1. Takaful Malaysia May 2, 2007Shari’a Quality RatingAA (SQR) Analysts: Background Fatima AlAlawiSyarikat Takaful Malaysia Berhad (Takaful Malaysia) was incorporated in November 1984 and email@example.com operations in July 1985. The establishment of Takaful Malaysia was based on the +97317211606recommendation of a Task Force on the Study for the Establishment of an Islamic Insurance Companyin Malaysia set up by the Government of Malaysia in 1981. Ali Abdulaal firstname.lastname@example.orgTakaful Malaysia started with an authorized capital of RM500 million and a paid-up capital of RM10 +97317211606million. It was subsequently transformed into a public limited company in July 1996, followed bylisting of its shares on the main board of Bursa Malaysia Securities Berhad. The capital was then raisedto RM55 million. The capital structure since then has been further enhanced as a result of arestructuring exercise at the end of 2003, resulting in paid-up share capital to rise to RM156.127 million.Takaful Malaysia’s business model is based on the requirements and practices of Shari’a as pronouncedin the report of the Task Force. In essence, it upholds the virtues of cooperation, mutuality, solidarity asembodied in the concept of Takaful and the profit sharing principle of Mudharaba.Bank Islam Malaysia Holdings Berhad (BIMB Holdings) is the controlling shareholder with a 69.33%stake in Takaful Malaysia. The BIMB Holdings Group has been the catalyst in actively developing theIslamic financial services industry. The other shareholders are Employee Provident Fund Board (5.17%)and Islamic Development Bank (4.57%) among other small shareholders.Takaful Malaysia’s vision and mission, which are the basis of its operations, are focused on theprinciples of Shari’a with the primary objective to provide comprehensive Takaful facilities and servicesto the Muslims and all Malaysians.Takaful Malaysia’s corporate objectives include providing high quality service for both Family Takafuland General Takaful to the participants; attaining profitability sufficient to support the growth of TakafulMalaysia; continuously encouraging a dynamic management; uplifting and developing a motivated workforce with responsible work ethics; and striving to protect the interests of the participants andshareholders.Reflecting its principal activities, Takaful Malaysia manages the Family Takaful Fund under the FamilyTakaful Business, and manages the General Takaful Fund under the General Takaful Business. TheseTakaful funds are kept separate from the Shareholders’ Fund, which was originally funded wholly by thepaid-up capital.Takaful Malaysia employs 1,761 staff consisting of 582 executives, 713 clerks and non-clerks and 466special executives in its 124 branches.Sources of income are profits from the investment of its Shareholders’ Fund and its share of profits fromthe management of both the Family Takaful Business and the General Takaful Business in accordancewith the profit-sharing agreement of Mudharaba.Takaful Malaysia’s Board of Directors (BoD) comprises of six members, all of them Malaysian citizenshaving high education and many years of relevant experience in banking and insurance. A detailedprofile can be accessed in the Annex to this report.
2. The BoD holds monthly scheduled meetings with additional 1984 to 2001. He is a Research Fellow at Islamic Banking meetings convened as necessary. The BoD delegates certain and Finance Institute Malaysia. responsibilities to five Board Committees, namely Audit Committee, Nomination Committee, Remuneration Committee, • Y. BHG. Prof. Madya Dr. Ahmad Shahbari @ Sobri B. Risk Management and Compliance Committee; and Employees’ Salamon: Aged 63, Malaysian citizen, member of the Shari’a Share Option Scheme (ESOS) Committee. The committees’ Advisory Body since July 1985. Graduated with Bachelor of memberships are based on Directors’ focus and experience as Arts in Shari’a from the University of Al-Azhar, Egypt in well as their ability to add value to the committee. Starting in 1970, a Master of Arts in International Studies from Fairleigh 2006, Takaful Malaysia initiated annual assessment and Dickenson University, USA in 1973 and a Doctor of performance reviews for these committees. Philosophy in History from New York University, USA in 1979. He started his career as a Shari’a Lecturer at University The Articles of Association provide for all Directors and the of Kebangsaan of Malaysia in 1978 and then for two years at CEO to submit themselves for re-election at least every three Islamic University Malaysia. In 1982, he served as the years in compliance with Bursa Malaysia Listing Requirements. Acting Head of Shari’a Department. He produced twelve books in educational, economy, Islamic banking and Islamic Takaful Malaysia’s Management Committee comprises of: