Retakaful of Takaful business on Islamic principles is known as Retakaful. Retakaful is a form of Takaful whereby a Takaful Operator can transfer to another Takaful Operator (the ReTakaful Operator) all or part of its liabilities in respect of claims arising under the contracts of Takaful that it writes. This enables a Takaful Operator to protect itself against the risk that its total claims costs in any one year maybe so large wiping out its profits, or even cause it to be insolvent. This is the essence of the concept of social solidarity, cooperation and mutual indemnification of losses of members whereby there is joint indemnification of the loss or damage that may occur, out of the fund that is collectively contributed to. The main problem worldwide is the lack of Retakaful Operators that are capitalized to the levels required by Takaful Operators and more particularly the lack of ‘A’ rated Retakaful Operators. This has resulted in Takaful Operators having to reinsure on a conventional basis, contrary to the preferred option of seeking cover on Islamic principles.
The Shari’ah scholars have allowed dispensation to Takaful Operators to reinsure on conventional basis so long as there are no Retakaful alternatives available. Takaful Operators therefore actively promote co-takaful. A number of large conventional ReTakaful Operators from Muslim countries take on retrocession. Therefore a large proportion of risk is placed with international ReTakaful Operators that operate on conventional basis.
The retrocession from Takaful Operators ranges from some 10% in the Far East where Takaful Operators have relatively smaller commercial risks (so far), to the Middle East where up to 80% of risk is reinsured on conventional basis.
Retakaful Operators need to ensure that they are capitalized sufficiently to enable them to:
In addition to our financial strength, technological prowess, and expert human resources, the stakeholders can now further their confidence and trust in our ability to perform and deliver by virtue of our Re-Takaful arrangements with ‘Munich Re’ and ‘Takaful Re’ for our Corporate and Individual Takaful Plans.