Syed Fakhari Alam

Manager – Claims & Participant Benefit Services

Pak-Qatar Family Takaful Limited
Karachi, 7 November, 2010
Flow of the Presentation
• Recap…
– Difference b/w Insurance & Takaful
• Family Takaful Products…
– Unit-linked and Term Plans
• Regulatory Framework of Insurance & Takaful markets
• Local Insurance/Takaful industry
– Market Players
– Distribution Channels
 TAKAFUL

CONVENTIONAL INSURANCE

Recap…
Difference b/w Conventional Insurance & Takaful
Shariah’s Stance on Conventional Insurance

concept of
Insurance?
? process of
Insurance?

Shariah has no objections as to the concept or objectives

of insurance ; it only has reservations with the process…
Recap – Fundamental Differences between
Conventional Insurance & Takaful

AQD MUAWAZA AQD TABURRU

CONTRIBUTIONS CREDITED TO
PREMIUMS BELONG
TABURRU FUND
TO COMPANY

COMPANY PAYS TABURRU FUND PAYS

WAQF
THE CLAIM THE CLAIM

RIBA-BASED HALAL INVESTMENT

PROFITS PROFITS
Innovation, Creativity, and Hard-Work brought
Vitality in the Takaful Industry

Ta’awuni Model Sudan

Mudarabah + Wakala Malaysia

Middle East & Other
Wakala
Countries

Wakala - Waqf Pakistan & South Africa

Takaful Management Model
Introduction to Products…

• Unit link Plans

• Endowment Plans
• Term Plans
Share n’ Care Plan

• General membership provisions

• General membership conditions
• Participant investment Account
• Individual Family Takaful Participant’s Fund
Introduction-Share & Care

The plan consists of two parts:

• The Partcipants’ Investment Account which will be managed by the

takaful Operator on the principles of Wakalat-ul-istismar as
described in PMD.

• The Individual Family Takaful Partcipants’ Fund an established

Waqf governed by the Islamic concept of Waqf which will be
managed by the Takaful Operator as a Wakeel.
Conditions Precedent
• No payment in respect of any contribution shall be
deemed to be payment to the takaful operator unless a
printed form of receipt for the same, signed by an
official of Takaful Operator, shall have been given to the
Participant.
• Notwithstanding anything to the above, cover under
this PMD shall not commence until the contribution, as
stated in the PSS hereof, has been paid or guaranteed
to be paid in the manner as stated in the PSS or as
expressly agreed and stated therein.
o Plan Benefits

 Death- The Sum Covered as well as the surplus, if any, will be

paid from the IFTPF if applicable. In addition, the Cash Value
will be paid from the PIA.

 Withdrawal- The Cash Value will be paid from the PIA. In

addition, surplus, if any, will be paid from the IFTPF.

 Maturity- The Cash Value will be paid from the PIA. In

addition, surplus, if any, will be paid from the IFTPF.
o Regular Contributions:

o Grace Period

o Contributions top-ups

o Indexation of contributions and/or FaceValue

o Family Increase Option

o Non-Payment of Regular Contributions

If any Regular Contribution is not paid within the grace

period, then:
i. If the membership has no Cash value, it will end immediately without
any payment.

ii. If there is a Cash Value, the Membership will continue to be in force

for the Sum Covered from the due date of the first unpaid contribution.
The Sum covered shall be maintained by cancelling units from the PIA
to meet all the fees and charges (including Takaful Contributions) at the
beginning of each Membership month commencing from the due date
of the first unpaid contribution. At the beginning of each month, if the
Cash Value is insufficient to meet any of the fee/charge for that
month then the Membership would lapse.
iii. The Membership can be converted to paid-up at the written request of
the Participant as long as the Cash Value is greater than or equal to the
Residual Value.
• Reinstatement
• Contestability
• Change in Beneficiary
• Residence
• Applicable Law
o Free Look Period

