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ABSTRACT

Risk management is of vital importance in Islam and Takaful provides a way to manage risks in business according to Sharī’ah principles. This research paper attempts to identify various types of risks involved in Takaful business that affect operational and investment functions of Takaful operators across the globe and finds the ways to manage those risks effectively. However, takaful operators often face difficulty in managing market and credit risks as Sharī’ah compliant nature of Takaful contract does not allow Takaful companies to deal with interest rate and financial derivatives that have been unanimously considered repugnant to Sharī’ah by Islamic jurists. This research identifies Islamic financial instruments like cooperative hedging and bi-lateral mutual adjustment that aim at providing mutual gains to both parties by the way of risk sharing and can be used as an alternative to conventional derivatives. The research paper attempts to provide a framework to enhance risk management culture among Takaful operators. It also discusses the challenges that need to be encountered to enhance risk management practices among Takaful operators.

INTRODUCTION

“Many Muslims misunderstand the concept of fate. For some Muslims believe that the future is in the hand of Allah, where they are facing with fatalistic mentality by putting themselves in the doctrine, whether one is rich or poor, happy or sad, it is fated by Allah. It is a good dealing with luck. In fact, efforts and prayers should precede this kind of belief” (Iqtisad Al-islamy, 2003). For a long time, same misconceptions have been associated with insurance. Muslim scholars and Islamic jurists have treated insurance illegal, haram and repugnant to Sharī’ahwithout providing an alternative solution to Muslim Ummah. As a result of these prevalent misconceptions, any effort or risk management strategy to insure the assets or life has been considered against the fate and will of Allah.

In Islamic financial planning, Takaful is a way to reduce the financial risk of loss due to accident and misfortunes (Iqtisad Al-islamy, 2003). As a matter of fact, Takaful plan is an alternative to the insurance in the conventional financial planning. In Takaful plan, the participant would pay particular amount of money as contribution (known as the premium) partly to risk fund (the participants’ special account) using the concept of tabbaru’ (donation) and partly to another party (known as Takaful company) with a mutual agreement that, the kafiil (Takaful company) is under a legal responsibility to provide for the participant a financial protection against unexpected loss, should it happen within the agreed period.

The focus of this research paper is to identify various types of risks associated with Takaful business and devise criteria for managing risks and enhancing risk management culture among Takaful companies. It also discusses challenges to risk management in Takaful.

RISK MANAGEMENT

“Risk is the chance of happening of something that will have an impact upon our objectives. It is measured in terms of likelihood and consequences” (GOWA, 2002). Traditionally, concept of risk has been associated with uncertainty of events in future. Higher the uncertainty of events, higher is the risk. In insurance, risk is the amount of loss associated with property or life. Risk to property can be a loss or damage to car, building, house, etc. Risk to life can be described as poor health, premature death, bodily injuries as a result of accident etc. (Rejda, 2006; p.23).

Risk management is a process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures(Rejda, 2006; p. 63). According to zealand.studybay.net/">New zealand.studybay.net/">Zealand standard of Risk Management, “It is the culture, processes and structures that are directed towards the effective management of potential opportunities and adverse effects”. In fact, risk management is an ongoing process that encompasses all aspects of our life.

RISK MANAGEMENT UNDER SHARI’AH

Risk traditionally means possibility of meeting danger or suffering, harm or loss (Iqtisad Al-islamy, 2003). Risk is an element of life in this world for being ignorant of the future. It is also factor of investing that one should take time to understand prior to selecting any specific investment instruments or any new adventures. Muslims are asked to work hard in order to be able to change their conditions as obvious in the verse of Holy Quran, “… Verily never will Allah change the condition of a people until they change it themselves (with their own souls)…” (Qur’an 3:11). However, it is true that only Allah knows one’s future and fate, Muslims should strive to achieve the goodness in this world and the hereafter. Submission to Allah, of course, has a positive effect on human behavior. For it will lead to peace and contentment. Undoubtedly, one has to submit every single thing to Allah, but it supposes to be after his hands stretch out to do the best effort as he can, to change himself, so that he would be able to manage and to cope with unforeseen calamities or misfortune.

Prophet Muhammad peace be upon him once asked a Bedouin who had left his camel untied, “Why do not tie your camel?” the Bedouin answered, ” I put my trust in Allah” the prophet then said, “tie up your camel first then put your trust in Allah”( Sunan al -Tirmizi, vol.4, No. 2517, p. 668). This conversation depicts not only how should Muslims accept their fate but it also indicates how do Muslims reduce the risk of loss and calamities.

Qur’an has presented stories of the previous prophets so that Muslims can take the lessons from their experiences. The story of the prophet Joseph, for instance, tells us about financial planning. The story of Prophet Ya’qub, Joseph’s father, tells us about the management of risks as Ya’qub commanded his sons to enter Egypt from different gates. Qur’an states, “Further he said: “O my sons! Enter not all by one gate: enter ye by different gates. Not that I can profit you aught against Allah (with my advice): None can command except Allah: On Him do I put my trust: and let all that trust put their trust on Him” (Qur’an 12:67).

The history of the prophet’s migration to Madinah gives us other lessons on how the Prophet (SAW) managed the risk. The Prophet reduced the risk of getting killed by asking Hazrat Ali (R.A.) to sleep in his bed during the night of emigration. It was reported that as night advanced, the Quraish posted assassins around the Prophet’s house. Thus they kept vigil all night long, waiting to kill him the moment he left his house early in the morning, peeping now and then through a hole in the door to make sure that he was still lying in his bed.

All these above examples depict that risk management is in the roots of Islam. We, as a Muslims, should put our trust onto Allah only after meticulous planning and best utilization of all the available resources.