law. • Mohamed Hassan Md Kamil, Group Managing Director • Y. Bhg. Datuk Abdul Hamid B. Said: Aged 67, Malaysian • Mawardy Edi, Chief Operations Officer citizen and a member of the Shari’a Advisory Body since • Azian Kassim, Chief Investment Officer August 2005. He obtained a Barrister-At-Law from the • Muhammad Anjar Kuncoro, Chief Information Officer Council of Legal Education, England in 1980. After • Ahmad Kassim, Chief Marketing Officer completing Malacaa High School in 1957, he underwent • Nazrul Hisham Abdul Hamid, Chief Internal Auditor training at Malayan Teachers College in England for one • Afidah Mohd Ghazali, Chief Financial Officer year. In 1961 he started as a Lecturer in Teachers Training • Balilah Hassan, General Manager-Human Resources College, Brunei. In 1973 he joined Kementerian Kebudayaan as Sports Officer. He then was appointed as the Federal Council of Attorney General Office and then became a Law Practitioner in High Court of Malaya for fourteen years. Then Shari’a Evaluation in 1998, he was appointed as Judicial Commissioner in Malacca High Court and he was transferred in 2000 to Kuala Lumpur High Court as a Judge in Malaya High Court. He Shari’a Committee retired in 2003. He was the Academic Senior Fellow of Civil Underlining the importance of complying with the Religion of Procedure in Intentional Islamic University Malaysia from Islam, the Memorandum and Articles of Association of Takaful 2003 until July 2006. Malaysia preface that all businesses of the company will be transacted in accordance with Islamic principles, rules and • Y. Bhg. Prof. Madya Dr. Ashraf B. Md Hashim: Aged 37, practices. For this, Takaful Malaysia has set up a religious Malaysian citizen and a member of the Shari’a Advisory supervisory council called the Shari’a Advisory Body (SAB), Body since August 2005. He graduated with a Bachelor of consisting of Muslim religious scholars from Malaysia, to Arts in Shari’a from Islamic University Madinah, KSA in advise the company on the operations of its Takaful business in 1991 and a Master of Arts in Fiqh and Usul Fiqh from order to ensure that they do not involve any element which is University of Jordan in 1995. He then obtained PhD in not approved by the religion of Islam. The SAB was established Shari’a from University of Birmingham, UK in 1999. He at inception in 1984 as required by the Takaful Act of 1984. started his career at the International Islamic University in 1991 as an Assistant Lecturer and then became a Lecturer of The SAB is appointed by Takaful Malaysia’s BoD with Islamic Revealed Knowledge Department and then Assistant approval from Bank Negara Malaysia, the Central Bank of Professor at Fiqh and Usul Department in 1999. In 2003, he Malaysia, as required by its guidelines on the governance of was appointed as Associate Professor in Fiqh and Usul Shari’a Committee for Islamic financial institutions. In its Department until today. guidelines, Bank Negara Malaysia requires the Shari’a Body to have a minimum of three members. The SAB is appointed for a period of two years. However, there is no restriction on the number of times a member can be The SAB consists of four members with diverse and advanced nominated to the SAB. The Chairman of the SAB is elected for experience and background in Shari’a studies and work. The one year. members of this SAB are the following: The main duties and responsibilities of SAB include ensuring operations are Shari’a compliant; advising the board and related • Y. Bhg. Ustaz Mohd. Bakir B. Haji Mansor: Aged 69, parties on Shari’a matters of operations; endorsing Shari’a Malaysian citizen, Chairman of the Shari’a Advisory Body. compliance manuals and documentation; and providing written and a member of the Shari’a Advisory Body since July 2002. Shari’a opinion. He obtained the Shahadah Ulya from Kolej Islam Malaya in 1965. He started as a teacher at Madrasah Mashhoor According the Takaful Malaysia’s Shari’a Compliance Manual, Islamiyah in 1967 and worked there for three years. He then the SAB must have at least six meetings in a year. It spends served as information officer at National Council for Islamic about three to five hours in each meeting. The agenda of the Religious Affairs from 1971 to 1973 and then at Prime SAB meetings are detailed, comprehensive and extensive. The Minister’s Department for more than 10 years. He then agenda papers are circulated to the members of the SAB in served at Bank Islam Malaysia as Shari’a Coordinator fromShari’a Quality Rating: Takaful Malaysia 2 Islamic International Rating Agency, May 2007
