Discrete Time Ruin Probability for Takaful (Islamic Insurance) with Investment and Qard-Hasan (Benevolent Loan) Activities

Abstract

The main objectives of this paper are to construct a new risk model for modelling the Hybrid-Takaful (Islamic Insurance) and to develop a computational procedure for calculating the associated ruin probability. Ruin probability is an important study in actuarial science to measure the level of solvency adequacy of an insurance product. The Hybrid-Takaful business model applies a Wakalah (agent based) contract for underwriting activities and Mudharabah (profit sharing) contract for investment activities. We consider the existence of qard-hasan facility provided by the operator (shareholder) as a benevolent loan for the participants’ fund in case of a deficit. This facility is a no-interest loan that will be repaid if the business generates profit in the future. For better investment management, we propose a separate investment account of the participants’ fund. We implement several numerical examples to analyze the impact of some key variables on the Takaful business model. We also find that our proposed Takaful model has a better performance than the conventional counterpart in terms of the probability of ruin.

Implementation of the Qardhul Hasan Agreement at Indonesian Islamic Financial Institutions

“…The explanation above is in line with Achlak (2016) which describes the facility as a sadaqah (charity) from the shareholder to participants. In addition, the results of this study are also in line to research by Puspita et al (2020) who designed a framework for utilizing takaful funds in Qardhul Hassan contracts as benevolent loans that need to be repaid in the future, resulting in a surplus. In addition, this research is also expected to be able to implement the crowdfunding system that was previously designed by Aderemi and Ishak (2022) consideration for other Islamic financial institutions to offer Qardhul Hassan financing to their customers.…”

Keng Seng Tan 1970–2023 In Memoriam

“…His first paper with Phelim Boyle was published in 1996; his latest is Boyle et al (2022). His first paper with Adam Kolkiewicz was published in 2003; his latest is Puspita et al (2020). His collaboration with Lysa Porth began in 2011; their most recent joint work is Li et al (2021).…”

A Contract Theory Approach to Islamic Financial Securities with an Application to Diminishing Mushārakah

“…Examples include Aggarwal and Yousef (2000), Basov and Bhatti (2013), and Azmat et al (2015). More specialised uses of contract theory include Khan (2015Khan ( , 2019 and Puspita et al (2020) who apply the framework for analysing different parts of the Islamic insurance industry.…”