It is simply a “takaful of takaful” (insuring a takaful provider, per se, with takaful). It is the Islamic alternative to the conventional reinsurance. By definition, retakaful (or Islamic reinsurance) is a contractual agreement under which the ultimate takaful provider (i.e., the reinsurer) will be liable for part or all of the risks which the original takaful provider (i.e., the insurer) has insured. In return, the insurer will pay a prespecified amount of the contributions to the reinsurer. By so doing, the risk will be split where the reinsurer assumes part of it and the takaful operator will be able to meet any irregular or sizable claims at times of catastrophes or negative-impact events. The original insured will have nothing to do with the reinsurance arrangement, whereas the insurer is liable to the insured for paying claims according to the insurance policy’s terms and conditions.
Islamic Finance
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