1. WHAT, ACTUALLY, IS RETAKAFUL? SOME BASIC QUESTIONS Istanbul, November 2012 Ludwig Stiftl

2. 1.Who is the ceding party? Shareholders or participants? 2.What is the basic service provided? 3.What level of pooling is appropriate? 4.Challenges ahead Agenda

3. Who is the ceding party? Those who take the risk are the ones to cede it. So, everything is returning to the same central question: Are we in risk transfer? 10/24/20153What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

4. Participants If (re)takaful is not transferring the risk, the participants would be liable for deficits 4 Shareholders Fund Qard Hasan Participants Fund Qard Hasan repayment Underwriting Profit 100% of surplus: Wakala Surplus Claims Participants Fund Contribution Wakala Fee (p.ex. 20%) 10/24/2015What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

5. If the participants were directly liable for deficits, losses would directly affect all retained portfolios 5 Shareholders fund Participants Fund Participants Shareholders fund Participants Fund Participants Shareholders fund Participants Fund Participants Shareholders fund Participants Fund Participants Retakaful SHF Retakaful Fund 10% 60%40% 10/24/2015What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

6. Agenda 1.Who is the ceding party? Shareholders or participants? 2.What is the basic service provided? 3.What level of pooling is appropriate? 4.Challenges ahead

7. Basic Claims Claims volatility Expenses What is the service provided in retakaful and reinsurance respectively? Contribution margin Reinsurer’s serviceRetakaful Operator’s service Proportional payments XL payments Reinsurance commission UW-Service/Training Capacity management Proportional claims compensation XL claims compensation Retakaful “commission” UW-Service/Training Capacity management Without risk transfer, the service of a retakaful operator were less than that of a reinsurer 10/24/20157What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

8. Agenda 1.Who is the ceding party? Shareholders or participants? 2.What is the basic service provided? 3.What level of pooling is appropriate? 4.Challenges ahead

9. Risk capital and diversification gains 10/24/2015What, actually, is retakaful? Some Basic questions / Ludwig Stiftl9

10. Modelling = Pooling risks in a portfolio Munich Re (Group) Munich Re (Group) Credit Non-life ERGO Life RI Basic loss Large loss Accumulation loss BLS 1 BLS 150 ALS 1 ALS 50 EQ USA (Midwest) EQ USA (Midwest) … … Fire treaty Non-proportional North America Fire treaty Non-proportional North America …… TS 1 TS 100 Country Mutual Stop loss Country Mutual Stop loss XYZ Insurance fire risk XL XYZ Insurance fire risk XL … … TS 1 TS 55 UVW Mutual Stop loss UVW Mutual Stop loss … … Market Cost of capital Loading 10/24/201510What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

11. Diversification effect through pooling Risk Capital 2005 AAA 48% Risk Capital for NatCat Scenarios Basic and Large Losses Operational Risks Cumulative Losses 10/24/201511What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

12. Agenda 1.Who is the ceding party? Shareholders or participants? 2.What is the basic service provided? 3.What level of pooling is appropriate? 4.Challenges ahead

13. Challenges Retakaful Clarification of business model to distributors Clarification of value proposition (mutuality ) Differentiation from conventional Standardi sation 10/24/201513What, actually, is retakaful? Some Basic questions / Ludwig Stiftl

14. THANK YOU VERY MUCH FOR YOUR ATTENTION Ludwig Stiftl © 2012 Münchener Rückversicherungs-Gesellschaft © 2012 Munich Reinsurance Company