Chapter 8
Reinsurance and Retakaful
8.1 INTRODUCTION
The takaful market has been showing tremendous growth since the first takaful company was established in Sudan in 1979. It is estimated that the total global takaful contribution (equivalent to premium income in conventional insurance) will double from US$5.5 billion in 2005 to at least US$11 billion by 2010. Estimates vary depending on the underlying assumptions; however, what is not in doubt is the double-digit growth the takaful industry is experiencing. In 2007, the number of takaful players stood at around 140 operating in 20 countries, and there were 12 retakaful operators worldwide (either fully-fledged or having a window operation) to support the growth of the takaful industry.
To gain an appreciation of the subject matter, this chapter will outline the concepts pertaining to conventional reinsurance, followed by an introduction to the basic concepts of takaful. Retakaful and various operational models will then be explained, to enable the reader to gain an understanding of how the mechanics of conventional reinsurance have been used to fit the unique concept of takaful.
8.2 WHAT IS REINSURANCE?
When talking about insurance or reinsurance, one cannot avoid mentioning the word “risk,” as it is at the very center of the concept of insurance. Within the insurance context, risk is defined as “the uncertainty of loss.”1 Uncertainty is considered in two dimensions—that is, frequency and severity of the occurrence—while ...