NORMS OF ETHICS

Obaidullah (2002, pp.2-4) has identified norms of efficiency and ethics for Sharī’ahbased risk management in a business contract. These norms are also applicable to Takaful contract and are briefly described as follow:

1. Each party in Takaful contract should be free to accept the terms and conditions of the contract and no coercion is imposed on any party.
2. Takaful contract should be free from element of ‘riba’ (interest) that is prohibited by Shari’ah. One of the major objections on the contract of conventional insurance by Sharī’ahscholars is element of ‘riba’ in its investments for which it is considered illegal and unIslamic.
3. There should be no uncertainty or ambiguity about the nature of contract. Excessive uncertainty is not permissible in Shari’ah. For example, Sharī’ahscholars disallow conventional insurance contract where no party clearly knows how and from where the insured amount is to going to be paid in case a loss or catastrophe occurs to the insured.
4. There should not be any element of gambling in Takaful contract. It means that Takaful contract should not be aimed at getting a huge advantage at the cost of others. Rather, participants should have sincere intention of helping each other in case of loss or catastrophe from a joint fund.
5. Contribution amount for participants should be adequate and fair and should be determined by actuaries and approved by Sharī’ahscholars.
6. Takaful customers (participants) should have equal access to adequate, accurate and timely market information related to Takaful products and company’s performance where they want to contribute their money.
7. Rights of any third party should not be adversely affected by Takaful contract between two parties. It means Takafulcontract should not be detrimental to any third party.
8. There should be unrestricted public interest in Takaful products and its business contract which should work for the benefit of people at large.

TYPES OF RISKS IN TAKĀFUL BUSINESS

Business industry is prone to a number of risks. Five types of risks in business (Basel, 2006; IAIS, 2004) have been identified that are relevant to Takaful business. First two types of risks (underwriting and operational risks) are directly related to operations of Takaful company while remaining three (credit, liquidity and market risks) are associated with the investment activities of the company.

i. Underwriting Risk:

Underwriting risk is pertinent to insurance and Takaful. It occurs due to adverse selection of applicants or due to re-Takaful risk as a result of inability of re-Takaful operator to meet the obligation towards ceded company under re-Takaful agreement (IAIS, 2003; pp.32-33). Adverse selection refers to the tendency of selecting applicants that result in higher than average chance of loss (Rejda, 2006; p. 45). The risk of adverse selection arises when applicants with higher than average chance of loss succeed in obtaining Takaful coverage at standard rates e.g. high risk drivers or persons with serious health problems. It results in higher claim ratio and put the firm on high liquidity constraints. Re-Takaful risk occurs as the ceded company remains liable for a portion of outstanding claim to the extent re-Takaful operator fails to provide financial protection to Takaful operator in accordance with agreed terms. Both adverse selection and re-Takaful risk hamper the firm’s underwriting capacity; disturb the cash flow pattern and hence affect the stability of the profits of the company.

ii. Operational Risk:

Operational risk is not a well defined concept , yet Basel Report (2006, p.144) defines it as a loss that occurs as a result of inadequate or failed internal processes, people, technology or from external events.

Internal processes failure occurs (Ahmed & Khan, 2001; pp.29-30) as a result of inaccurate processing of transactions, inefficient record keeping, violating operational control limits, non-compliance of regulations etc. people risk may occur due to incompetence of employees, fraud and failure to perform the duties. Technology risk may arise as a result of telecommunication system or computer network breakdown. Risks from external events include unenforceability of regulatory policies, legislation and regulations that affect the fulfillment of contracts and transactions in the organizations. These risks are also called legal risks and are considered a part of operational risks.

iii. Credit Risk:

Credit risk occurs a result of default of counterparty when it fails to meet its obligations in time and in accordance with agreed terms (IAIS, 2004; p.14).

In case of insurance, credit risk may be treated as default risk, migration risk, spread risk or concentration risk. Default risk occurs when Takaful operator does not receive or partially receive cash flows or assets to which it is entitled because the other party fails to meet the obligations of the contract. Migration risk occurs when probability of a future default of an obligator adversely affect the contract today. Spread risk occurs due to market perception of increased risk on either macro or micro basis. Concentration risk is the result of increased exposure to losses due to concentration of investments in a particular geographical area or economic or industrial sector. Takaful industry is also exposed to these risks.

iv. Liquidity Risk:

Liquidity risk is the risk resulting from Takaful company’s inability to meet its obligations (i.e. claims payments and maturity price of policy) when they fall due. This risk occurs because the company has insufficient liquid assets or high level of liabilities (IAIS, 2004; p.18). Liquidity risk includes liquidation risk, affiliation investment risk and capital funding risk.

Liquidation value risk is the risk under circumstance when assets are liquidated below their real (market) value. Affiliated investment risk is the risk that investment in an affiliated or member company might result in drain of financial or operating resources. Capital fund risk is the risk that insurance company will not be able to outsource funds in case of large claims. Takaful industry, just like conventional insurance company, faces similar types of liquidity risks.

v. Market Risk:

Market risk is the volatility of prices in instruments and assets of Takaful company in the market. It can be classified as equity price risk, interest rate risk, currency risk and commodity price risk (IAIS, 2004, p.12). Equity price risk is the risk of loss resulting from changes in market price of equities or other assets. Interest rate risk is the risk of loss resulting from changes in interest rates that adversely affect the cash flows of the insurance company. Currency risk is the risk of loss resulting from volatility of exchange rates that adversely affect the operations of insurance company.

For a Takaful company, it does not include interest rate risk, however Takaful operators are exposed to mark up price risk as avoidance of interest based transactions is distinctive feature of Sharī’ahcompliance.

