Retakaful Operational Model
Duties and Responsibilities of the Retakaful Operator
a) To act as Wakeel (agent) for the Takaful Operators in managing the Retakaful Fund, including claims handling, accounting, reserving of policy liabilities and risk management;
b) To act as Mudharib (Asset / Investment Manager) in managing the Retakaful Fund in a Shariah-compliant manner;
c) To provide Qard (Loan) to the Retakaful Fund when it runs into a deficit;
d) To maintain a Shariah Committee to advise the Retakaful Operator to ensure that the retakaful operations are being carried out in a Shariah compliant manner.
In return for carrying out the abovementioned duties and responsibilities on behalf of the Takaful Operators, the Retakaful Operator shall receive Wakalah Fee and Mudharib’s share of investment income as stipulated herein.
A percentage (5%) of the gross retakaful contribution will be deducted by the Retakaful Operator at inception of the contract as Wakalah Fee for managing the Retakaful Fund. This fee shall be deducted from the gross retakaful contribution before the said contribution is transferred to the Retakaful Fund.
The Retakaful Fund is a fund established and maintained by the Retakaful Operator and represents contributions received from participating Takaful Operators out of which claims, commissions, retrocession costs and other related expenses shall be paid. Contributions to the Retakaful Fund are for the collective benefit of participating Takaful Operators. The Takaful Operators shall give up individual rights over the contribution and gain a collective right of compensation against the covered events within the conditions of the respective retakaful contracts. The participation takes effect on the commencement date as agreed in the Risk Details.
Mudharabah Profit Sharing From Investment
The Retakaful Operator shall receive 40% of the Gross Investment Income as Mudharabah Profit Sharing. This represents the Retakaful Operator’s share of Gross Investment Income as a Mudharib in managing the asset and investment. The Gross Investment Income shall be the difference of investment gains and losses from the invested assets in the Retakaful Fund during the contract period after deducting all costs and expenses related to the investment, with the exception of the fees paid to third parties as dealt with below.
The amount remaining after deduction of the Mudharib’s portion of the Profit Sharing is assignable to the Retakaful Fund.
The Retakaful Operator is entitled to hand over the duty of managing the Retakaful Fund partly or in total to a third party(s), provided that:
a) The remuneration of this third party shall be paid by the Retakaful Operator from the Retakaful Fund;
b) Any such arrangement shall be approved by the Shariah Committee; and
c) The Retakaful Operator shall ensure that investments made by third party(s) must be Shariah-compliant.
The Retakaful Operator reserves the right to arrange retrocession covers for the Retakaful Fund. All direct costs involved in arranging retrocession cover (if any), namely retroceded contribution and any Wakalah Fee on it shall be charged to the Retakaful Fund.
The Retakaful Operator shall remit to the Takaful Operator the Retakaful Fund’s share of any claim payment due by the Takaful Operator to the extent that and as soon as the original claim becomes due for payment. The claims are paid out of the Retakaful Fund until its exhaustion. Claim payment in excess of these will be made from the Retakaful Operator’s shareholders’ equity as a Qard and will be carried forward until its extinction by future surpluses.
The Retakaful Operator shall be entitled to deduct from its share any balance due to it arising out of any of its contracts or accounts with Takaful Operator.
Surplus or Deficit in Retakaful Fund
A surplus or deficit may arise in the Retakaful Fund depending on the claims incurred and on the investment performance of the assets in which the Retakaful Fund is invested.
In the event of a surplus arising in the Retakaful Fund, the said surplus shall be utilised in the following manner:
a) To repay Qard extended by the Retakaful Operator at a rate of 60% of the year’s surplus;
b) The balance after the abovementioned repayment shall be transferred to an Equalisation Reserve maintained for meeting adverse developments in future claim liabilities;
c) In the event of winding-up, the surplus shall be donated to charitable organisations to be approved by the Shariah Committee.
However, if there is a deficit in the Retakaful Fund, the Retakaful Operator will arrange for Qard (Loan) to be provided.