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  • Section (7) Regulations Pertinent to Accounting Policies to be Adopted and the Necessary Forms Needed to Prepare and Present Reports and Financial Statements – Takaful

    • Article (1) – Preparation of Financial Statements

      1. The Company shall prepare its financial statements in accordance with the International Financial Reporting Standards and the Authority accounting policies and forms stipulated herein, and shall provide the Authority with a detailed financial report in accordance with the applicable requirements of the Authority.
         
      2. The Company that is providing Takaful Insurance of Persons and Funds Accumulation operations in addition to Property and Liability Takaful insurance operations must generate separate financial statements for each type of business and consolidated financial statements according to the attached forms in Appendix (1).
         
      3. The Company shall submit its annual financial and closing statements including their notes to the Authority in both languages; Arabic and English.
         
      4. The Company shall submit its quarterly financial statements including notes to the Authority in Arabic. Submission in English is optional.
         
      5. Further guidance on preparation of financial reports in Addendum (1) of the regulations herein shall be applied.

    • Article (2) – Amendments to Financial Statements

      The Authority shall have the right to add any items to the forms required for the financial reports and statements, amend or cancel such forms, or to add any other forms.

    • Article (3) – Wakala and Mudaraba’ Fees

      1. Takaful operators shall charge fees either based on a Model (Wakala fees as a percentage of total subscriptions and Mudaraba fees as a percentage of investment income) or only a Wakala Model (Fees charged as a percentage of surplus income from underwriting and investment Takaful).
         
      2. The model and the limits defined by each Takaful operator and any subsequent changes in the model to be adopted by a Takaful operator shall be approved by the Shari’a Committee of the Takaful operator and the Authority.
         
      3. Wakala and Mudaraba fees that are charged to the participants account are determined as follows:

        a) A percentage not exceeding (35%) of gross written contributions and participants investments revenues accrued during the financial year. The shareholders account should bear all operational, administrative and general expenses for Takaful insurance business. The participants account shouldn’t bear any expenses other than the percentage mentioned in this paragraph.

        b) The Authority shall determine the percentage for the saving family Takaful as per the actuarial rules and basis.

        c) All Takaful insurance Companies should align its operations according to the provisions mentioned in subparagraphs (a) and (b) of this paragraph from the next year of the year in which of these regulations were published.
         
      4. The Company may use up to 10% of the annual Insurance or Underwriting Surplus for participants’ funds after approval of the Shari’a Committee and the Authority.
         
      5. In exceptional circumstances, the Company may use up to 20% of the annual Insurance or Underwriting Surplus for participants’ funds if there is actuarial justification for a percentage higher than 10%, as noted in paragraph (4), and after approval of the Shari’a Committee and the Authority.
         
      6. Disclosure shall be made in the financial statements of the party that manages investment of participants’ funds and the shareholders’ funds and the remuneration it receives

    • Article (4) – Surplus/Deficit Allocation

      1. The Company must abide by the following in terms of surplus allocation:

        a) Allocation of surplus to all participants, regardless of whether or not they have made claims on the policy during the financial period.

        b) Allocation of surplus only among participants who have not made any claims during the financial period.

        c) Allocation of surplus among those who have not made any claims and among those who have made claims of amounts less than their insurance contributions, provided that the latter category of participants shall receive only the difference between their insurance contributions and their claims during the financial periods as a percentage of the surplus.
         
      2. There are a number of methods used to cover the insurance deficit. These include:

        a) To settle the deficit from the reserves of participants, if any.

        b) To borrow from the shareholders’ funds Qard Hasan the amount of the deficit, which shall be paid back from future surplus.
         
      3. The entire equities of the shareholders shall be made available as Qard Hasan in case of a deficit in the participants' funds.
         
      4. Disclosure shall be made in the financial statements of the allocation that would be made of any undistributed Takaful underwriting surplus, should the Company be liquidated.
         
      5. The Company must establish a policy for determining the surplus or deficit arising from its operations. The policy must determine the basis of distributing the surplus or deficit among the participants and the shareholders and the method of transferring between the participants and shareholders. The policy developed must consider the relevant International Islamic Standards connected to the AAOIFI (Accounting and Auditing Of Islamic Financial Institutions) Board including the accounting standard of ‛Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies’.
         
      6. If the Company offers different types of insurance products it can develop more than one policy for distribution of surplus/deficit.
         
      7. The Company shall develop separate policies for allocation of surplus/deficit for its Takaful Insurance of Persons and Property and Liability Takaful Insurance operations.
         
      8. The Company must determine any surplus or deficit arising on each separate Takaful fund. The surplus/deficit has to be determined in consultation with the Actuary for a Takaful insurance of persons’ fund.
         
      9. The policy developed must be approved by the Shari’a Supervisory Committee and provided to the Authority for approval. Subsequent to its approval by the Authority, the policy may not be amended without the approval of the Shari ’a Supervisory Committee and the Authority.
         
      10. Disclosure shall be made in the financial statements of the method used by the Company to cover the surplus/deficit.
         
      11. Disclosure shall be made in the financial statements on the Company’s policy to settle the deficit in the participants’ fund.

    • Article (5) – Reporting Requirements

      1. The Company shall provide the Authority with the financial statements attached in Appendix (1) herein according to a deadline set by the Law for the Operations of the Company in the UAE, its foreign branches and other related companies if applicable.
         
      2. In case of errors noted in the submitted financial statements, the Authority will request the Company to rectify the identified mistakes and revert to the Authority within the period set by the Authority.
         