MANAGING RISKS

All types of risks in Takaful require specific risk management strategy and need to be managed on individual basis.

i. Underwriting Risk Management:

Underwriting risk can be managed by establishing standard selection procedure consistent with the company’s objectives. Most of the Takaful operators require physical inspection or medical reports of the applicants that have serious health problems or prone to higher than average risk. Some have introduced computerized underwriting system to standardized underwriting procedure and minimizing the chance of adverse selection. For example, Takaful Ikhlas Sdn. Bhd. of Malaysia uses computerized underwriting procedure for motor Takaful where applicants who meet standard requirements are automatically selected for Takaful. Others are rejected or alternatively are offered higher contribution rates for the extra risk. To minimize re-Takaful risk, Takaful operator can evaluate the financial strength of re-Takaful operators in the region and diversify the risk geographically by making arrangements with more than one re-Takaful operator.

ii. Operational Risk Management:

Management of this risk is more complex as it arises from failure of internal processes, people, information system breakdown and non-compliance with regulatory standards (Ahmed & Khan, 2001; pp. 38-39). Senior management and board of directors of Takaful company should devise policies and develop strategies to manage and reduce operational risks. Sources of operational risk (i.e. people, processes and technology) should be handled carefully. This raises the importance of corporate governance culture in the organization. Given the newness of Takaful industry, computer software available for conventional insurance might not be appropriate for Takaful industry. This calls for recruiting talented professionals in the field of informational technology so that they could develop software to meet peculiar needs of Takaful industry. Independent external auditors can also play an important role in mitigating operational risk as they point out flaws in internal processes of the organization. This calls for proper disclosure of activities and independent and secure reporting system.

iii. Credit Risk Management:

Under conventional insurance system, credit exposure limits are established

within company’s investment policies to mitigate and manage default risk, migration risk, spread risk and concentration risk as discussed under credit risk. Usually, following credit exposure limits can be established for insurance company investment and credit activities (IAIS, 2004; pp.16-18).

• Internal and external rating of counterparties
• Limit on maturity of credit facility (prefer short term credit over long term credit)
• Limit on maximum investment amount or a certain percentage of investment exposure to a single issuer, industry, geographical region or some other risk classification.

Prohibition of interest does not allow Takaful companies to investment in interest-based instruments (Chapra and Khan, 2000). Moreover, Takaful companies do not have access to credit derivatives that are considered effective instruments for credit risk mitigation. Yet Al-Suwailem (2006; pp.67-68) argues that futures and Option contracts result in losses for more than 70% of the time and hence such instruments are considered as factors of loss, not of gain. The non-availability of Islamic derivatives raises the importance of internal control mechanism for Takaful operators which ensures that credit risk exposures are maintained within limits of prudential standards defined by internal controls.

iv. Liquidity Risk Management:

IAIS Report (2004, p.20) identifies two approaches in order to hedge liquidity risk that are also applicable to Takaful industry. These are:

1. Cash flow modeling
2. Liquidity ratios

Cash flow modeling is done in order to assess the amount of deficit, surpluses or liquidation value risk in order to meet the needs of Takaful industry. Takaful operator should make sure that it has sufficient liquid assets in order to meet liquidity risk and unexpected liquidity requirements.

Use of liquidity ratios will help Takaful operator to set the amount of liquid assets required to meet demands of liability portfolio, desired level of liquidity ratio will also help in determining Takaful operator’s investment policies.

Capital funding risk could be mitigated by setting contingency plans and drawing cash from re-Takaful policies. This form of liquidity hedging could be recognized by knowing current level of liquid assets in hand to meet Takaful operator’s investment policies. In order to identify and evaluate liquidity risks, Ahmed and Khan (2001, p.38) emphasize the need of adequate internal control and proper disclosure of information in the organization. Towards this end, it is essential to have regular independent reports and internal audit function should periodically review the liquidity risk management process.

v. Market Risk Management:

In conventional insurance, management of market risk includes devising strategies to manage interest rate risk, exchange rate, and commodity price risk as well as equity price fluctuations. Takaful operators are not involved in interest based transactions so they do not face this risk. However, KIBOR (Karachi Inter Bank Offered Rate) can be used as bench mark for markup in Islamic financial institutions in their financing activities.

Conventional institutions manage the market risk using financial derivatives such as futures, forward, option or swap contracts (Chapra & Khan, 2000; p.55). Takaful operators face difficulty in managing market risk as these financial derivatives are not compatible with Sharī’ahin the eyes of Islamic scholars. However, according to Al-Suwailem (2006; pp.118-126), cooperative hedging and bi-lateral mutual adjustment are acceptable instruments under Sharī’ahto mitigate currency risk and interest rate risk respectively. Additionally, Takaful operators could apply stress tests and Value at Risk (VaR) techniques to mitigate commodity price risk and equity risk. Stress testing is one of the risk management tools that can be employed to assess the vulnerability of portfolios to abnormal shocks and market conditions. Value at Risk is the probability of portfolio losses exceeding some specified proportion.

ENHANCING RISK MANAGEMENT CULTURE

Cultivation of risk management culture is extremely important to form a robust and resilient Takaful industry in Pakistan. This objective, however, could not be achieved without active participation and collaboration of regulatory authorities, senior management of Takaful companies and members of Sharī’ahSupervisory Board (SSB). Towards this end, regularities authorities should make sure that stress testing and Value at Risk (VaR) reports as identified above are regularly produced and obtained from senior management of Takaful operators in addition to reports of Takaful risks. Regular review of these reports will greatly facilitate the regulatory authorities as well as Takaful operators to enhance risk management practices in Takaful industry.

Moreover, effective implementation of internal control and corporate governance system could prove to be of vital importance to Takaful operator as well as to concerned regulatory authority. It will help the authorities in effective monitoring of Takaful activities and managing different types of risks hence enhancing the functioning of Takaful operators in the industry.

