Dear Readers,
In Terms Of Operations, Retakaful Operates Similarly To Reinsurance But Based On Shariah (Islamic Law) Principles. Read More The Practice Of Retakaful Here.
What Is Retakaful?
First of all, we need to understand the concept of reinsurance as it is the operational basis of retakaful. In the secondary insurance market, reinsurance is when insurers transfer portions of their risk portfolios to other parties through the contract to reduce the risks of paying a hefty obligation from insurance claims.
This process is presented as legal reinsurance contract between two parties, namely the ceding party and the reinsurer. The former diversifies its insurance portfolio while the latter undertake a portion of the risk in exchange for insurance premium.
Similar in terms of operations, retakaful is reinsurance based on Shariah (Islamic law) principles devised for takaful operators.
How Does Retakaful Work?
In principle, retakaful operators operate similarly to takaful operators, with both operations adhering to Shariah principles. Although retakaful serves the primary purpose as a risk-mitigating tool for takaful operators, it is not a risk sharing method.
The difference lies in the participation - takaful operators are participants in retakaful operations. In contrast, individual certificate holders are the participants in takaful. The operators in retakaful act as risk managers instead of risk-takers compared to conventional reinsurance.
Their role is to assume a portion of the risk transferred by the takaful operator.
What Are The Objectives Of Retakaful?
Although conventional reinsurance and retakaful share similar functions, it has different ways of achieving their risk-mitigating objectives. The demand for retakaful is motivated by the need for portfolio diversification, mitigation of investment risks and capital strengthening for regulatory purposes.
The primary purpose of retakaful is to reduce insolvency risk and engage the operators in a Shariah-compliant investment. In addition, retakaful also provides flexible underwriting practices for the operators and prohibit the earning of interest in retakaful fund reserves.
Conclusion
Want to know more about the retakaful and reinsurance industry in Malaysia? Malaysia Re is the largest national reinsurer (by asset) in the Southeast Asia region, underwriting all classes of general reinsurance business as well as general and family retakaful business through its retakaful division, Malaysian Reinsurance Retakaful Division.
With an extensive portfolio of business expertise, solid fundamentals and a proven record of accomplishment, Malaysia Re is a regional and international player, having established a strong market presence in Asia and the Middle East.
Head over to https://www.mnrb.com.my/our-business for more information.
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