Title: The Sudanese Experience In Takaful
1The Sudanese Experience In Takaful The Model and
Practice
Osman El Hadi Ibrahim Managing
Director Shiekan Insurance Company
2SUDAN Outperforming the Region
GDP Growth
- Significant growth
- Strengthened fiscal policy
- Improved political stability
- Increased oil production
- Increased oil prices
- Emerging Markets in the region lacking behind
- Traditional oil exporters far from close
- Sudan as the new locomotive driving MENA growth?
SUDAN
LIC
OE
MENA
EM
- LIC Low income Countries
- OE Oil Exporters
- MENA Middle East North Africa
- EM Emerging Markets
Source IMF, 2006
3 Introduction
- This presentation is not a case study on Shiekan
Insurance Reinsurance Company, it is on the
market experience since the whole market is a
Takaful market. But at the end I will submit a
short presentation on Shiekan as successful model
in the Sudanese Insurance Market
4- Sudan started Islamic Insurance in 1979.
- In 1992 a new supervision law was issued under
which all companies are required to operate
according to Sharia principles. - The 1992 Act activated article 487 of the Civil
Transaction Act 1984. - The 1992 Act was replaced by the 2001
Supervision Act. In 2003 Insurance and Takaful
Act was issued. This latter act is implemented by
the courts.
5 Major Difference between Traditional and Islamic
Contracts
- Traditional Ins. Contract is the contract of
- financial exchange containing Gharar Uncertainty)
which made the ins. Sale contract void as per
Sharia rules - The uncertainty is the core of ins.
- Islamic cooperative contracts are donation
contract
6- 1- The Framework
- 1-1 The Model
- Islamic Cooperative Insurance and Takaful
are practiced under a mixed model. - Wakala for insurance activities and Mudaraba
for investment. - 1-1-1 Alwakala
- The Company as Manager for policyholders
account look after the technical and
administrative activities of the policyholders
fund for a fee which is a portion of the
contributions (actual management expenses).
7- 1-1-2 Almudaraba
- The company invests the shareholders fund
according to Mudaraba agreement in which the
company is the Mud rib and the shareholders are
the owners of the money (arbab almal) Profits
are distributed between shareholders and
policyholders. - 1-2 The Principles
- Sudan experience is based on the common
principles of Takaful cooperative
insurance which are distinguished from
traditional insurance , these are-
8- 1-2-1 Sharia Compliant transactions
- Not only the contract between the company and the
participant has to be - sharia compliant, but all activities of the
company have to be free from any - contravention of sharia rules e.g. the subject
matter of the contracts, the - investment avenues etc.
- 1-2-2 Contributions are paid as donations in
whole or in part to a common fund
- participants (policyholders) fund.
9- 1-2-3 Technical and management expenses are met
from the participants fund. The
- surplus in the fund belongs to the
participants , the company has no claim on
- it. Participants meet the deficit in the fund
themselves if it can not be met from reinsurance,
reserves or "Quard Hassan" from shareholders. - 1-2-4 Share capital is to be kept in a separate
fund. Shareholders are under no - obligation to make good bad underwriting
results.
10- 2- The Practice
- We highlight hereunder the main
characteristics of cooperative Islamic insurance
practice -
- 2-1 Sharia Supervision
- Compliance with sharia is controlled at
two levels The High Sharia Supervisory
- Board (HSSB) and the companies Sharia
Supervisory Boards. These Boards are not ad hoc,
their work is continuous.
11- 2-1-1 The High Sharia Supervisory Board (HSSB)
Formed under Article (7) of 1992 Act, its
members come from sharia, legal, economics and
insurance professions. The HSSB is part of ISA
structure. - The objectives of the Board are-
- To give sharia point of view fatwa on all
matters raised to it. - To remove from the insurance system any non-
Islamic transactions. - To unify the concept of Sharia Supervisory Boards
of the insurance companies on Islamic
transactions in insurance, finance and economics
12- The order detailed the functions of the Board as
follows- - To revise policy wording for all types of
insurance in collaboration with the Insurance
Supervisory Authority and the specialized people
in the insurance sector. - To approve Islamic models of insurance
transactions. - To advise and to give opinion on matters referred
to it by the Insurance Supervisory Authority. - To study and suggest solutions for the problems
that face the insurance sector with regards to
the application of sharia principles to
insurance. - To revise all laws that regulate insurance to
remove any contradictions with sharia principles.
