T A K A F U L Shari’ah Compliant Alternative to Conventional Insurance Pervaiz AHMED CEO Pak-Qatar Family Takaful Limited 16th January, 2012, Lahore

Flow of Presentation Risk Mitigation from Shari’ah Perspective Global and National development of Takaful How does Takaful Function? Regulatory Framework in Pakistan

Risk Mitigation from Shari’ah Perspective

Risk Mitigation from Shari’ah Perspective Is the concept of risk mitigation permissible in Islam? This very concept is not only lawful/permissible in Islam but is in fact encouraged What are the available risk mitigation tools? Avoid using Risk Mitigation Tools A concept misunderstood as against Tawakul.. Self-Insurance or setting aside contingency money for the rainy day Funds may not be sufficient to compensate the loss Conventional Insurance A commercially viable system but contains the element of Riba, Gharar, and Qimar/Maysir Takaful A commercially viable system which is also Shariah Compliant

Risk Mitigation in Islam Islamic history is replete with examples featuring risk mitigation activities: Hadith: “Tie the Camel and then Submit to the Will of Allah” Dhaman Khatr al-Tareeq: A person would undertake another person’s risks without any consideration/fee in return Dhaman Al-d’ark: A person would influence a sale by promising to compensate for the loss if the subject-matter proved faulty Aqila: A risk sharing mechanism in which community members pooled their share of Diyat (blood money)

Shari’ah Ruling on Conventional Insurance ? Concept of Insurance? Content of Insurance? Shari’ah has no objections as to the concept or objectives of insurance ; it only has reservations with the way it is carried out i.e. the process of insurance

What is Allowed? What is not Allowed? Risk Transfer without Consideration (premium) Risk Sharing between Participants Basis of Contract: Taburru i.e. unilateral non-commutative Takaful Operator has no ownership claim on the contributions (premiums) paid by the participants The Participants lose ownerships rights once the contribution is paid on the basis of Taburru The contribution becomes the property of the Waqf Waqf is owned by Allah Almighty What is not Allowed? Risk Transfer Against Fixed Consideration (premiums) Basis of Contract: Muawaza i.e. bi-lateral sales & purchase Reason: Such a contract involves Riba, Gharar, & Qimar/Maysir

Global and National development of Takaful

Origin of Modern Takaful Western socio-economic, political, and legal orders overshadowed Islamic and traditional local norms Muslim Revival and Renaissance began around the 1920s on multiple fronts As a result, development of Islamic Banking started in 1970s Dubai Islamic Bank, the first commercial Islamic bank, was established in 1975 There was a legal requirement that Islamic banks’ underlying assets be insured e.g. Car Ijarah Islamic banks could not avail insurance from conventional companies as that would be antithetical to the cause The need for a practical risk mitigation mechanism grew as the Islamic banking industry grew First Takaful company was established in Sudan in 1979, four years after the establishment of the first Islamic bank

Need for Takaful was felt after the development of Islamic Banking 1975 First Islamic Bank 1979 First Takaful Co.

Development of Takaful Industry

Worldwide Takaful Developments & Growth 134 # of Takaful Operators in 2009 Approx. 36 Window Operators 15 Irani Operators >18 Re-Takaful 1.4 2 3.4 4.3 8 (USD) BILLION 2004 2006 2007 2010 2012 Global Market Size (2009) E&Y

Re-Takaful Operators worldwide Re-Takaful Worldwide > 18 Re-Takaful Operators worldwide Islamic Takaful & Retakaful Co. (IRTCo.) (Bahamas) Hannover ReTakaful B.S.C. © (Bahrain) Solidarity Islamic Takaful & Retakaful Co. (Bahrain) PT Reassuransi Internasional Indonesia (Indonesia) Amin Reinsurance Company (Iran) Al Fejr Retakaful Insurance Co. (Kuwait) Asean Re-Takaful International (Malaysia) MNRB Retakaful Berhad (Malaysia) Islamic Takaful & Re-takaful Co. (Saudi Arabia) Islamic Takaful and Re-Takaful Co. (ITRCo.) (Saudi Arabia) Tokio Marine Nichido Retakaful Pte Ltd (Singapore) National Re-insurance Co. (NRICo.) (Sudan) Sheikhan Insurance & Reinsurance (Sudan) Sudanese Insurance & Reinsurance Co (Sudan) BEIT Iaadat Ettamine Tounsi Saoudi Re-insurance (B.E.S.T. Re) (Tunisia) ACR ReTakaful Holdings Limited (UAE) Dubai Islamic Insurance & reinsurance Co. (UAE) Takaful Re Limited (UAE) Source: ICMIF Takaful, www.takaful.coop

History of Takaful in Pakistan 2002 Insurance Ordinance is issued which includes provision for Takaful; the word “Takaful” is used 2003 IJTIMA’ held in Darul Uloom, Karachi on permissibility of Takaful 2004 A committee to frame Takaful rules was founded 2005 SECP notifies Takaful Rules 2006 First General Takaful Company established (Pak-Kuwait General Takaful) 2007 First Family Takaful Company established (Pak-Qatar Family Takaful) First Takaful Group catering both Family (Life) and General Takaful needs established (Pak-Qatar Takaful Group) Total 5 Operators: 3 for General Takaful & 2 for Family Takaful, since the promulgation of Takaful Rules in 2005

Takaful Operational Model

Takaful Arrangements can be broadly divided into the following two categories: Family Takaful covers All risks associated with human life, like - death, - disability and illness short-term and long-term investment needs General Takaful covers All risks associated with Physical Assets and Property, like - house, - marine, - motor, - engineering and misc.