Figure 1 shows the steps for effectively manage the risks in Takaful business. In the first step, possible risks in the way of Takaful business are identified. In the second step, strategies are developed to cope with and manage the risks effectively. In the third step, process of identification and strategy formulation and implementation related to each type of risk is examined through review reports and effective measures are taken to counter any flaw or discrepancy in the previous process.

CHALLENGES TO RISK MANAGEMENT

In spite of effective risk management techniques discussed above, there are certain challenges in the way of risk management for Takaful.

i. Internal Controls:

Internal controls are indispensable for recognizing and assessing risks faced by financial institutions including Takaful companies. Basel Committee (2005) and IAIS (2006a) reports have focused on the importance of internal controls for banking institutions as well as for conventional insurance companies respectively. Chapra and Ahmad (2002) found that existence of effective internal control have prevented the financial institutions from systemic crisis and enabled them to have early detection of problems and associated risks they might face in future. These experiences highlight the importance and need of internal controls for Takaful companies. Unique nature of these companies from conventional insurance demands the fulfillment of Sharī’ahaspects. IFSB and IAIS joint working group (2006) maintains that to have effective internal control mechanism, Takaful companies must ensure Sharī’ahcontrols in addition to all statutory regulations. It urges the need of a regularSharī’ahaudit as a part of an on-going internal control system.

ii. Corporate Governance:

The corporate governance structure specifies the distribution of rights and responsibilities of the Board, manager, shareholders and other stakeholders (OECD Report, 1999) yet effective corporate governance ensures the independence of board of directors (BOD) who in turn devise polices and implement strategies for risk management and hold the management accountable to shareholders (Psaros and Seamer, 2002; p.7). Lack of an effective corporate governance framework hampers the independence of board of directors (BOD) and hence poses a challenge to risk management. It in turn increases the operational risk which might result in failure of operations due to inability of BOD to implement unbiased and independent decisions for the best interest of all stakeholders. Takaful companies are confronted with an additional challenge related to corporate governance of Sharī’ahSupervisory Board (SSB). Grais and Pellegrini (2006b) identify corporate governance issues that affect their role and functioning in the organizations. It calls for a greater need to incorporate corporate governance culture to overcome related issues of Takaful industry.

iii. Sharī’ahBased Challenges:

According to Ahmed & Khan (2001), most of the risk management techniques are not applicable to Islamic financial institutions due to the requirements of Sharī’ahcompliance. It creates Sharī’ahbased challenges to risk management for Takafulcompanies as well. These challenges arise as Sharī’ahrestricts the use certain instruments that are considered useful in conventional risk management e.g. derivatives (futures, options, swaps etc.) and sale of debts. Al-Suwailem (2006, pp.89-90) argues that Sharī’ahconstraints to human behavior do not hinder creativity, rather these constraints are the major driving force behind the creation of innovative financial instruments. He suggests several Islamic financial instruments for risk management and concludes that Sharī’ahis abundant with real solutions to the present problems of gambling and speculation. It provides directions to Sharī’ahscholars and experts of Islamic finance to explore the dimensions of Sharī’ahin order to integrate risk management practices with value creation.

iv. Financial Engineering:

Financial engineering aims at designing new and innovative Sharī’ahcompliant Islamic financial instruments for IFIs including Takaful companies. Chapra and Ahmad (2002) maintain that financial engineering has emerged as the greatest challenge faced by Sharī’ahscholars of present time as it poses major threat to IFIs to become competitive in the contemporary business environment. Process of giving fatwas by Sharī’ahscholars regarding the permissibility of a financial instrument is quite slow and over-conservative (Iqbal et al, 1998; pp.47-48) as Sharī’ahscholars and experts of modern finance have different academic backgrounds. They use technical terms related to their own field that are most of the time not easily understandable to other party. The need is to produce scholars with Sharī’ahbackground that also have working knowledge of modern finance to meet the acute challenge of financial engineering.

v. Islamic Financial Market:

Islamic financial market provides a secondary market for trading of Islamic financial instruments. In the absence of this market, it will be extremely difficult for Takafulcompanies to maintain its liquidity position to make prompt claim payments when they become due. Retaining a large portion of Takaful fund to maintain high liquidity ratio will affect the efficiency of the firm and its competitiveness as compared to conventional insurance companies that have ready access to liquid bonds and t-bills. Islamic Financial Market will greatly facilitate the Takafulcompanies to invest large portion of their fund in Islamic financial instruments and increasing their efficiency and competitiveness while maintaining low liquidity ratio. It will also help Takaful companies in hedging market risk by providing alternative instruments to financial derivatives that are not acceptable under Shari’ah.

vi. Need of Private Credit Rating Agencies:

Although International Islamic Rating Agency (IIRA) has been set up in Bahrain to judge the Sharī’ahcompliance and financial strength of Islamic financial institutions (IFIs) including Takaful companies, it is not be possible for IIRA to rate thousands of counterparties with whomTakaful companies deal. Consequently, it calls for the need of private credit rating agencies in each Muslim country that could provide information related to financial strengthen, fiduciary risk and credit worthiness of thousands of counterparties that privately issue financial instruments (Chapra & Ahmed, 2002; pp.80-81). This information could provide great help to IIRA in rating these companies and make it readily available to Takaful companies and other interested parties.

CONCLUSION AND RECOMMENDATIONS

Risk management is of vital importance in Islam and Takaful provides a way to manage risks in business according to Sharī’ahprinciples. Five types of risks have been identified in Takaful business that affect operational and investment functions of Takaful operator. Operational risk can be managed by enhancing corporate governance culture in the organizations. Cash flow modeling and use of liquidity ratios is quite helpful to identify liquidity constraints. Takaful operators might face difficulty in managing market and credit risks asSharī’ahcompliant nature of Takaful contract does not allow Takaful companies to deal with interest rate and financial derivatives due to their speculative nature by which they tend to benefit one party at the loss of other. On the other hand, Islamic financial instruments like cooperative hedging and bi-lateral mutual adjustment aim at providing mutual gains to both parties by the way of risk sharing.

