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International Takaful Summit 1 and 2 July 2009 London Dr. A.Rahman Tolefat, CEO of Allianz Takaful

Š Allianz MENA Holding 2008

Challanges Facing Takaful Industry


Agenda Outline

Overview about Takaful Industry challenges Regulatory Challenges Assets Management Challenges Product OverviewChallenges about Takaful market Š Allianz MENA Holding 2008

Distribution challenges


Industry’s Growth and Challenges

Growth of Takaful

Economic Growth

Islamic Assets Growth

Š Allianz MENA Holding 2008

Demographic Growth

Critical Factors Human Rescores

Distribution

ReTakaful

Asset Management

Regulatory

Product Development

Challenges

3


Agenda Outline

Overview about Takaful Industry challenges Regulatory Challenges Assets Management Challenges Product OverviewChallenges about Takaful market Š Allianz MENA Holding 2008

Distribution challenges


Contributions (premiums) Wakalah (Agency) Fee

Participants Fund

Shareholders Fund

Investment Profit Share

ReTakaful

Investment

Claims Surplus Share

Operating Expenses

Profit

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Shareholders fund investment Reserves Operating Expenses Surplus/Deficit Profit Dividends

5


Corporate Governance Who is protecting the interests of Participants?

• There are two parties:

– Regulator- the current regulations & supervision. (Corporate Governance and Business Conduct)

– Shari’ah Board- from the ethical prospective

_ The regulation needs to be adapted to cater for unique characteristics of Takaful.

• Shari’ah Board: _ The shari’ah Board does not have the right competencies to perform this job. – It is not stated in the Shari’ah Board Mandate.

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• Regulator:


Elements of conflict of Interests (1/2) • The shareholders are in favour to charge higher fee.

• Distribute profit to participants before take reserves. • Charge incentive fee before taking reserves or distributing

• The deficit incurs in Takaful fund could be resulted from mismanagement or misconduct by the operator.

• The company may place shareholders fund in better investment opportunities vis-à-vis Takaful funds

© Allianz MENA Holding 2008

anything to participants


Elements of conflict of Interests (2/2) • The competition could lead the operator to pass the risk to Takaful pool without proper pricing.

• The amount that goes to risk pool and the remaining amount © Allianz MENA Holding 2008

which goes to saving pool.


Deficit Debate Deficit Independent Parties

Unaffordable Deficit

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Mismanagement & Miscond

Qarad Hassan

Qarad Hassan from shareholders fund

Liable to cover deficit


• Distribute profit to participants before taking reserves. • Charge incentive fee before taking reserves or distributing anything to participants

Reserves Takaful 50%

Surplus

50%

Incentive Fee

Distributed

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Fund


Investment with Related Parties Effect on Individual basis Group RB:

Difference between actual and desired

- Less than 10% - 10% -50% - Over 51%

Both are confirmed the control of related parties

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Statistical

Related parties Influence on Investment


RPI Ownerhi p Groups and Parti ci pants Funds 35

Millions

30 25 20 15 10 5 0 SHF-De pos its

SHF-Re al Es tate LT 10

SHF-Equitie s Inve s tme nts 10-50

SHF-Mutual funds /unit trus ts

51+

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RPI Ownerhip Groups and Shareholders Funds 60

Millions

50 40 30 20 10 0 SHF-Deposits

SHF-Real Estate LT 10

SHF-Equitie s Investments 10-50

51+

SHF-Mutual funds/unit trusts


Solvency Margin and Shareholders Fund There are two views regarding capital of Takaful companies: Lender of Last resort

How the regulators ensure that there are liquid assets to support Takaful fund all the times?

Takaful

Shareholders

Fund

Fund

Deficit

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Just to meet the Legal Requirements


Solvency Margin & Capital Adequacy Shareholders Fund

Reponses

Regulation of Shareholders Fund

Detail

1

Yes with same policyholders limits

2

Yes with flexiable limits

72%

20% 3

Source:

No need to regulate fund

PHD study form the presenter

8% Yes with the same policyholders limits

Yes with fixable limits

No

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Does the shareholders fund need to be regulated ?


Takaful

Shareholders

Fund

Fund

Takaful

Shareholders

Fund

Fund

Solvency Actual

Physical Transfer?!

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Deficit


Agenda Outline

Overview about Takaful Industry challenges Regulatory Challenges Assets Management Challenges Product OverviewChallenges about Takaful market Š Allianz MENA Holding 2008

Distribution challenges


Assets Management Challenges Short Term

Long Term

…The way forward

Lack of Short term investment : Currently almost all Takaful companies have invested their short term assets in Investment Accounts with Islamic Banks/Windows. •Low income compared to conventional Insurers. •Where short sukuk exists, there’s a lack of tradability .