The Participant may cancel the Membership if he is not

satisfied with any terms and conditions of the plan. The
Takaful Operator will refund the Contribution paid less the
amount paid into the IFTPF as the Takaful Contributions if the
participant has submitted a written request within fourteen
(14) days of issue of the Membership. Furthermore, we reserve
the right to deduct expenses incurred on medical examination
of the Participant in Connection with the issuance of the
Membership.
o Claims
 Notice of Claim:
 Proof of Loss:
 Examinations:
 Payment of Claim:

o Assignments

o Residence, Occupation or Travel

o Notices
o currency
 Participants’ Investment Account (PIA)

o The Funds
o Aggressive(High risk high return)
o Balanced ( Medium risk medium return)
o Conservative (low risk low return)

o Withdrawal
o Partial Withdrawals
o Maturity Benefit
o Income Option
o Membership Fee and Charges to be Deducted from the
PIA
Wakalat-ul-Istismar Fee:
• Fixed Fee(Admn fee)
• Variable Fee 1:(Allocation fee)
• Variable Fee 2 (IMF 1.5% of NAV of the investment amount)

Charges against Additional Facilities:

• Modal Charge:(Rs.200 per modal contribution)
• Top-up Charge(5% of top up amount)
• Other Charges:
Individual Family Takaful Participants’ Fund

o Takaful Contributions

o Death Benefit
In case of death of any Participant, the requisite Sum Covered would be paid
out of the IFTPF. This amount, along with the amount accrued in the PIA,
would then be payable to the Beneficiaries of the Participant.
The Sum Covered is equal to:

Face Value
Less: the Cash Value in PIA
Less: Partial Withdrawal
Add: Contribution Top-Ups

The benefit payable in case of death would be equal to the Sum

Covered. However, for Paid up Memberships no such benefit will be
payable. For determining the Sum Covered, the actual Contribution
top-ups would be used rather than its increased value.

The surplus, if any, may be payable from the IFTPF.

o Surplus in the Individual Family Takaful Participants’
Fund

o Takaful Operators’ Share in the Profit arising on

Investment of Funds of IFTPF
o Takaful operator act as mudarib for IFTPF with share of 40% in
investment income
o Suicide Clause