Risks associated to Takaful have raised several challenges that need to be encountered to enhance risk management practices. Regular Sharī’ahaudit is found to be an integral part of effective internal controls that prevent the companies from systemic crisis. Corporate governance calls for independence of BOD to devise policies for effective risk management, make unbiased decisions and resolve issues related to functioning of SSB. Sharī’ahbased challenges call for devising innovative Islamic financial instruments as Sharī’ahis abundant with real solutions to present business dilemma and does not hinder creativity. Exploring those solutions will help to meet the challenge of financial engineering. Islamic financial market will greatly facilitate the task of Takaful companies to invest large portion of their fund in Islamic financial instruments and increase their efficiency and competitiveness. There is need to establish private credit rating agencies that could assist IIRA to rate thousands of counterparties for the benefit of Takaful operators.

zines to see the unmistakable traits of Surrealism in fashion. How is it then that an art “initially composed of concepts and words and subsequently of images generated in the complexities of the intellect and subconscious imagination” (Martin 1987, p. 9) would forge such a harmonious relationship with fashion? In a bid to answer this question this thesis will investigate the origins of Surrealism in fashion and its enduring effects on the fashion industry to this day.

In order to understand how an ideal founded on political reactions would find its way into the glamour and materialism of fashion, we will firstly begin with a brief analysis of Surrealism and the main ideologies of the movements. This essay will highlight the key steps in the progression of the Surrealist movement from its founding roots through to its manifestation in its most commonly recognised form, art.

Upon having completed a review on the key characteristics of Surrealist ideology we will then explore how each of these characteristics has been expressed through fashion. Though surrealism’s founding fathers would not have concerned themselves with the attire of their movement, the metaphorical and meaningful attributes of fashion created a natural avenue for the expression of surrealist ideas (Martin 1987).

No study on Surrealism in fashion would be complete without mention of its pioneering first lady, Elsa Schiaparelli. This essay will contain a case study on the life and works of Schiaparelli, focusing specifically on how she led the way in merging art with fashion by introducing Surrealist ideas in her designs. Her collaborations with artists such as Salvador Dali, Man Ray and Jean Cocteau “shocked” the fashion industry with its ingenuity and style.

A subsequent case study on Viktor & Rolf will examine the contribution of Surrealism in today’s fashion industry. Just like their predecessor Schiaparelli, Viktor & Rolf are known for their ability to “shock”, with their extravagant collections and high-concept catwalk shows (Evans & Frankel 2008). Though not explicitly billed as Surreal, the flamboyant designs of Viktor & Rolf exhibit tell tale characteristics of Surrealist ideas and serve as an ideal example of the height of Surrealism’s impact on today’s fashion.

This study aims to reveal the important role that Surrealism has played on the fashion industry. Both from a historical point of view in the way that it changed the way fashioned was viewed, as well as its continued impact on fashion as a source of inspiration for contemporary designers. The collaboration between artists and designers allowed for fashion to move forward in unprecedented ways, pioneered by the likes of Salvador Dali and Elsa Schiaparelli, and exemplified in today’s fashion by the likes of Viktor & Rolf.

Surrealism

Often when we hear the word “Surrealism” we automatically think of art and conjure up images from Dali and his contemporaries. However, in actual fact there is no such thing as surrealist art. At its true core surrealism is not a matter of aesthetics, but rather a way of thinking, a point of view (Waldberg 1997). It can be summed up quite well by Rimbaud’s dictum “Change life” (Levy 1995, p. 5).

Surrealism, through its roots in Dadaism, was a reaction to the philosophy of rationalism, which many felt had caused, through the Industrial Revolution, the disaster of World War I. Tristan Tzara, leader of the Dada movement, believed that a society that creates the monstrosity of war does not deserve art, so he developed anti-art in a bit to shock society through scandal (Sanchez 2000).

Lead by Andre Breton, the participants of the movement were influenced by the works of Sigmund Freund and Carl Jung. The differing interpretations “automatism”, a term used to describe one of Jung’s theories on personal analysis, split the movement into two distinct groups of thought (Sanchez M, 2007, P.49). Some went down the path of abstractionism, where calligraphy, animation and movement were the key attributes, regardless of the subject. Their belief was that images should not be burdened with meaning. The others however, believed that images could be a link between abstract spiritual realities. Through faithful representation, objects stood as metaphors for an inner reality (Waldberg 1997, p. 9).

For the purposes of this thesis, the focus will be on the latter interpretation of automatism in the realm of surrealism as it applies to a subset of artistic expression in the form of fashion design.

Surrealism in Fashion

Though surrealism’s founding fathers would not have concerned themselves with the attire of their movement, the metaphorical and meaningful attributes of fashion created a natural avenue for expression of surrealist ideas (Martin 1987, p. 9). Its appeal to the fashion industry was instantly obvious in the use of ordinary everyday objects and weird landscapes that transferred easily to fabric printing, jewelry, hats, couture etc, allowing designers the freedom to create “art pieces”. The amalgamation of surrealism and fashion changed the view of fashion from being disposable and unsubstantial to an art form in its own right (Warburton T, 2008, P. 2).

As surrealism evolved into an artistic style through the 1930’s and beyond, fashion became one of surrealism’s most observable juxtapositions between the ordinary and extraordinary, disfigurement and embellishment, body and concept, pretence and reality. This fascination worked both ways as what covered the body had always been important to the Surrealist philosophy, in the way that it allowed the imagination to wonder what lay underneath, and this translated easily into wearable garments. The inherent characteristics of fashion offered a natural association to the physical properties of disfigurement that was central to the Surrealist style.

