Takaful is similar to a conventional mutual insurance platform in that it pools risks and provides members (participants) life(family takaful) and non-life(general takaful) benefits but in a way that is compatible with Sharia law. Under Takaful, the pool’s investments would also need to be Sharia compliant.

Actuarial Partners Consulting has been active in takaful insurance consulting since 1984, in all aspects of takaful from company setup to Appointed Actuary work. Our clients include companies using both mudharaba and wakala takaful models, and range in location from Saudi Arabia to Malaysia. For many assignments we are involved from the conceptual stage until product launch and continue to remain involved throughout the actuarial control cycle.

Feasibility Studies

For many companies a feasibility study is the first step in the establishment of a takaful operation. Actuarial Partners can provide studies on:

  • the market potential for the company, and
  • analysis of the risks such as the potential cannibalization of traditional business if a parallel akaful company is established by an existing conventional insurer
Set Up
Setting up a takaful company is a complex process, and in many ways is more complex than setting up a conventional insurance company. There are many aspects which can have a significant influence on how takaful should be implemented. As an example, whereas for conventional insurers the product pricing is fairly standardized, in takaful there are a wide variety there are a wide variety of operating models to chose from. You must consider the most appropriate operating models, be it mudharaba (profit sharing), wakala (agency), musharaka (partnership) which will affect the pricing basis, to the interaction of English Law and Shariah (Islamic).Law and principles and avoidance of riba (usury) and gharar (risk).The shariah council members who are responsible for approval of the takaful products are most concerned with the adherence to these rules and principles. Actuarial Partners consultants can provide guidance with developing your model and identifying how your Takaful model adheres to these principles while maintaining business viability.
Our  consultants can assist from the initial planning which includes conceptualisation of these takaful models to implement until product launch, with our services grouped into three areas:

Financial Model Development

  • Determining appropriate distribution channels and types of products sold
  • Determining the necessary capital and other statutory requirements
  • Determining the model to use
  • Developing the charges, compensation and reinsurance quotes (including sample projections)

Shariah Council Assistance

  • Preparing submissions to the Shariah council for approval of the takaful model
  • Developing brochures, underwriting forms, sales illustration and claim forms
  • Modelling charges and compensations structure

Operations and Regulatory Assistance

  • Preparing submissions to the Regulators for approval for the model and basic concepts / structure of the operations
  • Submissions to the Regulators for approval for all products, forms and other operational aspects
  • Assistance in testing of the system based on the final product design and wakala charges
Mergers & Acquisitions
Actuarial Partners is familiar with the challenges associated with takaful when considering a merger and acquisition, particularly the potential need to merge differing models and changes in model design, when new parties become involved. This work is performed on behalf of the buyer or the seller in a merger or acquisition and could also be performed for the purposes of an IPO, demutualization, or as part of a compensation scheme to company’s executives (embedded value calculation).Actuarial Partners can provide the required strategic advice and calculations for all stages of the project including:

  • Financial investigation and actuarial valuation
  • Potential sellers/purchasers identification and evaluation
  • Brokering negotiations between parties
  • Due diligence on financial as well as strategic and operational aspects
  • Identifying synergies
  • Company restructuring prior to and after the sale
  • Independent opinion to regulators
  • Identifying the factors affecting deal price, with a view to maximize the value for the seller or assess potential risks for the buyer
Takaful Conversion

A conventional company operating in a changing market may find converting its operation from a conventional setup to a takaful setup as an attractive option. We can advise on the optimal route to his conversion, taking into account that need to honour existing conventional contracts and advise on the best takaful model to adopt.

This option enables the shareholders to retain the company’s existing critical operating size and optimizes the capital when switching from a conventional to a takaful environment.