3. advance. All matters requiring Shari’a opinion are presented to Shari’a aspects during their audit program or on case-by-case the SAB for discussion and decision. Decisions taken by the basis as issues are identified. management in between the meetings of SAB are also presented to the SAB for endorsement of the decisions. The main recipients of the internal Shari’a control reports are management and audit committee of the BoD. The department The minutes of the meetings are prepared in highly professional also carries out a follow-up on the report with respective manner incorporating a thorough discussion on the issues departments. The department works closely with the investment presented and the logic/judgment and reasons for the decision department, the underwriting department and Retakaful taken by the SAB. department to ensure that all activities of the company are Shari’a compliant. The decisions made by SAB are based on the principle of Shari’a and in accordance with the Shafie School of law. But in The underwriting department refers all proposals to the Shari’a certain issue, SAB refers to opinions in other Schools of Islamic Internal Control Department reporting the principal’s activity, Law which is more applicable. source of income and image of the company. If the activities of the principal consist of both prohibited and non-prohibited These decisions are taken by Syura, consensus or by majority. income, currently a ratio of 60:40 is applied. The references of If the SAB cannot come to an agreement, the issue must be the Shari’a Control Department are always made in writing and referred to Bank Negara Malaysia. However, there has been no the response of the Department is always made in writing. need to refer anything to Bank Negara Malaysia up to now. The decisions of the SAB are considered to be that of the SAB and The quality of control based on reports of the SAB is excellent. not of the individual members. No dissenting opinions are The reports are detailed and descriptive and the SAB’s input and recorded. its discussions are profound and complemented with reason and evidence. The SAB does not interact directly nor meet formally with the members of the BoD. However, they meet informally. They have not encountered any differences with the BoD so far. The HR Training and Promotion of Takaful minutes of Shari’a Committee meetings are presented to the Takaful Malaysia carries sufficient training programs on BoD. Takaful within the organization, conducted by the subject matter expert from Takaful Malaysia. The programs include the The SAB is not involved in daily operations. It interacts with formation of Takaful companies, Takaful Act 1984, SAB, the management to give advice and Shari’a decisions regarding definition and concept of Takaful, principles of Takaful Shari’a issues. According to Chairman of the SAB, the operations, Takaful business models, differences between relationship between management and SAB is very close. All Takaful and conventional insurance, and types of Takaful product development is with consultation of the Shari’a business. The staffs are also sent to training programs on Department. A comprehensive presentation is made to SAB of Takaful conducted by the various reputable training each product for their approval. institutes/providers locally and internationally. The SAB’s annual report and review endorses and confirms that New training approaches and methodologies such as video- the operations of Takaful Malaysia are in accordance with based training and e-learning have been introduced. Shari’a requirements and it is included in the Annual Report. The SAB’s members are also sent to very high level training Shari’a Internal Control programs such as the international Shari’a scholar dialogue and 2nd international Shari’a scholar dialogue (Banking and Takaful) The Shari’a Department issued a “Shari’a Compliance Manual organized by the Bank Negara Malaysia, Shari’a expert dialogue and Shari’a Audit Checklist” in February 2007, incorporating (Takaful) organized by Malaysia Takaful Association, guidelines and procedures for resolving any mistakes and international convention on Takaful and Retakaful and the 2nd noncompliance discovered in all products/schemes/investments. international convention on Takaful and Retakaful. Before issuance of the manual, resolutions and/or decisions made by the SAB were considered as approved Shari’a control All Directors have attended the Mandatory Accreditation procedures to be followed by Takaful Malaysia. It is important Program conducted by Bursa Malaysia Training as required by to note that no violations of Shari’a principle have been reported Bursa Malaysia. The Directors continue to attend their training to date. programs and seminars to enhance their skills and knowledge. Newly appointed Directors are also trained internally on The Shari’a Department together with the Compliance corporate governance, leadership, anti-money laundering and Department acts as Shari’a Control Department. The Shari’a assessment of the