what, actually, is retakaful? some basic questions istanbul, november 2012 ludwig stiftl
TRANSCRIPT
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?
04/20/23 3What, 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
ContributionWakala Fee (p.ex. 20%)
04/20/23What, 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 FundParticipants
Shareholders fund
Participants Fund
Participants
Retakaful Fund
10%10%
60%40%
04/20/23What, 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
04/20/23 7What, 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
04/20/23What, actually, is retakaful? Some Basic questions / Ludwig Stiftl 9
Modelling = Pooling risks in a portfolio
Munich Re(Group)
Munich Re(Group)
CreditCredit Non-lifeNon-life
ERGOERGO
LifeLife
RIRI
Basic lossBasic loss Large lossLarge loss Accumulation lossAccumulation loss
BLS 1BLS 1 BLS 150BLS 150 ALS 1ALS 1 ALS 50ALS 50EQ USA
(Midwest)EQ USA
(Midwest)
… …Fire treaty
Non-proportionalNorth America
Fire treaty Non-proportional
North America
… …
TS 1TS 1 TS 100TS 100Country Mutual
Stop loss
Country Mutual
Stop loss
XYZ Insurance fire
risk XL
XYZ Insurance fire
risk XL… … TS 1TS 1 TS 55TS 55UVW Mutual
Stop lossUVW Mutual
Stop loss… …
MarketMarket
Cost of capital Loading
04/20/23 10What, 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
Risk
Cap
(mio
€) 48%
Risk Capital for
NatCat Scenarios
Basic and Large Losses
Operational Risks
Cumulative Losses
04/20/23 11What, 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
04/20/23 13What, actually, is retakaful? Some Basic questions / Ludwig Stiftl
THANK YOU VERY MUCH FOR YOUR ATTENTION
Ludwig Stiftl
© 2
01
2 M
ünc
hen
er R
ückv
ersi
che
run
gs-G
ese
llsch
aft
© 2
012
Mun
ich
Re
insu
ranc
e C
om
pany