islamic-finance-Takaful.pdf - IFRS 17 and its impact on...

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World
Standard-setters
Conference
2019
#WSS_2019
Faiz Azmi
Chair IFRS Islamic Finance Consultative Group
Peter Casey
Consultant to the Islamic Financial Services Board
Mohammad Khan
Head of General Insurance, PwC UK and Appointed
Actuary in Saudi Arabia
IFRS 17 and its impact on
Takaful
Introduction
Faiz Azmi
Chair IFRS Islamic Finance Consultative Group & Executive Chairman of PwC Malaysia
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Takaful and IFRS 17
Peter Casey
Structures of modern takaful
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Why takaful?
• Shari’ah issues around trading in risk
• Good Shari’ah basis for mutual guarantee and mutual assistance
• Most straightforward version of takaful would be pure mutual (as in
Sudan) – but very difficult to found a new mutual
• So most modern takaful companies have one or more policyholder
funds embedded in a shareholder company
• No standard model - and different approaches in Saudi Arabia and
Iran
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A general takaful model (hybrid)
Shareholders’ fund
Policyholders’ risk fund
Policyholders
Investment profits
Investment profit mudarib’s share
Wakalah success fee?
Qard??
Retakaful undertakings
Retakaful premiums
Retakaful
recoveries
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A life (family) takaful model (hybrid, simplified)
Shareholders’ fund
Policyholders’ risk fund
Policyholders
Investment profits
Investment profit mudarib’s share
Qard??
Retakaful undertakings
Retakaful premiums
Retakaful
recoveries
Policyholders’
investment fund
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Policyholders’ Investment Fund
• Generally functions rather like unit-linked policies
• No bonuses or similar discretionary elements
• But may “drip feed” Policyholders’ Risk Fund
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Takaful and IFRS 17 – some issues
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Is takaful insurance?
• Argument against is “risk sharing versus risk transfer”
But …
• AAOIFI Shari’ah standards and OIC Fiqh Academy both refer to
“Islamic insurance”
• A takaful contract does transfer risk between two legal persons
• Purest form of takaful would be a mutual, and no doubt that
conventional mutual is undertaking insurance
• If not insurance, then would not be eligible for compulsory covers
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Takaful and IFRS 17: the good news
• Relatively simple products
• Very limited use of derivatives/hedging features
•