Is "Claim Contingency Reserve" Necessary for Takaful Business?
When I worked with one of my previous client, I came across " Claim Contingency Reserve " (CCR) in their operation model. According to "Takaful and Retakaful - Principles and Practices" written by Tobias Frenz, CCR (also known as Special Reserves or Equalisation Reserves in some markets) acts as a buffer against an adverse or volatile claims experience. My client and I have a few discussions on CCR, especially on whether it is necessary to establish CCR in the participant risk funds. Normally, CCR is funded by surplus arising during the year and setup as a % of tabarru' or technical provision (This reminded me of the old days when I calculated solvency margin using 4% of reserves, ...). It was a a challenge to determine an appropriate % to be used and the approach to releasing CCR over time. Well, there is no prescribed % or approach available. 15% or 10%, which is better? Should we release over 3 years or 5 years? Should we release linearly or staggered (like...