Operational and Actuarial Aspectst of Takaful

7/30/2019 Operational and Actuarial Aspectst of Takaful

1/23

Operational and Actuarial

Aspectst of TakafulTopic 2

Shariah and RegulatoryEnvironment


2/23

Sub Topics

Shariah Principles

Takaful Basis and Principles

Regulation on Takaful Shariah Advisory Commitee


3/23

Objectives of Shariah

Shariah looks towards the improvementand perfection of the conditions of humanlife.

The benefits of Shariah can be classified

as follows:[1]1. The Daruriyyah (essentials)2. The Hajiah (complementary)3. The Tahsiniyyah (desirable)

[1] Hashim Kamali, Principle of IslamicJuris prudence


4/23

Objectives of Shariah

Shariah provides for mankind in many ways sothat he can attain a prosperous life. However aprosperous life should not be an ultimate goal ofmankind and must be within permissible

economic and social activities so that unity andharmony amongst man prevail.

Islam views the economic activities of man quitelawful, meritorious and sometimes obligatory. Iteven approves that mankind progresseconomically but such progress should not be thebe-all and the end-all of human life.


5/23

Sources of Shariah

Primary Sources:

Quran

Hadith/Sunnah (Traditions of the Prophet)

Secondary Sources:Ijma (Consensus of Jurists)

Qiyas (Analogy)


6/23

Shahriah Doctrines

Wajib (Obligatory)

Mandub (commendable)

Halal (permissible) Makruh (reprehensible)

Haram (prohibited)


7/23

Legal Maxim of Shariah

There are five fundamental legal maxims (qaidahkulliyah). The five are:

1. Acts are judged by the intention behind them(Al-umuru bi-maqasidiha);

2. Certainty is not overruled by doubt(Al-yaqinula yuzallu bish-shakk);

3. Custom is the basis of judgement(Al-aadatumuhakkamatun);

4. Hardship begets facility(Al-mashaqqatu tujlabat-taysir); and

5. Harm must be eliminated(Ad-dararu yuzal).


8/23

Application to Takaful

Some of the more common corollary legalmaxims that has been used in the discussion ontakaful are :

1. The original legal position of any matter is

permissibility until there is evidence prohibitingit.

2. Whatever leads to haram, is in itself haram.

3. In contracts effect is given to intention and

meaning and not to words and phrases.4. Difficulty brings ease.

5. The ends do not justify the means.


9/23

Shariah Basis for Takaful

The Takaful policy embodies the conceptof Tawakkul whereby one should strivehard in overcoming ones unexpected

future risk or perils before leaving onesdestiny in the hand ofAllah(s.w.t.)

Anas bin Malik r.a. narrated that the HolyProphet (s.a.w) told a Bedwin Arab who

left his camel untied trusting to the will ofAlah (s.w.t.) to tie the camel first thenleave it to Allah (s.w.t.)


10/23

Shariah Basis for Takaful

Takaful is aim at providing protection from futureunforeseen constraints upon the occurrence of anunexpected particular future risk. The followingsayings by the Holy Prophet justified the concept

of protection for those who are in need. Narrated by Abu Huraira (r.a.. the Holy

Prophet(s.a.w.) said: whosoever removes awordly hardship from a believer, Allah (s.w.t.)will remove from him one of the hardships of the

day of judgement. Whosoeveralleviates formone, Allah(s.w.t.) will alleviate his lot in thisworld and the next.


11/23

Concepts of Takaful

The contract of Takaful is foundedon the following three principles:

1. Mutual responsibility,

2. Mutual assistance and cooperation,

3. Mutual protection or guarantee.


12/23

Mutual Responsibility

In al-Bukhari and Muslim it was reportedthat the Prophet had said:

Each and every one of you shall bearresponsibility and every one shall be

responsible for those who he is to beresponsible for.

The relationship and kinsman ship

amongst those who believe is like onebody part, when one part suffers frompain the other part shall feel the same.


13/23

Mutual Assistance and Cooperation

Help you one another in virtue,righteousness and piety; but do not helpone another in sin and transgression. Al-

Maidah (5:2)

Do not misappropriate your propertyamong yourselves in vanities, but let therebe amongst you traffic and trade bymutual goodwill An- Nisa (4:29)


14/23

Mutual Protection and Guarantee

(Allah) He, has fed them againsthunger and has made them safefrom fear. Al-Qurashi (106:4)

Verily, that who believes is one whoprovides safety and protection toanother mans property and life.Narrated by Ibn Majah


15/23

Existing Regulations

Malaysia Takaful Act 1984

Bahrain Insurance Law 1987

KSA Control Law for CooperativeInsurance Companies 2003

Indonesia Law with respect to

Insurance Business 1992 Singapore Insurance Act 2002

(Revised)


16/23

International Governing Bodies

OIC Fiqh Academy

Islamic Financial Services Board(IFSB)

Accounting and AuditingOrganization of Islamic FinancialInstitutions (AAOIFI)

International Association ofInsurance Supervisors (IAIS)

Basel Accord


17/23

IAIS Core Principles

ICP 1 Conditions for effectiveinsurance supervision

ICP 3- Supervisory authority

ICP 6 Licensing

ICP 7 - Suitability of persons

ICP 9 - Corporate governance ICP 10 - Internal control


18/23


ICP 16 - Winding-up and exit fromthe market

ICP 19 - Insurance activity

ICP21 Investments

ICP 22 - Derivatives and similar

commitments ICP 23 - Capital adequacy and

solvency


19/23


ICP24 Intermediaries

ICP 25 - Consumer protection

ICP 26 - Information, disclosure &transparency towards the market


20/23

Objectives of AAOIFI

To develop accounting and auditing thoughts relevant toIslamic financial institutions;

To disseminate accounting and auditing thoughts relevantto Islamic financial institutions and its applicationsthrough training, seminars, publication of periodicalnewsletters, carrying out and commissioning of researchand other means;

To prepare, promulgate and interpret accounting andauditing standards for Islamic financial institutions; and

To review and amend, accounting and auditing standardsfor Islamic financial institutions.


21/23

BNM Guidelines

Guidelines on Directorship for Takaful Operators Guidelines on Prohibitions Against Unfair Practices in

Takaful Business Guidelines on Claims Settlement Practices Guidelines on Proper Advice Practice for Family Takaful

Business Guidelines on Operating Costs of Family Takaful Business Guidelines on Financial Statements for Takaful Operators Guidelines on Related Party Transactions for Takaful

Operators Guidelines on Outsourcing For Takaful Operators Guidelines on the Governance of Shariah Committee


22/23

Shariah Advisory Council

Roles and Functions

To advise the Board on Shariah matters in itsbusiness operation;

To endorse Shariah Compliance Manuals; To endorse and validate relevant

documentations;

To assist related parties on Shariah matters for

advice upon request; To advise on matters to be referred to the

SAC;

To provide written Shariah opinion;

To assist the SAC on reference for advice;


23/23

EndThank you

Operational and Actuarial Aspectst of Takaful

Documents

Transcript of Operational and Actuarial Aspectst of Takaful