Frequently, the scale of insurance risks underwritten is too great for one insurer to carry safely. In these circumstances, companies use reinsurance to mitigate their own risk exposure. When insurers insure a risk again with another company, it is called reinsurance which allows the insurance industry to spread its losses, lessening the impact of claims on any one company.
Most insurance companies have to spread their liabilities among other insurance companies, which are called reinsurance companies. The reinsurance contract, for Islamic companies, must be contracted in conformity with the Shari'ah.

There is currently a shortage of retakaful capacity and the lack of companies in the market presents a challenge as well as an opportunity. The challenge is to have a large enough takaful market to justify retakaful business. There is also a global need for strong and credible retakaful operators to assist the growth and expansion of takaful business. Shari’ah scholars have allowed takaful operators to reinsure conventionally when no retakaful alternative is available, although retakaful is strongly preferred.

However, this conventional reinsurance represents a dilemma, as it is contrary to the customer’s preference of seeking cover on Islamic principles. Structurally retakaful operating principles are similar to the takaful operating principles, and the same Shari’ah principles apply.

Preference must be given to Islamic reinsurance companies. The aim should be to end relations with conventional commercial reinsurance companies as soon as possible.



Source : islamic-banking.com