Only units available in PIA shall be paid and Takaful Operator shall not
be liable to pay full benefits under this Membership if the Participant’s
death is the result of his/her:
• Suicide, regardless of his/her mental condition, within the first 12
months from the Commencement Date, Issue Date, Reinstatement
Date, alteration date whichever comes later.
Legislation
• Insurance Act 1938
• The Insurance Act 1938 still valid in India & Bangladesh
• Insurance Industry regulated by Controller of Insurance, Ministry of Commerce
• Insurance Ordinance 2000 repealed Insurance Act 1938
– Insurance Ordinance 2000 covers all types of insurance business in Pakistan
including Takaful
• Provides for regulation of insurance industry by SECP
• Capital Requirement
– Life: from PKR 100mn to PKR 150mn
– Non-Life: from PKR 40mn to PKR 80mn
• Minimum Solvency margin not fixed
• Provision for institution of an Insurance Ombudsman who shall have the authority to
investigate mal-administration and redress grievances of insurers
• Provision for constitution of an Insurance Tribunal, which shall have civil and criminal
jurisdiction, both
• Small Disputes Resolution Committee for speedy claim settlements
Legislation (contd.)
• Insurance Rules 2002
– Addresses variety of insurance related matters and amplifies those
stipulated in the 2000 Ordinance
– Deals with specific details like admissibility of assets, reinsurance,
licensing documents etc, applicable to all insurers
• Takaful Rules 2005
– Notified under the Insurance Ordinance 2000; deals with specific
additional requirements for Takaful Operators
• Composite operations not allowed
• Window Operations not allowed
• Provision for Central Shariah Supervisory Board at SECP level
• Takaful Operator shall appoint a Shariah Board; at least 3 members
• Minimum Paid-up Capital Life: PKR 500mn ; non-Life: PKR 300mn
• Minimum Solvency Margin = Admissible Assets – Liabilities
• Minimum Statutory Deposit = higher of PKR 10mn or 10% of paid-up
Legislation (contd.)
• Takaful Rules 2005 (contd.)
– Risk Management component shall be based on Wakala
– Investment component shall be based on Modarabah
– Each Operator shall maintain 2 separate funds: Shareholder Fund (SHF)
and Participants Takaful Fund (PTF)
• In 2009, SECP withdrew its proposed amendments to the
Insurance Ordinance 2000 citing changes in the domestic and
international financial environment
– Most contentious amendment concerned the proposal to register foreign
reinsurance brokers or agents who do business in Pakistan
• SECP reported that it was working on a long list of new projects
– More stringent rules for solvency margins, guidelines for bancassurance, rules
and regulations for surveyors/adjusters, introduction of caps on management
expenses and rules for Takaful companies amongst others
Supervision
• Insurance Department of SECP supervises the insurance market. Responsible
for
– Supervision, Development, and Regulation of the insurance sector (Life, non-life),
Takaful Operators, Insurance Intermediaries and bodies connected with insurance
such as Insurance Association of Pakistan, the Pakistan Insurance Institute, and
the Pakistan Society of Actuaries
• SECP was set up in accordance with the provisions of SECP Act 1997
• Insurance Department is divided into 5 wings or divisions:
– Life Insurance: analyses periodic accounts, statutory returns, treaty reinsurance
arrangements and other statements furnished, ensuring that at all times they
meet minimum regulatory requirements such as those for capital and solvency
– Regulation
– Non-Life Insurance
– Complaints
– Research & Development
Supervision (contd.)
• Insurer pays annual supervision fee, as per Article 11(3) of
Insurance Ordinance 2000, on or before 5 Jan in each calendar
year, which is the greatest of:
– PKR 100,000
– PKR 1 per thousand of gross direct premium written
– Such amount as may be prescribed
• Statutory Returns:
– All insurers have to file quarterly as well are annual returns (Section No.
51 Insurance Ordinance 2000). Online filing facility available. Digital
Signatures for security arranged by National Institution Facilitation
Technologies (NIFT)
• Quarterly: Within one month from close of quarter
• Annual: Within four months from close of preceding year
– Insurance Tribuals will adjudicate in the case of persistent non-
compliance with the rules about statutory returns
Supervision (contd.)
• Insolvency Regulation:
– Section No. 59, Insurance Ordinance 2000, if SECP “believes in reasonable
grounds that an insurer is or is likely to become unable to meet its
liabilities or that there has been or is likely to be a contravention of the
provisions of the ordinance or the rules made there under by the insurer,
it may investigate the affairs of the insurer, and wherever necessary,
employ an auditor or actuary or both for assisting it in any investigation
– There is no statutory fund for compensating policyholders of insolvent
insurance companies
– Statutory deposits placed with SBP, at time of insurer’s registration, can
be used to pay compensation in case of insolvency
