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Key Corporate Governance Issues for Takaful Operators

Key Corporate Governance Issues for Takaful Operators. ICMIF Takaful Network “Takaful-Beyond the Hype” 5 and 6 May 2009 Manama. Dr. A.Rahman Tolefat, CEO of Allianz Takaful. Agenda Outline. Takaful Structure. Corporate Governance Issues. Solvency Margin and Capital Adequacy Issues.

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Key Corporate Governance Issues for Takaful Operators

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  1. Key Corporate Governance Issues for Takaful Operators ICMIF Takaful Network “Takaful-Beyond the Hype” 5 and 6 May 2009 Manama Dr. A.Rahman Tolefat, CEO of Allianz Takaful

  2. Agenda Outline Takaful Structure Corporate Governance Issues Solvency Margin and Capital Adequacy Issues Overview about Takaful market Allianz Takaful

  3. Structure of General Takaful Two segregated funds, one for shareholders and the other for policyholders. Funds Underwriting 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. Investment

  4. Contributions (premiums) Wakalah (Agency) Fee Participants Fund Shareholders Fund Investment Profit Share Retakaful Claims Operating Expenses Investment Surplus Share Profit Shareholders fund investment Reserves Operating Expenses Surplus Profit Dividends

  5. Structure of Family Takaful Participant’s Fund The investment fund for participants (Saving Fund). It is similar to assets management fund. Participant’s Special Fund The risk protection fund which covers the mortality risks. It is similar to general fund. Shareholder’s Fund Shareholders assets and liabilities.

  6. Contributions (premiums) Wakalah(Agency)+other Fees Participants Special Fund (Protection Fund) Participants fund (Saving Fund) Shareholders Fund Retakaful Claims Operating Expenses Investment Investment Profit Share Investment Surplus Share Profit Profit Shareholders fund investment Reserves Distribute profit for each participant Operating Expenses Surplus Profit Dividends

  7. Option(2): Interset free loan Participants fund Shareholders fund Option (1):Pay additional premiums Insurance operation Investment Participants (Policyholders) Regulator? Deficit

  8. Agenda Outline Takaful Structure Corporate Governance Issues Solvency Margin and Capital Adequacy Issues Overview about Takaful market Allianz Takaful

  9. Currently Is this enough ?! Corporate Governance Who is protecting the interests of Participants? • 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. • There are two parties: • Regulator- thought the current regulations & supervision. (Corporate Governance and Business Conduct) • Shari’ah Board- from the ethical prospective

  10. Wakalah Fee Reserves Investment Competition 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 competition could lead the operator to pas the risk to takaful pool without proper pricing. • The company may place shareholders fund in better investment opportunities vis-à-vis takaful funds

  11. Deficit Family takaful Elements of conflict of Interests (2/2) • 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.

  12. Deficit Debate Deficit Independent Parties Unaffordable Deficit Mismanagement & Misconduct Liable to cover deficit Qarad Hassan from shareholders fund Qarad Hassan

  13. Reserves • Distribute profit to participants before take reserves. • Charge incentive fee before take reserves or distribute anything to participants • Reserves • Takaful • Fund • 50% • Incentive Fee • 50% • Surplus • Distributed

  14. Competition • Takaful • Conventional Premiums • Contributions • Shareholders • Fund • Insurance • Fund • Participants • Fund • Wakalah fee • 300,000 • (30%) • 700,000 • 1,000,000

  15. Related Parties • Effect on Individual basis • Statistical • Related parties • Group RB: • Less than 10% • 10% -50% • Over 51% • Difference between actual and desired • Both are confirmed the control of related parties

  16. Agenda Outline Overview About Takaful Market Takaful Structure Corporate Governance Issues Solvency Margin and Capital Adequacy Issues Overview about Takaful market

  17. Solvency Margin and Shareholders Fund There are two views regarding capital of takaful companies: Lender of Last resort Just to meet the Legal Requirements How the regulators satisfy that all the times there are liquid assets to support takaful fund? Shareholders Fund Takaful Fund ? Deficit

  18. Shareholders Fund Takaful Fund ? Deficit Shareholders Fund Takaful Fund Physical Transfer?! Solvency Actual

  19. Shareholders Fund Does the shareholders fund need to be regulated ? Regulation of Shareholders Fund Detail Reponses 72% 1 Yes with same policyholders limits Yes with flexiable limits 2 20% No need to regulate fund 8% 3 Yes with the same policyholders limits Yes with fixable limits No Source: PHD study form the presenter

  20. Thank you

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