Retakaful

As part of their risk management, takaful undertakings may subscribe to a retakaful

scheme that suits the needs and requirements for primary takaful undertakings to

protect against unforeseen or extraordinary losses. Retakaful can spread liability for

specifi c risks, share liability when losses overwhelm the primary takaful undertakings’

resources, and help them spread the risk inherent in some segments of takaful business.

Takaful operators should ensure that any retakaful arrangement duly serves the purpose

of the takaful undertakings and holds the interests of takaful participants foremost.

(image taken from AIMS islamic fince university from the course of mba islamic finance)

 The pricing and protection o_ ered by the retakaful operator should be consistently reviewed

from time to time to ensure that it is commensurate with the needs and requirements

of the takaful undertakings. As far as possible, takaful operators should strive to use

retakaful operators, rather than conventional reinsurers, in support of a fully Shari‘ahcompliant

fi nancial system for takaful undertakings.Insurance (Takaful )

•        Takaful companies must prevent capital fl ow from the takaful fund to conventional

·         reinsurance fi rms. In other words, the reinsurance agreement should be designed

·         in favor of takaful operations. Moreover, preference should be given to Islamic

·         reinsurance operators in the matter of securing reinsurance protection whenever

·         possible.

•        The reinsurance experts of the takaful operator should carefully determine the

·         quantum of liability to be reinsured.

•        The takaful operator should reinsure on a net premium basis and not receive any

·         reinsurance remunerations, profi t commissions, or interest on premiums it has

·         retained from premiums payable to its reinsurer.

•        The takaful operator should review its reinsurance requirement annually and

·         should progressively reduce dependence on conventional reinsurers.

•        The takaful operator must stipulate a condition exempting it from payment of

·         or receiving interest from a conventional reinsurance company. However, if the

·         reinsurance company cannot adjust its management and investment methods to

·         comply with this requirement, the takaful operator may accept the interest and

·         spend it on humanitarian activities and public infrastructure projects.

•        The takaful operator must encourage participants and shareholders to contribute

·         to a retakaful fund by consenting to increase their proportion of tabarru’, and seek

·         their consent to use their contribution for the purpose of reinsurance protection.

•        The premium paid for securing reinsurance protection shall be as low as possible.

•        Takaful operators should endeavor to persuade its conventional reinsurer to enter

•        into a profi t-sharing agreement and even suggest a method of management and

•        investment compatible with Islamic principles.

•        The ultimate goal of takaful operators must be to put an end to dealing with

•        conventional reinsurers whenever adequate reserves, or when numerous Islamic

•        reinsurance companies, are established.

This article was written by my teacher when I was doing my islamic finance course 3 years before now iam sharing it for my students