      3. The Company should provide the Authority with a copy of the financial statement as per the below instructions:

        a) Quarterly financial statements:

        The Company should provide the Authority with quarterly financial statements signed by the Company’s General Manager and reviewed by the External Auditor. A limited review by the External Auditor is deemed to be sufficient for purposes of quarterly reporting. A forty-five (45) day period after the end of the quarter is the submission deadline.

        b) Annual financial statements:

        The Company should provide the Authority with annual financial statements audited by the External Auditor and signed by the Chairman of the Board of Directors and the General Manager. The submission date is determined based on the law governing the submission. The Annual report to be submitted to the Authority shall include the following:

        1) The External Auditor report for the Company on audited financial statements and Disclosures based on Appendix (1) of this regulation;

        2) The notes to the Financial Statements;

        3) The Report of the Board of Directors;

        4) The report of the Shari’a Committee;

        5) The Report of the Actuary of the Company;

        6) A description of the roles of the Actuary and the External Auditor in the preparation and audit of the annual financial statements; and

        7) The Management Report (not applicable to branches of Foreign Takaful operators).
         
      4. Further guidance on reporting requirements in Addendum (2) of the regulations herein shall be applied.

    • Article (6) – Addendums & Appendix

      The Addendums and Appendix attached to these regulations are an integral part of the regulations and are to be read along with the regulations. The format of the reports in Appendix (1) are shown as a general guideline, but are intended to follow the International Financial Reporting Standards which are expected to be updated periodically.

      • Addendums to Section 7 Accounting Policies to be Adopted and the Necessary Forms Needed to Prepare and Present Reports and Financial Statements- Takaful

        • Addendum (1)

          1. Any item required to be shown in a Company’s financial statement may be shown in a greater detail than required by the Appendix or in the actual forms specified by the Authority.
             
          2. In the event that any item is added to the forms, adequate justification must be given in the notes regarding the reasons for the item being disclosed separately.
             
          3. The Company must not include a heading or sub-heading corresponding to an item in the financial statement format used if there is no amount to be shown for that item for the financial year to which the financial statement relates. Where an amount can be shown for the item in question for the immediately preceding financial year that amount must be shown under the heading or sub-heading required by the format for that item.
             
          4. For every item shown in the financial statement the corresponding amount for the immediately preceding financial year must also be shown.
             
          5. Where that corresponding amount is not comparable with the amount to be shown for the item in question in respect of the financial year to which the financial statement relates, the former amount shall be adjusted, and particulars of the non-comparability and of any adjustment must be disclosed in a note to the accounts.

        • Addendum (2)

          The Management Report shall contain the following:

          1. Confirmation regarding the continued validity of the registration granted by the Authority;
             
          2. Certification that all the dues payable to the statutory authorities have been duly paid/accrued;
             
          3. Confirmation to the effect that the shareholding structure and any transfer of shares during the year are in accordance with the statutory or regulatory requirements;
             
          4. Confirmation that the required solvency margin has been maintained in compliance with the Regulations Pertinent to the Solvency Margin and Minimum Guarantee Fund - Takaful issued by the Authority as per Section (2) herein;
             
          5. Confirmation that the assets have been valued in compliance with the Regulations Pertinent to Determining the Takaful Operator’s Assets that Meet the Accrued Insurance Liabilities issued by the Authority as per Section (4) herein;
             
          6. Confirmation to the effect that no part of the various funds maintained by the Company have been directly or indirectly applied in contravention of the Regulations Pertinent to the Basis of Investing the Rights of the Participants - Takaful issued by the Authority as per Section (1) herein;
             
          7. The Company’s risk management strategies and practices, to be disclosed separately for participants and shareholders, must include the following:

            a) A summary of the significant internal and external risks facing the Company;

            b) A summary of the Company’s risk management policies (including, but not limited to, underwriting, credit, investment, reserving, legal, operational and group risks); and

            c) A summary of the Company’s risk monitoring organization and processes, including details on the Company’s risk management and internal audit functions; the use of reinsurance; and controls on underwriting, credit and investment risk.
             
          8. Operations in other countries, if any, with a separate statement providing management’s estimate of country risk, exposure risk and the hedging strategy adopted by country;
             
          9. Aging of claims indicating the trends in average claim settlement time and amount during the preceding five years;
             
          10. Review of asset quality and performance of investment portfolios relevant to real estate, loans, investments, etc., disclosed separately for participants' funds and shareholders' funds.
             
          11. A responsibility statement from the management indicating therein that:

            a) In the preparation of financial statements, IFRS have been followed along with proper explanations relating to material departures, if any;

            b) The management has adopted accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the operating profit or loss and of the profit or loss of the Company for the year;

            c) The management has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the applicable provisions of the Authority, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

            d) The management has prepared the financial statements on a going concern basis; and

            e) The management has ensured that an internal audit system commensurate with the size and nature of the business exists and is operating effectively.
             
          12. Details of any shares in the company held by its Directors and Chief Executive Officer/General Manager shall be disclosed.
             
          13. The following information relating to corporate governance shall be included:

            a) Information on the corporate governance (including IT Governance) rules and framework adopted within the Company;

            b) Information about the Board of Directors and Board of Directors’ Committees (if any). This must include details of Board of Directors membership (including a summary of each Board of Directors member’s professional experience, qualifications, date of appointment, remuneration paid and other Directorships held); details of the membership and mandates of any Board of Directors’ Committees; and the number of Board of Directors meetings and any Board of Directors’ committee meetings held during the financial year in question;

            c) Information on the composition and role of various other Board of Directors and Management Committees;

            d) Information about the managerial structure. This must include a summary of the Chief Executive Officer’s/General Manager’s professional experience, qualifications and date of appointment; a summary of any management committees, their mandates and membership; and a summary of the senior management structure and reporting lines; and

            e) Information about the Company’s basic organizational structure, including a clear description of the lines of business and legal entity structures.

      • Appendix 1 Financial Statement Forms