13- To follow up the implementation of sharia with
regards to insurance and investment transaction. - To help the Insurance Supervisory Authority in
formulating appropriate training programmes for
its staff in Islamic insurance models and Islamic
aspects of other financial transactions. - To submit to the Minister of Finance annual
reports on the consistency of insurance
transactions with sharia principles. - To prepare studies and researches that enhance
implementation of Islamic insurance. - Any other functions which the Board deems
necessary to achieve its objectives.
14- The High Sharia Supervisory Board has the final
decision in cases where there are different
opinions on an issue specific to insurance. - To carry out its functions, the Board is
empowered to read any document, register,
contract or correspondence belonging to the
Insurance Supervisory Authority or any other body
regulated by the Insurance Supervision Act. The
Board is also empowered to inspect insurance
companies to ensure proper implementation of
Sharia principles.
15- 2-1-2.Companies Sharia Supervisory Boards
(SSB)- - Every company has its SSB. Consist of three, two
of whom must be sharia Scholars, the third from
the legal profession but must be well versed in
sharia. - Nominations to the membership of SSB are made
by the management after - approval by the general assembly, they have to
be ratified by HSSB. - Vacancies are filled in the same way.
16The role of SSB covers the following
- Revising policy wording and all text that the
company uses. - Examining and revising all company transactions.
- Issuing fatwa on matters refered to it by the
company. - Attending the shareholders and policyholders
general meetings. - The chairman or any SSB member has the right to
attend a BOD meeting. SSB certifies conformity of
the companys performance with sharia principles.
It discusses with management the contents of the
financial statements and the directors report.
17- The Insurance Supervisory Authority will not
check the audited accounts of a company unless a
certificate from SSB that there is no
contravention with sharia is attached thereto.
18- 2-2. Technical Aspects
- Islamic Insurance practice touched the
technical aspects of insurance in very
- few areas
- 2-2-1. Underwriting and claims settlement
- Underwriting remains the same except
for the limitation that the insured
19- subject matter should not contravene any sharia
rule, bars and breweries are typical examples.
HSSB has banned insurance of certain risks such
as performance guarantee - 2-2-2. Reserves
- Technical reserves are kept as required by
the Insurance - Supervision Regulations of 2002. HSSB
directed the companies not to distribute surplus
to the policyholders until there are enough free
reserves in the policyholders account.
20- 2-2-3. Reinsurance
- Reinsurance with non Islamic reinsurers is
allowed only due to necessity. - Reinsurance is transacted in the following
priorities- - Local Islamic reinsurer (the National Reinsurance
co.). - Foreign Islamic reinsurers (e.g. Takaful Re.)
- Cooperative reinsurers.
- Mutual reinsurers.
- Others.
21- HSSB allowed reinsurance with reinsurance
companies which are established under regional
agreements to which Sudan is a signatory,
(national interest) When dealing with a
conventional reinsurers an Islamic insurer should
not- - Receive any commission from reinsurer, to deal on
net premium basis. - Pay any interest on the premium reserves
- Receive any profit commission from reinsurers.
22- 2-2-4. Accounts
- The most important feature of the accounts is the
clear distinction between Policyholders and
Shareholders funds. Starting 2006 results,
companies have - to disclose their financial performance
according to AAOIFI standard 12. - The detailed information required by the
statements and the accompanying
explanatory notes will give a transparent view of
the financial positions of the
companies
23- 2-3. Investment
- 2-3-1. Investment Model
- The company under Mudaraba arrangement invests
Shareholders fund. The company is the mudarib and
participates in the profits at a preagreed rate
as explained earlier. - Shiekan Insurance Company SSB has recently issued
a fatwa, on the co-investment of policyholder and
shareholders funds. The fatwa which has been
ratified by HSSB and implemented by many
companies, put the following conditions
24- Shareholders should establish an independent
investment department (independent from the
company) and bear all its management expenses. - Profits are divided equally or at preagreed rates
between shareholders and policyholders. - Shareholders are responsible for any loss
attributed to the negligence or incompetence of
the investment department appointed by them
25- Investment returns under this fatwa proved to be
very rewarding for
shareholders. It mitigated their complains that
the Islamic system has
deprived them from what they used
to get from the companies which they had
established long before the practice of Islamic
Insurance.
