Takaful

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See the NOVUS Walkthrough Guide for general information about the system.


About Takaful Markets

These appear to be net markets but Takaful can equally well be applied to gross markets. Here we assume a net market.


There are fundamental differences between a Takaful market and the better-known insurance market. Each market subscriber places a certain percentage of the cover into a Wakala account which is protected from claims. NOVUS treats the payments which go into the Wakala account as ‘fees’ – although they are worked mathematically as a percentage.

The insurers are known as PRF (premium reserves fund) accounts and are created in the PARTNER program in the usual way but their associated Wakala accounts need to be set up here too.

Within the MART program function clients are configured in the usual way including their client commissions. The subscription market is configured using the dot (‘.’) suffix for insurers/PRF accounts but they must be entered ‘to stand’ if they have an associated Wakala account. In this case, once the brokerage has been entered, the system displays up a pop-up window for the Wakala percentage to be entered. This percentage is based on the subscription – which is why the line must be ‘to stand’.

On exiting the Wakala screen, the system builds a separate silent agent line for the Wakala account with the calculated commission in the comm. out. field These two lines are inter-related so neither can be edited. If deletion is required then the system will remove the pair together.

For net markets, two extra columns have been added for commission_adjustment, and brokerage_adjustment respectively. These are not displayed on the screen but can be viewed using KEY-MENU, so that client commission can continue to be recorded within the market. The system writes a corresponding figure of opposite sign into the commission_adjustment column so that client commission is set to zero on the consolidated market.

The Wakala originating (PRF) line carries the additional brokerage to cover the Wakala line. This figure is automatically written to the brokerage_adjustment field.


Worked example Takaful Market

7.5% order using a Net market, 20% client commission, single PRF line with 15% brokerage and 30% Wakala.


Written CommOut. Comm_adjust CommIn Brok_adjust
Client Line * 7.5 20 -20
PRF 7.5 15 30
Wakala 30

Notes 1. The client commission is effectively zero because of the comm adjustment. The TRANPT program will treat the client commission mathematically in the same way as other precedence taxes. 2. The actual deduction for brokerage (from PRF) is 45% from which the Wakala account is settled leaving 15% brokerage in the ledger.

Once a Wakala market has been created, it will take time to inspect the multiplying factors in the EMART program. The system will automatically move into this program for that purpose.


Using the system

By setting the Takaful system flag to ‘Y’, the PARTNER program can be used to tag records with a Wakala account. The Wakala account is used to collect fees in Takaful i.e Wakala becomes an alternative to brokerage, but is analyzed into the nominal ledger (NL) as a silent agent because of its dash suffix (‘-’) rather than the brokerage nominal ledger account.

It is acceptable if required for the Wakala account specified in the PARTNER program to be set to the partner code itself. There is no ambiguity between the two as the subscribing partner code will be configured in the market with a dot (‘.’) suffix whilst the Wakala record will be configured as a silent agent (‘-’) suffix.

If a security tagged with a Wakala account is used in a market, the line must be set “to stand”. On completing that security’s subscription line by tabbing past the PPW field, the EMARTC program will produce a pop-up window containing the Wakala account. Make sure any brokerage has been specified at this stage.


Wakala Percentage.PNG


The Wakala window requires a percentage amount to be specified. In the example above, the percentage entered is 8% therefore the system builds a new record automatically for the Wakala account with (‘-’) suffix with the commission set to the wakala percentage multiplied by the subscription of the wakala initiating record divided by the order percent:-

 Wakala_comm      := wakala_percent  * :wakala_initiating_subscription /order percent.

In the worked example, the wakala_comm is set to 8 i.e. 8 * 25/ 25.


Wakala Market.png


If the user deletes either the Wakala line or the Wakala initiating line, (prior to any transaction), the system will delete both lines. The Wakala line is dependent on the initiating line.

In the above example, the Walkala originating line must attract 7% commission-in but in addition must cover the 8% commission to the Wakala account. The system achieves this by writing the ‘additional’ commission against the Wakala originating line, held in a separate field, but not visible on the screen. However, it can be seen by navigating to the comm_in field and pressing KEY-MENU (f5) and shown below.

(Because this market also happens to be a ‘net’ market, there is also a balancing commission adjustment to the client commission of -20% which can be seen by navigating to the client comm_out field and pressing KEY-MENU.) Both these fields can be better seen from within the EMART program. as there are certain navigation restrictions within Wakala lines in the MART program.


Wakala Exploded Market.png


Note: The aforementioned 8% commission-out on the silent agent line will become 2% of the gross in the consolidated market because this market is a 25% order.

Applying the same principle to the Wakala initiating line (the ‘PRF’ line), the commission-in (7%) becomes 1.75% in the consolidated market but added to this must be the 2% to pay away to the Wakala line making 3.75% in total. For all lines, the amount paid/received is given as:-

Amount paid/received = ‘gross’(*) * percent of gross for premium where percent of gross is the signed line less commission and

Amount paid/received = gross * signed line for claims.

Note that in a net market the ‘gross’ in this case is the true gross less client commission so the sums for a gross of £100 are carried out on an £80 figure – also called the net-gross.

Version History

v4.2.0 – Updated to latest version