Symbolism and Metaphors

Fashion and its instruments were at the core of Surrealist metaphor even before Surrealism found its way into fashion. The imaginary of women and beauty has long been a favourite topic for Surrealist artists. Based on the line by French poet Isidore Ducasse, “the chance encounter of a sewing machine and an umbrella on a dissecting table”, Man Ray’s photograph of a sewing machine and an umbrella paved the way for the Surrealist study of the sewing machine object as a symbolic metaphor for woman. The sewing machine itself is the primary tool of fashion, and as such came to symbolise women, who at the time were the primary workers in the clothing industry. Therefore since the process is deemed female, so the result – fashion – is also deemed primarily female. Future Surrealist works would take this idea further such as Joseph Cornell’s untitled collage depicting a sewing machine producing not only a garment, but the woman within it also (Image 1). The sewing machine was a central metaphor in the Surrealist’s understanding of beauty within a woman as being composed of clothing and form.

Image 1 – Joseph Cornell, 1903, Untitled

Music was another key imagery in the Surrealist’s arsenal; in particular musical instruments and their resemblance to the female form. This objectification of women included the idea of women being substitutes for musical instruments. Perhaps one of the most famous of Man Ray’s photographs Le Violon d’Ingres (Image 2) fittingly illustrates this concept. This exact imagery has been used many times in fashion from Christian Lacroix’s Violin Dress (Image 3) to more recently Viktor & Rolf’s black violin dress (Image 4). Influenced by Dali and Man Ray themselves, Elsa Schiaparelli also used musical notes and instruments in her designs (Image 5).

Image 2 – Man Ray, 1924, Le Violon d’Ingres

Image 4 – Viktor &Rolf, Spring/Summer 2008, Harlequin Collection

[Mention mirrors?]

Human Form and Parts

The mannequins and dress forms of fashion created the ideal playground for the Surrealist’s appropriation of the human body. The bottle for Elsa Schiaparelli’s fragrance Shocking adopted the shape of a human torso (Image 6) is a prime example of the Surrealist ideal of the conversion between the living and the inanimate. These surrogates for living figures allowed for greater distortion and display than real models, thus allowing the Surrealist to fully examine the relationship between clothing and the naked body.

The Surrealist fascination with parts of the body as symbolic representations is central to the understanding of Surrealist works. To the Surrealist, the eyes represent not only optical vision, but also dreaming, sight, voyeurism, and even blindness. Yves Saint Laurent’s used this convention in 1980, producing a jacket with emblazoned eyes, Les Yeux d’Elsa, paying homage to Schiaparelli as the greatest advocate of Surrealist fashion (Image 7). The French designer also used lips, a commonly used decorative device in surreal art, in his Lip Dress; the alignment of the lips with the breasts, creating a distinctive Surrealist touch along with sexual overtones (Image 8).

Image 6 – Elsa Schiaparelli, 1973, Shocking

Perhaps the most imaginative of the abstracted parts are the hands. Used widely by Surrealists in all manner of creative, sexual and functional contexts. Schiaparelli’s jacket embroidered by Jean Cocteau plays on the functional concept of hands being a natural device for belting around the waist (Image 9). This is also emulated in Francios Lesage’s Hand Belt (Image 10) and Marc Jacob’s l’Oeil Beaded Dress (Image 11). Likewise, Pierre Cardin’s leather shoes in the shape of feet draw out the functional characteristics of feet (Image12).

Displacement of Objects

One of the most common devices of Surrealism is the placement of everyday objects in unusual places. The dysfunction and dislocation of an object allows for a redefining of that object and a friction between the conventional and the subliminal.

One obvious method of displacing object is by using it backwards as is the case with the backwards jacket created by Karl Lagerfeld (Image 13), originally pencilled by Elsa Schiaparelli. Viktor & Rolf created a similar effect by presenting a whole collection of dresses worn upside down and a show itself that was run completely back to front (Image 14).

However, displacement is not confined to within the realm of fashion itself. Objects from one classification can be used within another to create an even more vivid reaction. Dali’s fusion of furniture and the human form inspired Schiaparelli’s design of a desk coat (Image 15) and later on Doline Dritsas’s Painted-Silk Drawer Dress (Image 16). The use of traditionally non-fashion related objects in fashion is common among contemporary designers. Viktor & Rolf have often used objects such as bells, pillows and even spotlights in their designs.

Hats have offered some of the most interesting examples of this Surrealist philosophy; from Schiaparelli’s Dali inspired shoe hat (Image 17), to Karl Lagerfeld’s mini sofa chair hat (Image 18). The hat is an appropriate agent not only because its function allowed for a seemingly limitless display of dissimilar objects, but it also enabled the ridicule of the hat as a symbolic accessory in culture, ceremony and rank.

Image 14 – Viktor & Rolf, Spring/Summer 2006,Upside Down Collection

Nature and Fantasy

The natural world itself offered the Surrealist with an array of symbolic objects. Some chose to contort existing symbols and metaphors, such as Rene Magritte’s unconventional mermaid (Image 19); while others chose to make up their own eccentric associations, the perfect example being Dali’s association of the lobster with female genitalia (Image 20). Dali’s obsession with the lobster influenced Schiaparelli’s legendary “lobster dress” (Image 21), the painted lobster deliberately placed at the front of the dress over the woman’s groin area

Surrealists had a particular interest in fantasy and the worlds within the imagination

They had a fondness of merging things in nature with the human body

Looking for objects within nature to symbolise certain things such as sexuality, beauty, metamorphosis

Image 19 – Rene Magritte, 1934, A Reverse Mermaid

Image 20 – Salvador Dali

Image 21 – Elsa Schiaparelli, 1937, Organza Dress with Painted Lobster

Surrealism in the Fashion Industry

Throughout the 1930s and 40s major Surrealist figures entered the realm of fashion, fashion advertising and shop front displays. Spurned by the first generation of pure Surrealists they sought a channel to continue their exploration into the reconciliation of revolutionary art and everyday realities. By enlisting the talents of notable Surrealists such as Jean-Michel Frank, Jean Cocteau, Cecil Beaton and May Ray, fashion magazines became the method for the propagation of Surrealist style.