effectiveness of the BoD. Department also acts as the secretariat for the SAB. To promote Takaful business, Takaful Malaysia organized There are four employees in the Shari’a Control Department. It training courses in Takaful operations for interested parties, is headed by a manager, who reports directly to the Group where senior personnel actively participated as trainers. Managing Director of Takaful Malaysia; in addition it has one deputy manager, an assistant manager and one clerk. All of them are well qualified with relevant Shari’a work experience and educational background. The internal Shari’a control reports are issued on monthly basis. The Shari’a Control Department carries out an assessment onShari’a Quality Rating: Takaful Malaysia 3 Islamic International Rating Agency, May 2007
4. Zakat annual results and information about products and operations. It also has prayer times, being updated on daily basis. The distribution of Zakat by Takaful Malaysia is carried out by Zakat Payment Committee according to Shari’a on yearly basis Through its commitment to sustain and improve its competitive with a clear and intense procedure in approving of Zakat advantage in the Takaful market, Takaful Malaysia is always payment for deserving parties as part of a manual of Zakat upholds and promotes the values such as integrity, customer payment committee. All the allocation and payment of Zakat focus, accountability, respect and entrepreneurship throughout are done with the supervision and monitored by the Zakat day-to-day practices, behaviors, communication and Payment Committee chaired by the SAB chairman and all relationships to translate to a good corporate image and decisions made are based on Shari’a. The current rate being operational excellence. applied is 2.5775 according to 365 days. As of end of 2006, the amount of Zakat to be paid by Takaful Malaysia is RM2,514,445. Non-Shari’a Compliant Income Takaful Malaysia is following clear guidelines and procedures Identity and Corporate Image related to non-Shari’a gains/income. In principle, whenever any non-Shari’a compliant income arises, it is immediately set aside Takaful Malaysia ensures that all activities reflect the Shari’a and not mixed with income from Shari’a compliant investment. principles. Among the examples are dress code as prescribed by There was a case with respect to shares in Highlands and Shari’a, recitation of “Quran”, “Hadith” and “Doa” every day Lowlands Berhad, listed on the main board of Kuala Lumpur and providing proper place for praying. The advertising and Stock Exchange The counter of it was originally Shari’a- promotions activities are carried out with the advice and approved as classified by Shari’a Advisory Council of Security supervision of SAB. All promotional materials such as Commission, but was later reclassified as non-Shari’a approved television, newspaper, outdoor and magazine need to have the counter. Under this circumstance, as guided by the guidelines SAB approval before going for public. issued by Shari’a Advisory Council of Security Commission the fund manager immediately disposed off the counter and the gain As Takaful Malaysia strives to be the leading Takaful operator, from disposal was seat aside and placed in Qardul Hasan it has committed itself to continuous research and development accounts to be channeled to charitable bodies. of its products to become the role model followed by many aspiring Takaful operators as demonstrated in the formation of As mentioned in portfolio management agreement between other Takaful and Retakaful entities. Takaful Malaysia and the fund managers, if the securities which have been approved by the Securities Commission’s Shari’a To be in line with the Government’s objectives to promote Advisory Council (SAC) and bought by the manager for the Islamic Banking and Takaful, thus making the Islamic products portfolio are later classified as non-approved securities, the and services an integral part of the Malaysian financial system, manager shall dispose of the securities in the manner as advised Takaful Malaysia and Bank Islam Malaysia Berhad lately by the SAC. The manager shall also ensure that any profit launched a joint marketing program of Takaful Motor Scheme obtained from the disposal of the non-approved securities, under the concept of Bancatakaful. The program enables including capital gain, is immediately set aside and not mixed existing and prospective customers of both companies to with profit from approved securities. participate or to renew their Motor Takaful Scheme. Under the Scheme, the customers get to enjoy the same coverage as offered by conventional insurers but at the same time they will Investments also get a cash rebate based on the profit-sharing principle of The insurance base funds are invested through modes