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FIGURE 2: RE-TAKAFUL CONCEPT
Source: Authors
While the TO is the primary Takaful provider for the people and corporations, the RTO exists in
the secondary Takaful market with a direct function to accept cessations of risks based on its
contractual obligations. As illustrated i above, the participants of Re-Takaful are the
TO instead of individual or group participants. This arrangement is required because the TO
needs to share the risks (undertaken from individuals and group participant) with the Re-
Takaful operator. Just as the TO does to the Takaful participants, the RTO also assumes the
responsibility of managing and investing the premiums of the TO.
Types of Re-Takaful
In the Takaful industry, a TO reduces its risk of paying a large number of claims by sharing its
risk with another company. This other company is RTO. This arrangement supports the TO in
situations of high claims, such as in the case of natural calamities, fires, riots, and other major
disasters that significantly affect many policyholders at once. In such unforeseen situations, a
TO may not be able to cover the entire risk of covering the claims of its participants.
Consequently, the Takaful fund may be depleted, in which case the participants, the
shareholders, and the TO will suffer significant losses. Splitting and sharing the risk with an RTO
through a Re-Takaful arrangement enables the TO to manage the company better through such
difficult periods. Therefore, Re-Takaful is a practical arrangement to ensure the stability of not
only the TOs but also the entire Islamic finance industry.
Re-Takaful operates a similar way that Takaful does. The only difference is that while the
participants or policyholders of regular Takaful products are individuals, businesses, and other
commercial organisations; the Re-Takaful’s participants or policyholders are the TOs. The fund
operator is the RTO that operate its business and activities according to the principles as
required by Shari'ah and the domestic laws or regulations.
The contracting parties who sign the Re-Takaful contract are the TO and the RTOs. The original
policyholders of the Takaful products are not directly involved in the Re-Takaful contract, and
Takaful
Participants
Takaful
Operator
Re-Takaful
Operator
Pays
premium
from
Takaful
fund
Family and
General
Takaful
Individuals
and
Companies
Re-Takaful