Supervision (contd.)
• Consumer Dispute Resolution:
– Each party can select its own arbitrator or mutually agreed arbitrator
– They have the right to appeal to the Claims Settlement Board, which is a
government department
– Section No. 121 of Insurance Ordinance 2000: establishment of insurance
tribunal
– Section No. 125 of Insurance Ordinance 2000: setting up of an insurance
ombudsman
– Difference in the responsibilities of the Insurance Tribunals and the
Ombudsman is that the former responds to complaints from the SECP
whilst the latter handles those from the insuring public
– SECP Circular No. 5 of 2008 reminds insurers that Section 126 of
Insurance Ordinance states that the cost of maintaining of Ombudsman’s
secretariat would be shared by insurance companies and Takafuls in such
proportions as may be determined by SECP
Role of SECP & Future Plans
• Role of SECP in Insurance Sector
– Protection of the interest of insurance policyholders
– Amendments in the regulatory framework
– Enhancements of regulatory framework for Takaful
– Availability of insurance protection to less privileged segment of the society
(Microinsurance)
– Insurance Awareness Programs
– Enhanced public image of the insurance industry
• Future Plans
– Development of ‘Fit and Proper’ criteria for Management of Insurance companies
– Development of Terrorism Insurance Pool
– Development of Microinsurance Regulations
– Review and amendments in Takaful Rules, 2005
– Development of unit-linked/products Regulations
– Amendments in Insurance Ordinance, 2000
– Assessment and Implementation of IAIS Principles, Standards, and Guidance
– Development of Commercially Viable and Sustainable Crop Insurance Scheme
Company Registration & Operating
Requirements
• Establishing a Local Company
– Section 6 of Insurance Ordinance 2000, an application for registration as
an insurer must contain the following information:
• Copy of the Statute, Charter, Deed of Settlement or MoU
• List of Shareholders and Details of Board Members
• Business Plan showing projected Business to be written and cash flows for a
period of 10 years from the date of application
• Details of policies, products, actuarial notes, and basis of reserving
• Details of management, legal representative and domicile
• Statement of proposed reinsurance arrangements
• Name and Address of Banks, and investment custodian, if any
• Statement of authorized and paid-up capital of the insurer
Company Registration & Operating
Requirements (contd.)
• Types of Insurance Organization
– Composite licenses not available; both companies have to be separately
incorporated
• Foreign Ownership
– Circular No. 5 of 2007 states that in the interest of consistency and
uniformity in the foreign investment policy governing various service
sectors and to make the environment more conducive to attracting
foreign investment, the government has allowed 100% foreign equity in
the insurance business subject to following conditions:
• Minimum amount of PKR 329.2mn ; of which PKR 164.6mn should be
brought from abroad
• No restriction on number of branches
• No restriction as to whom they shall employ
Company Registration & Operating
Requirements (contd.)
• Types of Licenses
– New companies may be authorized for either life or non-life business
– Composite licenses not available
– Healthcare and personal accident business can be written by both life and non-life
insurers
– No separate license is required for inwards reinsurance
Company Registration & Operating
Requirements (contd.)
• Capital Requirements
– SECP’s Circular No. 3 of 10 April 2007 … increased the minimum paid-up capital
for insurers over a period of four years. For life/family Takaful
• 2007 – PKR 350mn
• 2008 – PKR 400mn
• 2009 – PKR 450mn
• 2010 – PKR 500mn
• 2011 – PKR 500mn
• New requirements to be complied with by 31 Dec of each year
• New registrations minimum required paid-up capital is PKR 500mn
– Non-life/General Takaful
• 2007 – PKR 120mn
• 2008 – PKR 160mn
• 2009 – PKR 200mn
• 2010 – PKR 250mn
• 2011 – PKR 300mn
• New registrations minimum required paid-up capital is PKR 300mn
Company Registration & Operating
Requirements (contd.)
• Circular No. 15 of 7 July 2008 clarified the minimum statutory deposit level
for insurance/Takaful companies
– Deposit with SBP, statutory deposit in cash or in approved securities to
the sum of “the higher of ten million rupees and ten percent (10%) of the
insurer’s paid-up capital
• Solvency Margins:
– Life insurers: not less than PKR 75mn in their Shareholders’ Fund
Company Registration & Operating
Requirements (contd.)
• Reserve Requirements
– Insurers are required to invest in assets equivalent to not less than the
sum of:
• The amount of liabilities to holders of life insurance policies in Pakistan on
account of matured claims
• The amount required to meet the liability in polices of life insurance maturing
for payment in Pakistan less:
– The amount of premiums which have fallen due to the insurer in such policies but
have not been paid and the days of grace for payment of which have not expired