approved Mudharaba. by SAB. For investment products, which are available in the market, Takaful Malaysia relies on the approval granted by the The management is strongly committed to upholding the financial institutions’ Shari’a Committees and/or Securities principles of corporate governance and providing the highest Commission’s Shari’a Committee. quality service, for this, Takaful Malaysia achieved certification of ISO 9001:2000 Quality. Takaful Malaysia follows identical procedures for investment of shareholder’s fund, Family Takaful Fund and General Takaful In 2004, Takaful Malaysia was awarded “The Best Provider of Fund, such as: Takaful Services” by Euromoney, an international financial publication based in London. In 2005, Takaful Malaysia was • Quoted listed shares and unit trust – only in shares approved awarded Superbrand Status 2005 by Superbrands Malaysia. In by SAC of Securities Commission, Malaysia; 2005, Takaful Malaysia also received Best Takaful Provider in • Fixed income securities – Investment is made (in Islamic 2005 from Islamic Business and Finance Magazine, Dubai. private debt securities) after making a reference to the Shari’a advisor of the originating bank, which have been endorsed by As required under the Listing Requirements of Bursa Malaysia SAC of Securities Commission; Securities Berhad, the BoD of Takaful Malaysia subscribes and supports the Malaysian Code of Corporate Governance and Best • For investments in high rise commercial buildings, tenants are Practices and ensures that they are practiced and observed screened to see if they are Shari’a Compliant. Tenants’ throughout the group. activities, sources of income and their image are obtained and if non-Shari’a compliant portion does not exceed 25%, the Takaful Malaysia’s web page is very interactive. Queries proposal may be accepted. The guidelines on Islamic regarding business operation are answered by the Customer investment in buildings have been obtained; Service Unit. It includes the quarterly, semi-annual returns and • Deposits are made only in Islamic banks, licensed Islamic finance companies and Islamic Financial Institutions; andShari’a Quality Rating: Takaful Malaysia 4 Islamic International Rating Agency, May 2007
5. • Takaful Malaysia also participates in syndicate financing such Mudharaba is calculated every month for general Takaful and as project finance, car finance and housing finance in paid every month to the eligible Takaful participants by the proposals initiated by Bank Islam Malaysia. The mode of Mudharaba Unit under the Claim Division and it is counter financing is BBA (Bai Bithman Ajil). checked by another person to ensure accuracy. Retakaful is a cost to the Takaful Fund of each General and In case of deficits, shareholder’s fund will give a loan based on Family Takaful. This means that the fund will bear part of the the principle of Quard Hasan as imposed by Bank Negara risk called “net retention” and re-insurers under Treaty Malaysia. So far Takaful Malaysia has not experienced any Retakaful Program will bear the other part of the risk. deficit in any year of its operations; therefore, we were not provided examples. Under-Writing Department (UWD) refers all proposals to Shari’a Control Department. The UWD reports on the Reinsurance principal’s activity, sources of income, image of the company. If the activities of the principal consist of both prohibited and Retakaful is under a dedicated department at Takaful Malaysia. non-prohibited, a ratio of 60:40 is applied. The Takaful This Retakaful Department is responsible to arrange all types of company may accept the business of non-prohibited activity and Retakaful placements for the General and Family Takaful give the other part to another insurance company. businesses. All Retakaful placements are subject to Bank Negara Malaysia guidelines and procedures. Priority is given to Retakaful companies, depending on capacity Dealing With Surplus and Deficits and technical support offered by the company. However, as The company carries out its business under the Mudharaba there are very few Retakaful companies, some business is mode. For General Takaful Fund, Group Takaful Fund and necessarily given to conventional reinsurance companies. Family Individual Takaful Fund, surpluses from underwritings Priority is given to local/offshore companies registered in are shared and distributed to the shareholders and participants. Malaysia. Currently, the ratio of distribution is 60% for shareholders and 40% for participants and is endorsed by the SAB. If the ratio is changed, it is applied to new policy holders only. These ratios are disclosed to the participants in the proposal form. For a thorough Shari’a Quality analysis, you can rely on Islamic International Rating Agency’s (IIRA) Shari’a Quality Rating