shareholders

Fund

Participants

Fund

Insurance

Fund

Wakalah fee

300,000

(30%)

700,0001,000,000

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Related Parties

Related parties

Group RB:

- Less than 10%

- 10% -50%

- Over 51%

Difference between

actual and desired

Both are confirmed the control of related

parties

Effect on Individual

basis

Statistical

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RPI Ownerhip Groups and Shareholders Funds

0

10

20

30

40

50

60

SHF-Deposits SHF-Real Estate SHF-Equities Investments SHF-Mutual funds/unit trusts

Million

s

LT 10 10-50 51+

RPI Ownerhip Groups and Participants Funds

0

5

10

15

20

25

30

35

SHF-Deposits SHF-Real Estate SHF-EquitiesInvestments

SHF-Mutual funds/unittrusts

Mil

lio

ns

LT 10 10-50 51+

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Solvency Margin and Shareholders Fund

Shareholders

Fund

Takaful

Fund

Deficit

How the regulators satisfy that all the times there are liquid assets to support takaful fund?

There are two views regarding capital of takaful companies:

Lender of Last resort

Just to meet the Legal Requirements

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Shareholders

Fund

Takaful

Fund

Deficit

Actual

Solvency

Takaful

Fund

Shareholders

Fund

Physical Transfer?!

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Shareholders Fund

Yes with the same policyholders limits

No

20%

72%

Regulation of Shareholders Fund

Does the shareholders fund need to be regulated ?

Yes with fixable limits

8%

1

2

3

Reponses Detail

Yes with same policyholders limits

Yes with flexiable limits

No need to regulate fund

Source:PHD study form the presenter

© Allianz MENA Holding 2008 Key Corporate Governance Issues for Takaful Operators Dr. A.Rahman...

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