– Any amount due to the insurer for loans granted and within surrender values or
policies of life insurance maturing for payment in Pakistan issued by the
company, or by an insurer whose business has been acquired and in respect of
which it has assumed liability
– No information is available as to whether long-term disability claims
reserves are held at present value, and what morbidity tables and
discount rates are used
Company Registration & Operating
Requirements (contd.)
• Investment Regulations:
– According to Income Tax Ordinance (ITO) 1979, insurance companies are permitted to invest in debentures, bonds,
deposits of all types, securities, derivative instruments and immoveable property
– Rule 5-B of the ITO restricts insurers’ investment of their surplus liquidity in securities, stocks, and shares
• Policy Terms and Conditions:
– No Supervisory control over policy wordings
– Use Plain English and avoid ambiguities
– At time of registration, companies must file their policy wordings with SECP
– Local policies, with the exception of personal accident, include a Pakistan jurisdiction clause.
They are issued in English with sums assured and premiums expressed in local currency
– Restrictions in the case of death refer to suicide in which case the insurer’ liability is limited
to a refund of all premiums if the suicide is committed within 2 years from the
commencement of the policy
– If the policyholder fails to pay a premium during a period before 2 full years’ premiums have
been paid, the policy will lapse
– Article 39 Insurance Rules 2002: 14 day cooling off period is mandatory for individual life
policies the term of which is for more than one year
Taxation
• Insurance Premium or Policy Taxes
– Life policies are subject to a stamp duty of PKR 1.20 per thousand of the sum assured
– Annual Supervision Fee is paid to SECP
– SECP’s Circular No. 5 of 2008 reminds insurer that Sec 126 of 2000 Ordinance states that the cost of
maintaining the Ombudsman Secretariat would be proportionately shared by insurance and takaful
companies, as determined by SECP
• Withholding taxes on Premiums Paid Overseas
– Finance Act 2008, a withholding tax of 5% applies to the gross insurance or reinsurance premium paid to
an overseas insurance or reinsurance company, or the local agent of an overseas insurer
• Corporate Taxation
– For the year 2009, standard corporate income tax rate is 35%
– Tax is levied on the total amount of income earned from all sources in the company’s accounting period,
including dividends and taxable capital gains,
– Small companies are subject to a tax at a rate of 20%. If their turnover for the year exceeds PKR 250mn,
the tax rate ranges from 25% to 35%
• Personal Taxation
– There is no tax relief on individual life premiums
– Lump sum payments under life policies purchased in a personal capacity are normally viewed as capital
receipts and, therefore, considered beyond the scope of income and the charge of tax
Market Size
• In 2008, Pakistan occupied 58th position in the world life ranking
in terms of annual premium income, behind Cyprus and ahead
of Bangladesh
• Premium Income in 2008, US$
Market Size
• Market Premiums in US$ for the five-year period to 2008
Market Shared
Market Penetration
• Market Premium in 2008 as % of GDP and expenditure on a per
capita basis (USD)
Market Participants
• Conventional Life: 6 ; Family Takaful: 2
– Leading is SLIC with 65.35% of the market in 2008
– In 2009, Adamjee Life Assurance Co. Ltd. was granted operating license
– In 2009, AsiaCare Health and Life Insurance Co. Ltd., specialist healthcare
insurer, entered the market
– NJI… subsidiary of Aga Khan Fund for Economic Development (AKFED)
based in Switzerland
– ALICO… locally incorporated subsidiary of the US Multinational AIG
– Pak-Qatar Family Takaful Limited, 100% Qatari Investment
– Dawood Family Takaful Ltd, a Pakistani Operation
• Privatization / Deregulation
– In April 2009, Ministry of Privatization drafted a proposal to privatize
several state-owned entities including a number of insurance companies
• A total of 23 public sector companies have been named in the Government’s
Public Private Partnership Initiative, including National Insurance Company,
SLIC, and the Pakistan Reinsurance Company (Pak Re)
• Stated owned Companies
– SLIC is the only state-owned life insurer in Pakistan
– Enjoys monopoly from 1972, when it absorbed the business of 32 private
life offices following their nationalisation, until 1994 when private
operators were readmitted to the market
– Has dominant Market Share of 65.38% (2008)
Market Structure; ranked by premium
income in 2008
Total Assets
• Assets per insurer for the year 2004 to 2008 inclusive (PKR)
Investments
• Investments are made in accordance with provisions of the Insurance Ordinance 2000,
the Insurance Rules 2000, and regulatory order SRO (309) K of 1970
• April 2009, government considered granting permission for insurance companies to
invest in National Savings Scheme (NSS)
Expense Ratios
• No information about market wide expense ratios. Data for SLIC,
however, are available for 2007 and 2008

