Achieving International Connectivity in Takaful & Retakaful

1. Achieving International Connectivity in Takaful & Retakaful IFN Asia Forum 2011 Kuala Lumpur 17th – 19th October 2011 Azleena Idris, Deputy Director Financial Infrastructure Development Islamic Banking & Takaful Department

2. Achieving International Connectivity in Takaful & Retakaful

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4. 4 Estimated to be over 200 takaful companies Source: MEIR 2011, GIFF: Country and Business Guide: 2010, Labuan FSA

5. 5 Global takaful industry growth: 39% (2005-2008) vs 10.2% in conventional insurance Still less than 1% of global insurance premiums Malaysia contributes ≥ 21% of its total contributions PAST 6 YEARS TREND: Highest global gross takaful contribution is from the GCC region OUTLOOK: Highest takaful contribution is expected to come from Asia Pacific Source: GIFF 2010

6. Slide 9 6 *Market penetration = number of policies in force / total population Diverse players… CAGR of takaful industry (2005-2010): Net contributions : 27% Assets : 20% Increasing market share in terms of contributions & assets in every year… Insurance Penetration & Real GDP Growth for Selected Countries Takaful vis-a-vis Insurance: Total Assets & Total Premium (in RM million) Malaysia ranked 32nd globally in 2010 Takaful Source: Bank Negara Malaysia Source: Sigma Re, Ernst & Young World Takaful Report 2011

7. UK & Europe Shareholding Composition in Malaysian Takaful Operators Japan Hong Kong Middle East Malaysia Singapore Participation of 12 foreign shareholders from 10 countries

8. UK Hong Kong, Japan, South Korea Middle East, Africa and Levant Americas India, Sri Lanka, Bangladesh 26% (RM 481.17 m) Significant opportunities remains untapped

9. Takaful grew the least (less than 1%) compared to other Islamic finance components Resilient, viable and profitable How can takaful capture a bigger share of USD1 trillion industry?

10. Mutual recognition of Shariah interpretation and enforcement Clarity of takaful as a protection product Slides 13 & 14 Slide 15 & 16 Intensify development of international best practices Slide 17 Universally accepted legal, regulatory, tax and accounting treatment

11. Takaful – Clarity in how each model operates and can co-exist needed • Emergence of different takaful models across jurisdictions presents opportunities for greater understanding and acceptance • Rights of takaful participants • Duties, responsibilities and obligations of takaful operators and re-takaful operators • Protection elements of the takaful funds • Co-takaful and re-takaful compatibility • Permissible takaful risks Participants Global Takaful Group Al-Wakalah Al-Ta’awuni Al-Waqf Hybrid Al-Wakalah & Al-Mudharabah Takaful Funds Al-Mudharabah New concepts? Collaboration through Global Takaful Group? Greater collaboration with brokers?

12. 12 Snapshot of Malaysian TOF Back to Slide 10 Guidelines of Takaful Operational Framework Purpose: • Ensure business activities and innovations are within TO’s risk management capacity and do not compromise prudence • Ensure long term business sustainability and safeguard interest of stakeholders via comprehensive internal controls Key Requirements: • Covers operational processes relating to takaful and shareholders’ fund, include the requirements relating to: • Establish operational model that based on the contract and approved by Shariah Committee • Setting up fund • Segregate shareholders’ fund and takaful fund • Management of takaful operations • Adequate tabarru’ allocation into PRF to cover risk and obligations associated with takaful contract • Establish written policy on the management of surplus that are approved by Shariah Committee and Board • Management of operating costs and income of takaful operators • Management of assets, liabilities and surplus • Rectification of deficiency of takaful fund • Establish written policy on mechanism to rectify deficit and/or loss in PRF that are approved by the Board

13. 13 Mutual recognition of Shariah interpretation and enforcement Clarity of takaful as a protection product Slides 13 & 14 Slide 15 & 16 Intensify development of international best practices Slide 17 Universally accepted legal, regulatory, tax and accounting treatment

14. Mutual recognition of Shariah interpretation and enforcement: Two main issues 14 Seizing a more sizeable share of Shariah compliant investible universe Addressing “leakages” of business and investments

15. 15 Back to Slide 10

16. 16 Mutual recognition of Shariah interpretation and enforcement Clarity of takaful as a protection product Slides 13 & 14 Slide 15 & 16 Intensify development of international best practices Slide 17 Universally accepted legal, regulatory, tax and accounting treatment

17. International Financial Services Board 17 Back to Slide 10 A good start but more needed in augmenting the uniqueness yet comparability of takaful as a mainstream protection product which co-exists alongside insurance (eg risk-based capital for takaful and impact of Solvency II requirements on takaful) Facilitates rating of takaful operators

18. 18 Mutual recognition of Shariah interpretation and enforcement Clarity of takaful as a protection product Slides 13 & 14 Slide 15 & 16 Intensify development of international best practices Slide 17 Universally accepted legal, regulatory, tax and accounting treatment

19. Azleena Idris azleena@bnm.gov.my Thank You