1. Case Study EPF Takaful Annuity Scheme (SATK) 1999 - 2001 TK 6413 Islamic Risk Management Kartina Md Ariffin

2. One Risk Leads To More Risks Monopoly Pricing RiskInvestment Risk Business Continuity Risk Reputation RiskFiduciary Risk

3. Employees Provident Fund (EPF) Agency under Ministry of Finance, Malaysia The EPF is a social security institution formed according to the Laws of Malaysia, Employees Provident Fund Act 1991 (Act 452) which provides retirement benefits for members through management of their savings in an efficient and reliable manner. The EPF also provides a convenient framework for employers to meet their statutory and moral obligations to their employees.

4. EPF Employers 12% Employees 11% monthly Withdrawal Age Age 50 or 55 Contribution Age Age 18 – 50/55 Rich Retirees Lump sum Finish Within 3 Years! BEFORE ANNUITY

5. EPF 6 Conventional Insurers 2 Takaful Operators AFTER ANNUITY Lump sum Participation Age Age 18 – 55 Annuity Age Age 55 - 100 Conscious Retirees Conscious Retirees RM100 monthly RM100 monthly Relieved !

6. WHAT YOU DON’T KNOW ABOUT ANNUITY PRODUCT WAS MISPRICED Projected Investment Return - 8% Actual Investment Return 5% - 6% PROMISES WERE ALMOST BROKEN Monthly RM100 could not be paid, RM80 would be paid instead CONTRACT WAS UNCLEAR SALES ILLUSTRATION WAS MISLEADING

7. BNM’S MITIGATION ACTIONS Shareholders Qard RM100 Monthly Participants

8. Actuarial consultancy was monopolized Non-existence of devil’s advocate Everything was based on good faith Over confidence over the stability of the investment environment Lack of disclosure Contract was drafted by a fresh graduate Highly unregulated Implied guarantee, no disclaimer WHAT WERE THE CAUSES:

9. CONSEQUENCES TO THE INDUSTRY: YEAR 2002 TILL NOW BNM has been updating the Product Development guideline on a continuous basis Every insurer/ TO is required to have a Product Development Framework Product Development Framework becomes the book of life of Product Development staff Sales Illustration changed from 2-page to almost a 5 - page Every key personnel has to sign off a product sheet: Legal, Shariah, RM, IT,Appointed Actuary, Audit, Marketing CEO / Board of Directors / Shariah Board has to sign off BNM verifies for 3 months Product Development becomes a nightmare Fresh graduates get to sleep in the office

10. Product was withdrawn from the market in 2002 due to objections by MTUC (Malaysian Trade Union Congress)

11. THANK YOU