•Highly rated sukuk funds.

Lack of longer term sukuk:

• Governments need to allocate certain part of their issuance of sukuk to Takaful industry.

•Only medium term assets available from 5 – 7 years. •No possibility that the GCC government will issue long term sukuk. •Lack of good rated corporate sukuk. Difficult to acquire medium term sukuk •Government sukuk is very expensive as the banks have the ability to acquire these sukuk from primary market.

•Government to issue more short term sukuk and tradable sukuk. i,e, sukuk Al-Salam structure is not convenience.

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Asset Management challenges …

•The rated Corporate needs to be given incentives to issue more sukuk as medium for financing for both medium and long term sukuk

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GOVERNMENT SUKUK GCC 16% 13%

0%

0%

Shareholders Fund

Actual

0%

General Fund

Family Fund

Malaysia 27% 19%

0%

18%

0%

Shareholders Fund Source:

20%

General Fund

PHD study form the presenter

Family Fund

Desired

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9%


CORPORATE SUKUK GCC 20%

18% 11% 0%

Shareholders Fund

0%

General Fund

Family Fund 40%

34%

30%

Malaysia

32%

18% 12%

Shareholders Fund Source:

General Fund

PHD study form the presenter

Family Fund

Desired

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0%

Actual


ONE YEAR OR LESS INSTRUMENTS

52%

GCC

33% 21% 15%

Actual Desired

General Fund

49%

Malaysia 32%

Shareholders Fund Source:

27%

23%

General Fund

PHD study form the presenter

Š Allianz MENA Holding 2008

Shareholders Fund


Agenda Outline Overview about Takaful Industry challenges Regulatory Challenges Assets Management Challenges OverviewChallenges about Takaful market Product Š Allianz MENA Holding 2008

Distribution challenges


Product Challenges

Islamic annuity

•Difficult to design due to lack of long term sukuk. •Excellent Demand on this product.

Group pension Scheme

•No customization. •Asset management challenges. •One of the most growing market.

Product segmentation

•Lack of product segmentation in the market.

… The Way Forward Allianz Takaful as a leading company is working to provide this solution and plan to offer this product in the market by next year. …

Segmentation is key advantage of Allianz Takaful to cater for customer requirements. © Allianz MENA Holding 2008

Product Development challenges …

22


Segmentation Approach Protection Investment

Child Education Plan with Parental Takaful Benefits

High

High

Islamic Retirement Solutions

Low

High

Mass Market / Telesales Products

High

Low

Ladies Products

High

High

Youth Products

High

High

High / Low

High

High Net Worth Individuals Products

Segmentation is one of the key elements for Takaful Companies to succeed

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Product Segments


Customer Services Innovation • Introduce added value services for each product

• Each of the process in the company linked to target service date for the customers.

• Regular Check on customer Satisfaction. • Customer Focus initiative “CFI” program • Ideas to Success “I2S”.

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• KPI for each process.


Customer Focus Initiative

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“A promise is a promise..”

The Promise – A promise is a promise The Delivery – Delivering in Moments of Truths 25


Agenda Outline

Overview about Takaful Industry challenges Regulatory Challenges Assets Management Challenges OverviewChallenges about Takaful market Product Š Allianz MENA Holding 2008

Distribution challenges


The Innovation in Distribution Channels leads Takaful industry for significant growth “Creating Real partnership with promoters and Distributors”

1

Educate Locally incorporated bank and give them full support

2

Increase number of promoters.

3

How to delight them!

Real Partnership Creating real partnership with Distributors

Facts & Figures Fiscal Year 2008 27

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Challenges


The Innovation in Distribution Channels leads Takaful industry for significant growth Direct Sales Force

• Powerful Software. • Products to cater for all the segments in the bank.

Distribution Channels (Focus on Retail)

• Agency model vs.

others models • Training. • Commission structure. • Recruitment and retention. • Takaful consultant

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Bank Takaful

Promoters • Identify other

distribution channels with large customer base. • Customize solutions for these channels

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“Creating Real Partnership…”

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Creating real partnerships with distributors. Increase number of clients and prompters- Delight them!

We play together or we don’t 29


We are Allianz

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Create synergetic relationships with our clients, employees and distributors backed by exceptional security and integrity!

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Š Allianz MENA Holding 2008

Thank you


Dr. A.Rahman Tolefat: Challanges Facing Takaful Industry