General Insurance Corporation, the country's only reinsurer, will be launching Retakaful -- reinsurance based on Shariah principles -- in this financial year.
Retakaful will provide reinsurance support and will be based on the Islamic principles called Shariah.
Reinsurance refers to insuring insurance companies. Similarly, a Retakaful company provides reinsurance support to Takaful insurance companies (insurance companies following the Islamic concept of insurance).
In a usual insurance business, after paying off claims, the surplus generated by an insurance company is passed on to its shareholders.
However, in a Takaful insurance company, the surplus generated is passed on to its policyholders. On the same lines, surplus generated by a Retakaful company is passed on to Takaful insurance firms once every three years.
"GIC will focus on providing reinsurance support to Takaful insurance companies in Bangladesh, Indonesia, Malaysia, Saudi Arabia, along with other West Asian countries," said GIC Chairman and Managing Director Yogesh, Lohiya, who will be visiting Dubai this week to study the nuances of the Takaful reinsurance business.
Last month, a team from GIC visited Dubai to study Takaful operations. GIC will set up a Retakaful division in its Mumbai head office initially and later launch the business in a big way.
"This is a different area altogether. We are working on preparing a roadmap and understanding the intricacies. We will require a person of the Shariah Law Board to certify that the investments and transactions are according to the Shariah Law," added Lohiya.
The move to launch Retakaful is a part of GIC's strategy to increase the share of business from its international operations. The company's foreign business portfolio is around 24 per cent of the total gross premium underwritten for 2007-08.
"We are an Afro-Asian reinsurer where Takaful insurance is getting popular day by day and, so, we can't afford to ignore this business. Also, the liabilities of a Takaful insurance company are low," said a GIC official.
GIC has branch offices in London and Dubai and a representative office in Moscow. It has stakes in direct insurance companies in Africa, Tanzania and Singapore. It has started several reinsurance programmes for insurance companies in Saarc, south-east Asia, West Asia and Africa.
Hannover Re tie-up
GIC has entered into a joint venture with Hannover Re to provide reinsurance support to life insurance companies. GIC will own 74 per cent in the JV, while the remaining 26 per cent will be owned by Hannover Re.
The JV will be launched as a department within GIC and would later be converted into a subsidiary.
Through the joint venture agreement, Hannover Re will provide the technical support to GIC for underwriting reinsurance business.
The life insurance industry grew by 23 per cent in 2007-08 and several new players will be launching operations this year.
Although three years ago, GIC had started the reinsurance programme for life insurers, the business failed to take off due to a lack of expertise and shortage of actuaries. Domestic life insurers today are taking reinsurance support from foreign reinsurers, Swiss Re and Munich Re.