Three Operational Models Pure Mudarbah Practiced earlier, it is no longer in use. Pure Wakalah This model in not widely practiced. Hybrid – Wakalah + Mudarbah This is the most prevalent model. Hybrid- Wakalah+ Mudarbah+ Waqf This model was suggested by Shari’ah Scholars in Pakistan.

How does it Function? Waqf Pool Participant Surplus Wakalah Fee, Claims, Re-Takaful Participant Takaful Operator Waqf Pool Wakalah Wakalah Wakalah Risk sharing Between Participants Participant Participant Investment

How does it Function? Family Takaful Participant’s Investment Account (PIA) Waqf Fund Operator / Wakeel Participant Contributions Profits from Investment Wakalee Fee(s) for Investment Management Contributions for Takaful Benefit Payment of Claims Surplus Distribution (if any) Wakala Fee for Operating Waqf Fund 1 2 3 4 5 6 7

Participant Takaful Fund Participant Investment Fund Takaful Funds Income and expenses of Shareholder’s are managed Shareholder’s Fund Income and expenses of Tabarru/Waqf pool are managed Participant Takaful Fund Investments of Particpants are managed. This fund is Only required in Family Takaful companies Participant Investment Fund

Surplus Distribution After deducting the Wakalah Fees, Claims, Re-Takaful Contributions, Contingency Reserves and Charities etc. the remaining amount in the pool is to be distributed between the participants; it does not go to the shareholders Though Takaful companies are marketing surplus distribution as USP of Takaful, very few have distributed surplus. This is mainly due to high up front Wakalah fee and poor underwriting. In some territories surplus is shared be y the operator as well which makes Takaful similar to conventional insurance and is damaging the overall industry image.

Pak-Qatar Takaful Group First dedicated Takaful Group in Pakistan comprising of both Family (Life) Takaful and General Takaful operations 100 percent Foreign Owned Paid up Capital: Family Takaful : Rs. 708 million General Takaful : Rs. 307 million Total : Rs. 1015 million Pioneers of Family Takaful: S.E.C.P. issued license to Pak-Qatar Family Takaful for operations on 16 August 2007 Pak-Qatar Family is the fastest growing Family Takaful company in the region

Our Sponsors Sponsors include some of the most prominent financial institutions from State of Qatar and Munich-based FWU AG Pak-Qatar Takaful Sponsors include: Qatar Islamic Insurance Company (QIIC) Qatar International Islamic Bank (QIIB) Qatar Islamic Bank (QIB) Qatar National Bank (QNB) Masraf Al Rayan The Amwal Group FWU AG Total assets under management of our top sponsors are more than US$26.12bn

Financial Strength Rating Shari’ah Advisory Board Justice (R) Mufti Muhammad Taqi Usmani – Chairman Mufti Ismatullah – Member Mufti Hassaan Kaleem – Member Mufti Zubair Usmani – Member Financial Strength Rating In 2011, JCR-VIS Credit Rating Co. assigned Pak-Qatar Family Takaful a rating of “A-” (Positive Outlook). For Pak-Qatar General Takaful, it is “BBB+” (Stable Outlook).

Branch Network Family Branches General Branches Family Sub-branches HO Karachi Lahore Islamabad Rawalpindi Faisalabad Quetta Peshawar Multan Hyderabad Khairpur Moro Rahim Yar Khan Gujrat Gujranwala Sialkot Jehlum Jhang Kotli General Branches HO Karachi Lahore Rawalpindi Faisalabad Peshawar Multan Rahim Yar Khan Gujranwala Sialkot Family Sub-branches Khipro Khanpur Sargodha Chishtian Dera Ghazi Khan Toba Tek Singh Mardan

Alternative Distribution Pak-Qatar is in partnership with top banks in Pakistan, and has established partnerships with many banks for distribution of Takaful products. Standard Chartered Bank, Bank Al-Baraka, Burj Bank, Faysal Bank MCB Bank Emirates Global

Recent Performance 79% 52.20% Pak-Qatar Family Takaful 1,866,211,783 Gross Contribution 2011 Gross Contribution 2010 Percentage Increase Pak-Qatar Family Takaful 1,866,211,783 1,044,475,621 79% Pak-Qatar General Takaful 330,471,929 217,182,324 52.20%

Jazaakum Allahu Khairan May Allah Reward you p. ahmed@pakqatar. com Jazaakum Allahu Khairan May Allah Reward you p.ahmed@pakqatar.com.pk www.pakqatar.com.pk

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