Kuwait International Conference on

1. Kuwait International Conference on “The Experiments of Change Towards the Application of Islamic Shari’ah in the Economic Field” Takaful Ta’awuni – The Bank Aljazira Experience by Mr Samee Thanvi Division Manager, Individual Sales 30th & 31st May 2005 at the J W Marriott Hotel, Kuwait

2. Presentation Overview • A Brief Overview of the BAJ Takaful Ta’awuni (BAJ/TT) – Islamic Life Insurance • Takaful Ta’awuni Development Road Map

3. What Is Takaful Ta’awuni? “A Shari’a compliant,long term, mutual life insurance, savings and investment program.”

4. Definition of Takaful Ta’awuni Takaful Mutual guarantee orindemnificationamong the group members Ta’awun The act of mutual help and assistance between the participants within the group “The fortunate few assisting the unfortunate many”

5. Life Takaful Development “Road Map” Initial Takaful Concept Development Product Development Initial Sharia Approval of Model Business/Actuarial Model Development Initial Regulatory Approval Marketing & Sales Development Operational Development IT Development Business Evaluation Final Shari’a Approval Finalise Retakaful/Reinsurance Treaties Final Regulatory Approval Recruit and Train Staff OPEN FOR BUSINESS

6. Steps to Consider • Develop in conjunction with specialist consultants to provide expertise or in partnership with a Takaful or insurance company • Research and identify the potential target market • Take decision on General or Life products or a composite offering both • Decide on investment strategy; unit-linked funds orpooled investments • Determine which Takaful model to adopt:Wakala or Mudharabah ?

7. Initial Shari’a Approval of Model • Wakala-A Fee Driven Islamic Contract Mudharabah - A Profit Sharing Islamic Contract

8. Family Takaful - Long Term Plans/Group Takaful- 1 Year Plans Full Operational Expenses Wakeel/ Operator Fees Fees Fees Risk A/C Tabar’ru Claims/ Direct Exps. Contribution Specified As: • Tabarru’ • Savings • Fees Risk A/C Tabarru’ Participant Invest. Profits Individual Savings A/C Individual Savings A/C Surplus IRIA IIA IIA IRIA BAJAdopted WAKALA Model

9. Salient Features of a Wakala Model Fees only taken if a product is sold • No charging of expenses to the participants fund • Operator alone totally responsible for all start up expenses and operational costs • No issue of agency or commission sales • Clear separation between participant and operator • Wakala Fee on Surplus accepted by Shari’a advisors • Total transparency on all aspects of the operation and fee structure

10. Business Actuarial Model Development • Product pricing requires research on competitor products (Islamic & conventional),sales compensation costs and Operator profits/income needs • Competitor Analysis. Takaful products should not need to be more expensive than conventional products • Breakeven Scenarios • Sensitivity Analysis: Eessential to understand the possible future scenarios to help management plan accordingly

11. Synergies with Banking and Investment Industries

12. Benefits for Islamic Banking and Investment Industries First Mover Advantage Assets Under Management Full Product Suite-Indiv/Group Shari’a/SAMA Approvals-time to business Image and Reputation Reduced Up-Front Costs for TT/IT-Operations BENEFITS Customer Retention Expanded Customer Base- Indiv & Corp Core Takaful Management Competencies Synergies: Opportunity for International Expansion TT-IT-System- (Bilingual) • Cross-selling

13. Assets Under Management • Utilizes existing Islamic Equity and Other Funds • Significant increase in AUM as TT Program grows • Avoids risk of fund withdrawals during an economic crisis due to the Long-Term savings goals of Takaful

14. Expanded Client Base Takaful will expand and deepen client base, adding both new Individual and Corporate clients

15. Customer Retention • Heightened Client Retention due to Takaful relationship • Bancassurance in combination with Current and Deposit Accounts extends the odds of losing a Customer Current Account Only1:1 Deposit Account Only1:2 Current & Deposit Account1:10 Current, Deposit & Bancassurance1:100 Source: American Bankers Association

16. Synergies: Cross-Selling • Cross-Selling: Banking Products sold by TT distribution network • Valued-added services for existing Corporate relationships and improving portfolio profitability via TT cover on corporate and individual loans

17. Product Development • Develop the range of Individual products that best suits your market. This could be a single “Jack of all trades” product, or a product range capable of providing for the needs of the participants in your market • Development of a Group product range can complement the individual product range • Supplementary riders can add value to a product range whilst providing essential risk cover for the participants

18. Individual Products

20. Corporate and Group Plans

21. Group Takaful Products • Group Term Life • Group Credit Life • Group Retirement/Pensions

22. Initial Regulatory Approval • Development received full support of Saudi Arabi Monetary Agency. • Explanation of takaful concepts so that the regulator can fully understand the basic principles. • The need to have 100% Sharia and SAMA approved funds was essential to the approval process.