26- 2-3-2. Investment Avenues
- HSSB and companies SSB check
investment contracts for conformity with sharia
principles. The companies select the avenues that
they deem best. The Insurance Supervisory
Authority decides on the investment of the
statutory reserves. So for Sudanese companies
have no problem in finding sharia compliant
instruments since all economic activities in the
country are sharia compliant and the companies
are investing in national portfolios. All civil
transactions are governed by the Civil
Transaction Act 1984 which is enacted - according to sharia rules.
27- 2-4. Policyholders Rights
- Policyholders have the right to monitor
the performance of the company in two ways - 2-4-1. Policyholders General Assembly
- Before the shareholders general assembly
convenes, every company should
- invite its policyholders for a general
assembly. In principle every policyholder
- is a member of this assembly, but in practice
only policyholders with a minimum contribution
(premium) as fixed by the BOD are invited. The
meeting agenda are
28- The annual audited accounts and the directors
report . - Comments and recommendations to the shareholders
and BOD on the performance of the company and all
relevant matters. - BOD recommendation on surplus.
- Election of representatives to the shareholders
general assembly and the BOD. - Distribution of surplus is always a hot
item in the agenda of the policyholder assembly.
The attending of the general assembly is fixed by
the company.
29- 4-2. Policyholders Membership in the BOD
Policyholders elect one or two members from the
policyholders general assembly for membership of
the BOD.
30- 2-4-3. Insurance and Takaful Act 2003.
- This piece of legislation, which is implemented
by the courts is issued for the
protection of policyholders by regulating
the contractual relationship between the parties
to insurance and takaful contracts. - Some articles of the law state the void and
violable conditions in the policies which affect
the policyholder rights to indemnity e.g. any
condition in an insurance or takaful contract
which deprives an insured from his right to
indemnity due to a law offence, as far as that
offence is not a crime committed intentionally,
is void etc
31- 2-5. Policyholders Protection
- 2-5-1. Policyholders Protection Fund
- Insurance Supervision Act 2001 has
recently been amended to give the Minister of
Finance and National Economy the right to
establish the fund. The fund
will help Islamic Cooperative Insurance companies
to meet their obligations towards policyholders
in case the policyholders fund is short of
meeting such obligations. The main source of
the fund is contributions made by Islamic
Cooperative companies from their gross premiums.
Donations and other payments can be
made subject to the consent of the HSSB. The fund
will be engaged by the Insurance Supervisory
Authority the companies are represented in its
Board of Trustees.
322-5-2. Supervisory Measures
- Examples of these measures are
- The Insurance Supervisory Authority may revoke a
licence of a company if that company proved,
among other things, to be unable to meet its
obligations towards its policyholders. The Act
details the steps to be taken by ISA in case of
revocation. ISA revoked two licenses in 2002 for
insolvency, it suspended two licenses temporarily
during 2005. - A company should get the approval of ISA before
it change or amend any information contained in
its application for licence. ISA may not approve
the change if it affects the policyholders rights.
333- The Stakeholders
- 3-1 Shareholders
- The rights and obligations of shareholders
are dealt with in detail in the Companies Act.
These rights and obligations are not specific to
shareholders in insurance companies. The standard
memorandum and articles of association of
insurance companies are drafted within the
requirements of the Companies Act.. - The only reference to shareholders under The
Insurance Supervision Act 2001 is under Credit
and Finance whereby a company should not give
credit to or finance any of its directors or
shareholders or guarantee their debts to others
before it gets the approval of ISA.
Shaken Ins.-Agri Ins.2000-2007
343-2 Employees
- Each company has its terms and conditions of
service which are governed by the provisions of
the Employment Act. The benefits in the Act are
minimum. - Insurance companies are among the best
employers in the country. - 3-3 The Insurance Supervisory Authority (ISA)
- ISA implements the Insurance Supervision
Act 2001 and the Insurance Supervision
Regulations 2002. Both Act and Regulation need to
be redrafted to incorporate the standards of
corporate governance, risk management, solvency
and all issues relevant to prudent insurance
supervision.
