Retakaful
Retakaful is the Sharia-compliant counterpart of reinsurance: it lets takaful operators pass part of the risk carried by their participants' funds to a larger pool, so that a single large claim does not exhaust them.
Also called: re-takaful · Islamic reinsurance
A takaful fund that has written large property, marine or health risks needs protection against catastrophe in the same way an insurer does. Retakaful applies the takaful model one level up: the takaful funds contribute, largely as tabarru', to a retakaful fund that pays their large claims, and the retakaful operator earns a fee or profit share for managing it.
Capacity is limited, so many takaful operators also use conventional reinsurers where scholars and regulators permit it as a matter of necessity, typically subject to conditions. Regulators and the IFSB treat retakaful arrangements as a core part of a takaful operator's risk management.
In practice
A takaful operator's use of conventional reinsurance does not automatically make its products non-compliant, but it depends on a specific Sharia ruling allowing it and is typically meant to be temporary.
See also
- TakafulTakaful is a cooperative risk-sharing arrangement in which participants contribute to a common fund that pays claims among them, run by an operator under a Sharia-compliant contract rather than sold as conventional insurance.
- Tabarru'Tabarru' is a voluntary donation. In takaful, it is the part of each participant's contribution that is donated to the shared risk fund, from which claims are paid to any participant who suffers a covered loss.
- IFSBThe IFSB, the Islamic Financial Services Board, is a Kuala Lumpur-based international body that issues prudential and supervisory standards for Islamic banking, Islamic capital markets and takaful, much as the Basel Committee does for conventional banks.