1. Family Retakaful Missions Revisited in View of Current Financial Turmoil

2. Current Financial Crisis Introduction 2 ●Triggered by US Housing-sub-prime crisis in august 2007. ●Became a huge Bank Liquidity Crisis within 6 to 9 months. ●Worst Financial/Economic crisis since 1929 (Great Depression) ●Global, it is affecting all Economic sectors worldwide. ●Especially Banking and Insurance sectors are dramatically hit.

3. Current Financial Crisis Introduction 3 ●Stimulus plans by Gvnts by injecting trillions of dollars in the global economic system. ●So far, no one knows how efficient these actions will be. ●Stock markets still responding in an erratic manner and confidence is yet to be regained.

4. Current Financial Crisis Impact on Conventional Financial sector 4 ●Crisis spread to the rest of the world impacting stock market, banks and insurance industry. ●AIG case due to problematic investments in securitization products while their core business is sound. ●Yamamoto Life and other well known companies followed revealing toxic assets damaging their balance sheets.

5. Current Financial Crisis Impact on Islamic Financial sector 5 ●Shariaa compliance prevented Islamic companies from investing in Financial instruments, lending transactions and project finance without tangible assets as a collateral security. ●Excepting some “sukuks” (85% of which were considered by AAOIFI as non shariaa compliant before this Financial crisis). ●There is no known exposure by Islamic Banks or Takafuls to risks of credit defaults, swaps or other derivative driven instruments.

6. Current Financial Crisis Impact on Islamic Financial sector 6 ●Islamic Financial System showed a certain ability to remain largely safe. ●Only at the end of 2008, several Islamic Financial Institutions were impacted by this crisis. ●Mainly in the forms of Credit squeeze and greatly depressed asset and equity prices.

7. Current Financial Crisis Impact on Islamic Financial sector 7 ●Some Takafuls showed a drop in their short term financial performances. ●Certain companies have already been put on negative watch by rating agencies. ●Decline in value is much less than that of developed countries conventional insurance companies.

8. Current Financial Crisis Impact on Islamic Financial sector 8 ●Like the conventional sector, Takafuls have to overcome the difficulties generated by the economic crisis, especially on the investment front. ●Subsidizing technical losses with investment income is no more possible. ●Takaful industry will have to capitalize on their strengths that allowed them to be resilient to this crisis.

9. 9 Current Financial Crisis Three Main Findings Back to Basics Regulation is the Corner Stone of any Financial activity Gives rise to huge opportunities/challenges

10. Family Retakaful Back to basics 10 ●Bottom line is generated from both technical and financials ●Family Retakaful caters for specific demands of Takafuls. ●Family Retakaful covers are mid to long term in nature ●Family Retakaful companies are committed to develop Family Takaful industry

11. 11 Family Retakaful Missions Drivers of the demand ●Reduced volatiliy of the underwriting result (large risks or claims variation due to mortality deviation) ●Capital relief and flexible financing (Capital requirement reduction and free capital for expansion into new lines) ●Access to Retakaful expertise and services especially in: ●Product development ●Pricing ●Underwriting ●Claims management

12. 12 Family Retakaful Missions Structure and safeguard its portfolio ●Spread its activity over many countries. ●Keeps its probability of ruin low through: ●Suitable acceptance and underwriting policy. ●Maintain long term client relationship to achieve compensation in time. ●Retrocede those risks which exceed its own capacity.

13. 13 Family Retakaful Missions Financially secure ●Effective management of the three main activity risks: ●Underwriting ●Capital management ●Asset management ●Efficient corporate governance

14. 14 Family Retakaful Missions Underwriting ●Underwriting is the process of examining, classifying and pricing risks. ●Underwriting process aims to ensure that: ●Risks are assessed properly and terms and conditions are adequate. ●Limits of assigned capacity are respected. ●Controls of accumulations and peak risks. ●Pricing and wording are appropriate.

15. 15 Family Retakaful Missions Pricing ●Should be sufficient to cover ●Expected cost ●Acquiring the business, & Administrating it (Wakala fee) ●Paying the claims. ●Finance a profit for the shareholders

16. 16 Family Retakaful Missions Asset management ●Family Retakafuls invest the contributions received in the capital markets according to limits and guidelines (Financial and shariaa). ●Ensure that assets are allocated in a way that matches the features of the related liabilities and

17. 17 Family Retakaful Missions Capital management ●Capital acts as a buffer against unexpected losses. ●Family Retakaful capital has to be appropriate to its risk profile and appetite.

18. 18 Current Financial Crisis Three Main Findings Back to Basics Regulation is the Corner Stone of any Financial activity Gives rise to huge opportunities/challenges

19. 19 Regulation Young industry, evolving regulation ●Regulation at different evolution stages from market to market. ●RBC regimes at different stages of discussion or implementation in markets like Malaysia.

20. 20 Shariaa compliance Towards more standardisation ●Standardisation of operating models is required.. ●Varying interpretations in Islamic law remains a challenge.

21. 21 Freedom of contract Legal security ●The contract determines what risks are covered. So freedom of contract is essential for an efficient Retakaful market. ●No retroactive application of a law. ●With this, the only limit of the list of covers will be its insurability.

22. 22 International Risk transfer Free capital flow ●Family Retakafuls have to act globally to balance their portfolio (law of large numbers). ●Cross-border operations. ●Free to use worldwide premium income to pay worldwide claims. ●No restrictions (such as deposits requirements) are preferable for achieving the best value for money.

23. 23 Capital requirements Take into account Retakafuls spec. ●Promote transparency and aknowledge Family Retakaful Cies Risk models are preferable. ●They take into account their broad portfolio diversification & superior Risk Management capabilities. ●Preserves confidence in the robustness of the Family Retakaful companies.

24. 24 Current Financial Crisis Three Main Findings Back to Basics Regulation is the Corner Stone of any Financial activity Gives rise to huge opportunities/challenges

25. 25 Opportunities 1/5 th world population are muslims Big Dev potential

26. Huge dev potential 26 Potential=Balance to reach developed countries penetration levels

27. 27 Huge opportunities & Challenges ●Family Takaful could stimulate the underdeveloped life market in emerging and especially Middle East. ●Shortage of Islamic investment opportunities and the lack of liquid markets for Islamic bonds. ●Staff with insurance and shariaa expertise is scarce. ●Limited number of Shariaa scholars.

28. 28 Huge opportunities & Challenges ●Family Retakaful Companies, by providing sound financial support and needed expertise, can make it much easier for local Takaful Companies to achieve their forecast big development potential.

29. Thank you