Service. For more information call: +973 17 211 606 or visit our website: www.iirating.com © Copyright 2007 All of the information contained herein is obtained by IIRA from sources believed to be accurate and reliable. IIRA does not audit or verify the truth or accuracy of any such information. As a result, the information in this report is provided “as is” without any representation or warranty of any kind. IIRA’s rating is an opinion and not a warranty of a rated entity’s current or future ability to meet contractual obligations, nor it is a recommendation to buy, sell or hold any security. Reproduction or distribution of Shari’a Quality Service without the explicit consent of IIRA is strictly prohibited. To reprint, translate, or quote IIRA’s publications, contact: IIRA, Al-Zamil Tower, 7th Floor, Govt. Avenue, Manama, Kingdom of Bahrain; Tel: +973 17 211 606 Fax: +973 17 211 605Shari’a Quality Rating: Takaful Malaysia 5 Islamic International Rating Agency, May 2007
6. Annex 1 – Board of Directors • Y. Bhg. Tan Sri Dr. Hadenan A. Jalil: Dr. Jalil graduated with a Bachelor of Economics (Honors) from the University of Malaysia in 1970 and continued his education until he completed his Doctor of Philosophy from The Management College at Henley in the United Kingdom. He held several secretarial and managerial positions at government and non- government departments throughout his career. He is presently the President Commisioner/Chairman of Bank Bumiputera Indonesia; Board member and Chairman of Audit Committee of Islamd and Peninsular Berhad; Advisor of Maunsell Malaysia Sdn Bhd; and Group Business Advisor at Sinar Jernih Sdn Bhd. • Y. Bhg. Dato’ Noorazman A. Aziz: Mr. Aziz graduated with a Bachelor of Science (Honors) from Louisiana University in 1982 and is an associate of the Institute of Bankers in the United Kingdom. He started his career in 1982 as a senior executive at Pernas International Berhad and held several executive positions in Malaysia ever since. In 2005, he joined Bank Islam Malaysia Berhad as Managing Director and was subsequently appointed as Group Managing Director, BIMB Holdings Berhad in June 2006. He is a member in Takaful Board of Directors since December 2005. • Y. DH. Dato’ Sri Wan Abdul Wahid Wan Hassan: Mr. Hassan graduated with a Bachelor of Arts (Honors) degree of the University of Malaya in 1971 and has obtained several educational certificates during the following years from international universities, including Cambridge, in Public Administration, Management and Land Resource Management. He was appointed to the Board of Directors of Takaful Malaysia on 1 March 2003. He is also the Chairman of Risk Management and Compliance Committee, a member of the Audit and Nomination Committees of the company. He is also the Deputy President of Majlis Uama Islam dan Adat Resam Melayu Pahang and has held the position since December 2000. • Y. Bhg. Dato’ Alwi Muhamad: Mr. Muhamad started his career in 1973 as an Assistant District Officer at Besut and later moved to different government state positions in Terengganu in agriculture, R&D and other areas. He also served as Director of Water Supply Department of Terengganu until 2001. He is currently the Chief Executive Officer of Majlis Agama Islam Dan Adat Melayu Terengganu since 11 January 2004 and a Board of Dierctors Member at Takaful since December 2005. • Encik Mohamed Hassan Md Kamil: Mr. Kamil graduated with a Bachelor of Science degree in Actuarial Science and later a Master in Business Administration from The University of Iowa, USA. He is a Fellow of the Society of Actuaries, USA, a member of the American Academy of Actuaries and a Chartered Life Underwriter. He worked in the United States as an Actuary from 1987 to 1994 prior to returning to Malaysia as Deputy General Manager at Malaysia National Insurance. In 1996, he joined ING Insurance Berhad (previously known as Aetna Universal Insurance) as Senior Vice President and Chief Actuary. In 2004, he became the Deputy General Manager for P.T. AIA Indonesia and subsequently transferred to AIA Regional Office in Hong Kong as Vice President of Actuarial/ Finance in December 2005. He is currently the Executive Director of BIMB Holdings Berhad since April 2006 and Group Manager of Takaful Malaysia. • Y.A.M. Tengku Azman Ibni Almarhum Sultan Abu Bakar: Mr. Sultan was appointed Chief Executive Officer of Takaful Malaysia in September 2005. He obtained his Master of Science from the University of Iowa in 1988 and soon joined Takaful Malaysia in 1989, before climbing through the ranks until he reached this level. He started as an Executive Assistant in the Family Takaful Department in 1989, and then moved to the Marketing Department as an Executive in 1990.Shari’a Quality Rating: Takaful Malaysia 6 Islamic International Rating Agency, May 2007