Capital Management for Takaful Business: Issues and Challenges

Abstract

The objective of this study is to highlight need to understand the concept of capital management for the takaful business in light the Solvency and Risk-Based Capital (RBC) Requirements for takaful companies in Malaysia. This is a qualitative study which discusses the theoretical and practical aspects of capital management in takaful through literature review and secondary data from published sources.  This study highlights the practices of capital management for commercial takaful business. It outlines the theory of capital in takaful business in terms separation of the Shareholder Fund (SHF) and the Participants’ Risk Fund (PRF).  This study contributes to the currently dearth on literature and research on takaful and retakaful as a nascent industry, compared to the more matured insurance and reinsurance industry. Hence, the conventional insurance capital management and practice is also referred as a benchmark. The study would provide better insight for the takaful industry in undertaking the solvency and RBC requirements. Better understanding and management of capital by takaful operators will assist in bolstering the financial position of the takaful operation as a whole.