• In 2007, salaries and related costs accounted for 18.7% of

management expenses whilst in 2008 the percentage was 17.3%
Profitability
• No market-wide information is available
• Life:
– SLIC recorded a before tax profit of PKR 446mn in 2008 and an after tax
profit of PKR 296mn, a increase of 31% and 28%
– EFU Life suffered a before tax loss of PKR 473mn and an after tax loss of
488mn . In 2007, company made a before tax profit of PKR 1,435mn and
an after tax profit of PKR 1,207mn
Retentions
• SLIC:
– Range from PKR 2mn per life for group business to PKR 2.5mn for
individual business
• Private Insurers:
– Range from PKR 500,000 to PKR 800,000

• Minimum Retention level is PKR 400,000

Insurance Associations
• The Insurance Association of Pakistan (IAP) was established in
1948 and incorporated in 1961, under Section No. 26 of the
Companies Act 1913
• Current membership consists of 4 life and 32 non-life
companies, both local and foreign
– SLIC is not a member
• Four Specialist Committees: accident, fire, marine, and life
Local Reinsurance Market
• There is no local Life Reinsurance company
– Pakistan Reinsurance Corporation Limited (Pak Re or PRCL) is for non-life
market
• All direct life insurers use international reinsurers, mainly
Munich Re, Hannover Re, and Swiss Re
– Munich Re has withdrawn from all non-life treaty arrangements in
Pakistan
• ALICO uses parent company arrangements (with AIG, USA)
• Market retention level is PKR 2.5mn
• SECP demands that reinsurance arrangements are placed only
with insurers having at least an “A” rating from a reputable
international agency
Distribution Channels
• Agent-oriented network is the dominant distribution channel
• Cash and Carry agents: Minority of agents operator on
independent basis, working with a number of companies
• Insurance Ordinance 2000 and Insurance Rules 2000 permit
establishment of insurance brokers in the market
– Only 4 brokers have taken advantage of the legislation; for non-life
• Distribution of insurance products online is not yet a force in
market
• Potential for telesales given that there are 90million mobile
telephone accounts
Direct Marketing
• 90 million mobile telephone accounts in the country, there is
potential for telesales
• Banks send publicity material to customers with their monthly
bank statements and follow this up with a telephone call
• Life insurance industry has increased its investment in
advertising during the past five years; print media, hoardings etc
• No statutory restrictions on direct marketing
E-Commerce
• According to Govt. economic survey of 2007-08, there were an
estimated 3.5 million internet subscribers and about 17 million
users in March 2008
• Internet access expanded from 29 cities in August 2000 to 3,008
cities and towns by June 2008
• Optical fiber networks were available in 550 cities in June 2007,
compared with 53 cities in August 2000
• Pakistan had 180 internet service providers (ISPs) in June 2008
• Adamjee Life, which received its operating license in 2009, has
introduced a “buy online” facility
• Regulations for the use of electronic signatures are included in
the Electronic Transactions Ordinance 2002
Bancassurance
• Banks act as insurers’ corporate agents
– EFU Life has links with Barclays and Faysal Bank
– NJI, which has also has a management control of the HBL, has
Bancassurance alliance with it
– Adamjee Life has a distribution agreement with MCB, one of its
shareholders
• Banks’ shareholdings in insurance companies are restricted to
30%
• Other than telesales, banks sell insurance “over the counter” to
their customers
– Insurers do not have their own sales desks on bank premises or their own
resident officials
– Bank branches’ customer relationship manager sells insurance
Direct Sales Force
• Senior agents or Sales Managers earn a monthly stipend and
commissions on sales. Other benefits include annual incentives
such as:
– Mobile Telephone
– 70cc Motorcycle
– Computer notebook
– 800cc to 1000cc Car
– Overseas conventions
– Million Dollar Round Table Conferences in US (MDRT)
– Group Life Insurance
• Products sold are mainly individual life insurance products
Agencies
• It is estimated that there are around 85,000 agents in the Pakistani life market
– SLIC has around 80,000
– EFU Life has around 1,800
– ALICO has around 700
• Insurance agencies are regulated by Articles 94 to 101 of the Insurance Ordinance
2000 and Articles 25 and 26 of the Insurance Rules 2002.
– Since Insurance Ordinance 2000, agents are no longer subject to licensing by the regulator
– Insurers are obliged to enter details of their agents in a register and are responsible for their
conduct
– Agents pay no fee for registration
– SECP plays a supervisory role in respect of compliance by each insurer’s management in
relation to appointment, qualification, supervision, and commission levels so that the
interests of policyholders are protected
• Minimum academic qualification is Matriculate
• Section 101 of the Insurance Ordinance 2000, life insurance agents are prohibited
from becoming directors of life insurance companies
Insurance Brokers
• Insurance Ordinance 2000 and Insurance Rules 2002 permit the
establishment of insurance brokers in market
– Only 4 brokers have taken advantage of this legislation
• Aon Insurance Brokers (Pvt) Ltd
• GreenShield Insurance Brokers (Pvt) Ltd
• Risk Management Services (Pvt) Ltd
• Roma Associates Ltd.
• Minimum paid-up capital: PKR 10mn for local companies and
PKR 82.3mn for foreign companies
• Cash or Approved securities of not less than PKR 500,000 needs
to be deposited with a bank
Jazaak Allah Khair for your patience