The partial figure, dislocation of body parts and the placement of these parts in unnatural settings were adopted by new fashion imagery in the 1930s. The Surrealist’s ability to juxtapose the real and the imaginary made it an ideal form for advertising and media expression.

Case Study 1: Elsa Schiaparelli

For Elsa Schiaparelli, her works were more about the passion and energy than fashion and design itself. What mattered to her more was that moment of inspiration (Martin 1987, p. 197). Born to an intellectual family in Rome, the would-be French designer’s work is best known for its Surrealist period in the 1930s, yet her work can be traced back to the 1920s during the earlier Futurism movement. Her marriage to Theosophist Wilhelm Wendt de Kerlor in 1914 encouraged a bohemian existence that led to encounters with a broad circle of international avant-garde artists and thinkers including Dada artist Francis Picabia and surrealist photographer, Man Ray.

Through collaborative efforts with Surrealist artists like Jean Cocteau, Man Ray, Salvador Dalí and Marcel Vertès she was able to bring enthusiasm and spontaneity to her collections. The Modernist characteristics and avant garde style of Schiaparelli’s work must have reflected their interests. Her simple and sharp design aligned well with their modern lifestyle in tailored suits and evening dresses; and her witty persona esteemed her original designs with embroidery and complementary colors fit for an active clientele (Bryan 2010).

Schiaparelli was more an artistic designer than a refined designer, always grasping at ideas but not extracting a style from her garments. In her mind, the objectives of both the designer and artist were equal, and that “a garment was a place for artistic expression rather than a medium for the couturier’s craft” (Martin, P.198). The defining characteristic of Schiaparelli was her daringness to dream, enabling her to bring creations of pure, undiluted inspiration to fashion.

A keen interest in unusual materials kept Schiaparelli at the forefront of design innovation. She was persistent in accruing new fabrics for fashion, especially manmade fabrics which were intentionally different from natural fabrics. Her use of cellophane like materials played on the illusions of transparency (The Torso, Picture Book, P.65), and hard rendered soft materials challenged the traditional notions of the properties of materials. In one instance Schiaparelli commissioned the creation of a newspaper-clipping fabric, producing a paradox between the expected ruffle and stiffness of newspaper with the softness of fabric. She also designed a number of accessories to complement her garments; costume jewelry, hand bags as bird cages and even necklaces made of insects (Picture from Elsa picture book, P.43). Most of these were created to make a statement rather than to be worn on the street.

Not only was Schiaparelli eager to use unconventional materials in her garments, she was also zealous in adopting new fashion innovations of her time. Invented in 1936, the zipper was already being used by Schiaparelli in imaginative ways. Though we may look at a wool dress with a zipper and contrasting colours and see nothing sublimely Surreal about it now, at the time it was considered novel and daringly inventive.

In the 1937-38 season, Schiaparelli “shocked” the world with her Jean Cocteau jacket (Martin, P.100). The jacket presents an illusion of hands clasping the waste complemented by the profile of a figure and a cascade of hair down the side of the arm. In typical Surrealist style it creates a friction between the figure on the jacket and the wearer, frustrating the viewer’s attempt to place parts of the body in relationship with the figure. That same year also saw the creation of the iconic, Dali inspired lobster dress (Picture book, P.46). An elegant party dress imprinted with a giant lobster. The lobster was a prime example of the Surrealist vocabulary of forms, Dali using it as a substitute for female genitalia and sexuality.

Of all of Schiaparelli’s artistic collaborations, it is the one with Salvador Dali which produced some of the most imaginative and unusual results. In 1936, Schiaparelli and Dali presented suits and jackets with bureau-drawer pockets reflecting themes prevalent in Dali’s Art. In that same year, she and Dali created the “Shoe Hat” (Martin, P.111), a black felt concoction in the shape of a high-heeled shoe with a shocking pink heel. In these designs, Schiaparelli and Dali used the idea of displacement, where an object is selected and then removed from its usual environment. In doing so, they modify the object’s original purpose. The same Surrealist idea of displacement can also be seen on another of their collaborations, the “Mutton Hat” (Example?). With the desk suit, shoe hat and mutton hat, the artist and the designer altered an object’s conventional meaning by transforming it into an item of clothing.

The beginning of the Second World War put a halt on Schiaparelli’s work, which after the war would not return to the same level of exuberance as the past. Her glory was brief, but left a lasting impact on both art and fashion. Perhaps Schiaparelli’s most important legacy was in bringing to fashion the playfulness and sense of “anything goes” of the Dada and Surrealist movements. She was an artist in the world of couture, not a designer involved in the evolution of designs. A pioneer, whose inspiration and merger of the arts altered clothing with a capacity to be art, enabling it to be more than just apparel.

Case Study 2: Viktor & Rolf

Viktor & Rolf started in 1993 with the pairing of two Dutch graduates, Viktor Horsting and Rolf Snoeren. Ever since then they have endeavoured to blur the line between art and fashion. Through their early instillations at European galleries, Viktor & Rolf quickly gained a reputation as high-end conceptual designers who created images and ideas rather than commercial fashion (Evans C. and Frankel S. 2008, P10). Though early on they were known for wowing the fashion press but not selling a stitch Viktor & Rolf made a move from haute couture to ready-to-wear in 2000.

Similar to conceptual art, conceptual fashion involves works in which concepts and ideas take precedence over traditional aesthetic and material concerns. Aside from the garments themselves, conceptual fashion was marked with radically new retail spaces, experimental fashion shows and adventurous publishing ventures. All of which have been exemplified in the works and methods of Viktor & Rolf; their upside down store in Milan, performance piece catwalk shows and designs for “miro-zines” such as Visionaire.

