WHAT, ACTUALLY, IS RETAKAFUL? SOME BASIC QUESTIONS Istanbul, November 2012 Ludwig Stiftl
WHAT, ACTUALLY, IS RETAKAFUL?
SOME BASIC QUESTIONS
Istanbul, November 2012
Ludwig Stiftl
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
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?
11/19/2012 3 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
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%)
11/19/2012 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
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% 10%
60% 40%
11/19/2012 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
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
Basic Claims
Claims volatility
Expenses
What is the service provided in retakaful and
reinsurance respectively?
Contribution margin
Reinsurer’s service Retakaful 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
11/19/2012 7 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
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
Risk capital and diversification gains
11/19/2012 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl 9
Modelling and pooling risks in a portfolio
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)
… … Fire treaty
Non-proportional
North America
… …
TS 1 TS 100 Country
Mutual
Stop loss
XYZ
Insurance fire
risk XL
… … TS 1 TS 55 UVW Mutual
Stop loss … …
Market
Cost of capital Loading
11/19/2012 10 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
Diversification effect through pooling
Risk Capital 2005 AAA
0
200
400
600
800
1000
1200
1400
AAA only NL only
Ris
k C
ap (
mio
€)
Risk Capital for
NatCat Scenarios
Basic and Large Losses
Operational Risks
Cumulative Losses
11/19/2012 11 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
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
Challenges
Retakaful
Clarification of business
model to distributors
Clarification of value
proposition (mutuality)
Differentiation from
conventional
Standardisation
11/19/2012 13 What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
THANK YOU VERY MUCH
FOR YOUR ATTENTION
Ludwig Stiftl
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