35Challenges Facing Sudanese Insurance Industry
- Low of disposable income
- Lack of Insurance awareness
- Islamic Reinsurance (Retakaful)
- Training and Human resources
- Marketing Problems
36Shiekan Insurance Reinsurance Co. Ltd.
- Established 1983.
- 62 Market Share 2006
- 125m Prem. Income 2006
- 1000 employees
- 28 branches all over Sudan
- All Traditional Classes of Insurance, plus
- Agriculture (Crops Livestock)
- Medical (Group Family), Travel
- Export Credit Insurance
37Shiekan Ins.-Agri Ins.2000-2007
- Agricultural Ins. Is known worldwide as one of
the most difficult among all types of ins.
Covers. Agri. Hazards are considered catastrophic
with enormous losses. That is why most insurance
companies stay away from it. That is why Agri.
Cover is almost impossible in developing
countries where the support is hardly available
in addition to this the diversity of crops and
Agri. System to hydroponics and biotechnology. - With respect to the national responsibility of
supporting the national economy Shiekan Ins. Co.
ventured to practic the complex agri. cover
38Global Agricultural Ins. Market
- North America 44
- Latin America 5
- Central/East Europe 5
- West Europe 31
- Asia/Pacific 7
- Asia 3
- Africa/Meast 5
39Government subsidy
- 2002/2003 1,000,000 50
- 2003/2004 1,016,747 50
- 2004/2005 2,444,839 50
- 2005/2006 2,560,394 50
- 2006l2007 6,904,000 50
- Total 13,925,981
40Medical travel Insurance
-
- 2003 2004 2005
2006 2007 - Premium 3,7 4,6 12,8
16,1 25,0 - Insured
- Members 11879 17875 19085 42152
58000 - Loss
- Ratio 51,7 97 60 79
70 -
In Thousand SDG
41Shiekan Branches
15
14
22
21
28
23
6
10
2
3
16
1
9
5
8
27
4
13
11
7
19
24
12
18
17
20
26
29
30
25
42- Rating
- Shiekan has been rated BBB (Stable Outlook) - by
a regional rating agency- . reflecting a good
liquidity position and a good underwriting
profitability of the company as compared to its
peers in the Arab region. - The regional rating comes as preparatory to SP
rating which the company will conduct soon. - Shiekan Member of CreditAllinace
- In an endeavour to enhance its export credit
insurance business, Shiekan has joined the Coface
CreditAlliance network in 2007, thus benefiting
from a fabulous worldwide source of credit
information.
43Shiekan acquired the ISO 9001-2000 certification
- Shiekan acquired the ISO 9001-2000 certification
in April 2006 in management systems, Provision of
Insurance Services, by the British Standards
Institute (BSI) London. - Shiekan, being the fist Sudanese insurer to have
obtained such a certification, is pursuing to win
the Excellence Quality Award 2007 of European
Foundation for Quality Management (EFQM) in Sudan.
44Sudanese Market Shiekan Insurance Co.Premium
Income Growth (in Thousand SDG)
45Sudanese Market Shiekan Insurance Co.Group
Life Takaful Premium Income Growth (in Thousand
SDG)
46- Today Takaful is gaining an ever-increasing
global recognition, major players stepping in
Munich Re, Honover Re , HSBC, Lloyd . - The global premium income is estimated to reach
US7,5 billion,
47The effects of application of cooperative
Insurance in Sudan
- First
- The Social Effects
- Second
- The Economical Effects
48Conclusion
- ?Applying the cooperative Insurance has had a
very great and positive impact on the field of
Insurance Industry in Sudan. The outlook towards
Insurance has changed drastically from something
against Islamic Sharia to a kind of good and
pious activity seeking the benefit of the
society. This has persuaded the Insurance
companies to promote their activities and develop
different types of Insurance to meet different
needs of their clients.
49- I hope the greatest success for your conference.
- Thank you
- Osman El Hadi Ibrahim
- Managing Director
- Sheikan Insurance Reinsurance Company
- Khartoum / Sudan