23. Marketing & Sales Strategies

24. Sales Model • Agency? • Direct Sales Force? • Bancassurance? • Cross Selling? • Through Islamic banks or Islamic windows in conventional banks?

25. Operational Development • Agree underwriting arrangements with reinsurers/retakaful operator • Medical examination facilities to be evaluated and medical examiners to be appointed • Forms Design-All BAJ takaful forms are stored in a central library on the IT system. • Policies and Procedures developed and published • Contribution Payment Facilities established. In BAJ’s case, principal payments made through SAMA direct debit system-SARIE • External and Internal Legal review of all contracts and documents

26. IT Development • Essential that Takaful life operation is underpinned by a fully developed and comprehensive IT system • No known life takaful software system in existence • Bi-Lingual capabilities essential • Multi-Currency facility required for international development • Future flexible product development an essential part of the IT development • Sales Lap top illustration capability essential • Unitized Investment module essential to maintain a fully auditable record of a clients savings/investment account over the life of the contract • Fully tested by external actuaries before going live.

27. Penta Takaful - Components New Business Contract Servicing Claims Plan Wizard / Product Setup • Consists of three main functions independent of each other. • Eight major functions span across the three independent functions. Contribution Processing Unitization Agency Management Payments Processing Security Retakaful Reports and Enquiries

28. External Business Evaluation • An internal audit requirement to bring in external business consultants to evaluate the development, processes, IT system and business prospects • External business and process evaluation included but was not limited to the following: • Business strategy • Market segments and prospects • Processes • Pricing • Profit projections • IT development • Business Model

29. Final Sharia approval • Review of all contracts and contract wording • Review and approval of contentious issues: • Suicide-Beneficiaries to be paid or not? • Age-Minimum and maximum age of contract holders • Can the contract be whole of life or to a maximum age? • Personal Accident. Can it be included to pay as double indemnity? • Islamic Inheritance Laws-Are they applicable? • Surplus sharing-On what basis and can the operator receive a surplus share or surplus performance fee? • Reinsurance/Retakaful-Dispensation, can it be given for reinsurance? • Issuing of Fatwa, declaring that the takaful program is sharia compliant-1st in KSA

30. BAJ Fatwa

31. Finalise Reinsurance/Retakaful Treaties • Reinsurance or Retakaful • Group and Individual treaties-one or tworeinsurers/retakaful operators • Rates-significant issue in a new life market • Payment arrangements formulated • Claims process to be agreed • Surplus arrangements • Facultative Arrangements

32. Final Regulatory Approval • Full documentation to be provided to the regulator-Saudi Arabian Monetary Agency (SAMA) • Standard illustrations with hypothetical growth rates for comparison to local competitor products • Brochures provided for evaluation • Contract wording and cancellation charges to be transparent • Reinsurance treaties • Official SAMA Approval issued-1st in KSA

33. Recruit and Train Staff • Advertise and recruit staff • Expatriate v Saudi-significant issue for BAJ. Policy taken that all Takaful sales advisors (TSAs), would be Saudi Nationals • Tied “Agency” development-Salary plus advanced commission concept • Develop with legal division a sales staff contract • Training-must consist of both traditional insurance sales concepts with a major element of takaful theory and practices.

34. Open for Business • Soft Launch into the market was the BAJ approach • Evaluate market penetration and sales after six months in the market • Amend sales approach or direction after initial evaluation, if proven necessary • Accelerate development to include nationwide sales operations

35. In Summary • Determine which area of Islamic insurance you wish to enter • Evaluate the Islamic contract best suited to your needs • Either hire or contract with experienced insurance and takaful practitioners • Work closely with your regulators