For Viktor & Rolf, couture is an artistic medium, and a playground for the expression of ideas. They are innovative designers who make exquisite and technically amazing garments, yet at the same time they are commentators of their own industry. This is probably most evident in their early gallery installations, as many were critiques and commentaries on the difficulty of breaking into the fashion industry. The pair’s first collection of over-sized dresses expressed their feelings of minuteness in the threatening world of Paris fashion. The internal referencing of the industry itself can also be seen in Viktor & Rolf’s use of Yves Saint Laurent emblazoned fabrics and paying homage to the iconic silhouettes of Chanel, Balenciaga and Yves Saint Laurent in their “Black Hole” collection. More recently their “The Fashion Show” collection presented their view on the importance of the fashion show itself to the industry. The garments for this collection were draped over scaffolding and spot lights worn by the model in a surreal juxtaposition of hard metallic frames and soft flowing fabric.

Having mostly displayed their work through art gallery instillations for the initial few years of their career, Viktor & Rolf had their first fashion show during the 1998 Paris Fashion Week, albeit without the endorsement of the Chambre Syndicale de la Haute Couture, the regulators of haute couture. However, even then, their works hardly existed outside the realm of the fashion show. As one magazine put it “their gowns tend to go straight from the catwalks into art museums rather than into wardrobes” (Tuner J. 2000).The almost virtual nature of their garments prevented them from initially being granted admittance to the Chambre Syndicale. Despite not conforming to the Chambre’s requirements, it was their success in the fashion press and magazines that eventually gained them the respect and recognition for membership.

Through their simulation of an emergence into the fashion industry via media channels, Viktor & Rolf were able to do it for real. In doing so, they had also discovered the rising importance of images in an ever more media rich society. They grappled with the philosophy that our perception of reality is shaped by images and that illusion is now a new form of reality; believing that “fashion doesn’t have to be something that people wear. Fashion is also an image” (Gan S. 2001). This ideology is personified in their Autumn/Winter 2002-03 collection labelled “Bluescreen”. Models dressed all in blue were recorded via a video camera with the image then being projected onto large screens. On the screen, urban and natural landscapes were transposed onto the blue areas utilizing a movie industry method for creating special effects, thus creating a blur between image and reality.

The innovative and often outlandish clothes produced by Viktor & Rolf where often complimented by the surreal theatrics of the fashions shows that they were displayed in. In their Autumn/Winter 1998-99 collection “Atomic Bomb”, the duo fused the silhouette of mushroom clouds with the human form by installing silk padding to inflate the clothes. The apocalypse themed show was followed by models parading the same outfits, however with the implants removed to reveal the graceful draping of the clothes. They used a similar dichotomy in their Spring/Summer 2006 “Upside Down” collection, showcasing pieces that could be worn bottom up or bottom down; presented on the catwalk one way then the other. Applying the same surreal reasoning, the show itself was presented entirely backwards, with the designers appearing first followed by a procession and then the presentation of each individual piece.

Perhaps one of Viktor & Rolf’s most memorable shows was for their Autumn/Winter 1999-2000 “Russian Doll” collection. The show was more a performance piece, involving just one model who was dressed one piece at a time in layers of couture dresses by the designers themselves. The resulting effect was that of a reverse Martryoshka doll. This fascination with dolls has been prevalent throughout their career since their “Launch” instillation of miniatures in 1996 to their latest offering at London’s Barbican Art Gallery. Proving that their move to more commercial markets has not diminished the duo’s affinity towards Surrealism, the 2008 Barbican display consists of a gigantic dollhouse inhabited by 55 dolls clothed with miniaturised Viktor & Rolf outfits showcasing their 15 year career, aptly named “The House of Viktor & Rolf”.

In 2004 the duo launched a perfume called “Flowerbomb” and in fine Surrealist fashion packaged it in a grenade shaped bottle. Complimenting that was a clothing collection featuring the excessive use of oversized bows and ribbons. Viktor & Rolf’s penchant for the Surrealist ideology of displacement of objects can be further witnessed by their “Bells” collection of garments, heavily embroidered with brass bells, and the use of pillows and quilting in their intimate “Bedtime Story” collection.

Not only do Viktor & Rolf draw on the ideologies of the Surrealism movement, but their works also show inspiration from other Surrealist artists. The ever present trait of medieval carnival was brought out explicitly in their Spring/Summer 2008 “Harlequin” collection. The garments exhibited references to commedia dell’arte, a theme that was once adopted by the queen of Surrealist fashion, Elsa Schiaparelli (Evans C. and Frankel S. 2008, P16). Motifs of violins adorning the dresses paid homage to Surrealist photographer May Ray and his famous image, Le Violon d’Ingres (Image 2).

Though not known specifically as Surrealist designers the characteristics of Surrealism are clearly evident in Viktor & Rolf’s designs. They have used Surrealist methods such as the displacement of objects, manipulation of the human form and merging of the real and imaginary as tools for their own conceptual ideas. Just like their predecessors, in the likes of Elsa Schiaparelli, they employ these methods to create innovative and “shocking” garments often more akin to art, than off-the-shelf fashion.

The Lasting Impact of Surrealism on Fashion

Conclusion

When Surrealism came to fashion it was with a passion, engulfing the fashion arts with an enthusiasm that has never left. Over time ideas about fashion presentation in magazines, window displays and apparel have evolved, but Surrealism remains fashion’s favourite art.

The collaboration between artists and designers allowed for fashion to move forward in unprecedented ways, pioneered by the likes of Dali and Elsa Schiaparelli, and exemplified in today’s fashion by the likes of Viktor & Rolf.