Benchmarking
  • Assistance in determining relevant industry benchmark
  • Assistance in developing industry surveys to ascertain industry standards and operator's opinion
  • Analyzing the reasons for insurers position in the industry
Information Management
  • Assistance in determining relevant industry benchmark
  • Assistance in developing industry surveys to ascertain industry standards and operator's opinion
  • Analyzing the reasons for insurers position in the industry

Business Planning
Actuarial Partners can provide detailed financial modeling which is essential for effective business planning. These models can assess the effects of new market entry on operator profit, or test the effect of differing models on company profitability
Retakaful Optimization
The level and type of retakaful in place can have a large effect on profitability. We can assist in investigating the financial impact when varying an operator's current retakaful arrangements and retention levels. This is performed using statistical modeling, and results in a distribution of profits across various scenarios.Standard input and decisions for this analysis would include the following:

  • Range of retakaful levels to test by class of business ( separately for surplus and excess of loss)
  • Underwriting risks to be included (i.e. focus on major classes of business)
  • Aspects to be simulated, including expected number of policies, claim size, claim frequency, risk of business by size of sum assured, claim run-off rates and reserving patterns
  • The level of interaction between volatility of investment return and retakaful arrangements
  • Classes of business which must be combined due to inadequate claims data information distribution to use for each aspect being simulated
Financial Modelling
Financial modeling forms our core practice. We can provide appraisal valuation, dynamic solvency testing and financial condition reporting.Our financial modeling services can also assist in the strategic running of the company, and includes the following services:

Profitability Analysis

  • Company profitability projections, both for the company as a whole under various scenarios as well as business subsets.
  • It is also used to determine the appropriateness of existing, new or proposed products

Capital Management

  • Capital requirements projections under various scenarios. This can be used in assessing the cost of capital in order to give assurance to participants and maximize the return on capital to the operator.

Asset and Liability Modelling (ALM)

  • Project invested assets and policy liability cash flows using deterministic or stochastic modeling. Projections are performed using different economic scenarios, risk level of assets, new business written and level of capital requirement. They are used to understand and quantify the level of investment risks due to mismatching between assets and liabilities.
  • This analysis can also be used to assess the impact of falling sukuk (Islamic bonds) yields and volatile equity markets on benefits to the participant as well as managing investment risks by product redesign.
Appointed Actuary
We offer advice and assistance to a company’s appointed actuary, are able to perform most or all actuarial work for companies with little or no actuarial staff, or can provide more of an auditing role for companies with an in-house qualified actuary.

Statutory valuation and solvency calculation
Dynamic Solvency Testing (DST)
Financial Condition Reporting (FCR)
Risk Based Capital (RBC) Analysis
Incurred but Not Reported (IBNR) calculation
Embedded value calculation
Asset shares/ surplus sharing strategy
Product development / pricing/ profit testing
Business planning / projections
Investment Strategy
Actuarial Peer Review
We review the actuarial tasks and reports performed by client’s in-house actuarial department or the company’s appointed actuary in discharging his or her responsibility, which may be a necessary regulatory requirement or as part of a regular audit process.
IBNR
We review the actuarial tasks and reports performed by client’s in-house actuarial department or the company’s appointed actuary in discharging his or her responsibility, which may be a necessary regulatory requirement or as part of a regular audit process.
Contribution Rating
We review the actuarial tasks and reports performed by client’s in-house actuarial department or the company’s appointed actuary in discharging his or her responsibility, which may be a necessary regulatory requirement or as part of a regular audit process.

Contribution < Tariff

Operator will be able to focus more on marketing strategies by knowing which line of business could be charged lower than tariff rate

Contribution > Tariff

Business should be reviewed carefully for ways to bring the rates in line with experience
Product Cycle
Having innovative products is a necessity in today’s competitive environment. The extent of innovation will depend on where in the product life cycle the takaful operator is designing or revising a productActuarial Partners can assist in all aspects of the product development cycle, including:
Product Pricing: Medical and Health Takaful
We are an industry leader in pricing medical and health takaful products. We can also assist in specific medical product development and pricing, and subsequently track results.