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  • Takaful Insurance Companies

    • Takaful Insurance Regulations

      • Regulation Regarding Takaful Insurance

        • Article (1)

          • Introduction

            1.1 The Central Bank seeks to promote development of the Takaful Insurance activities to ensure its effectiveness and efficiency. To achieve this, Takaful Insurance Companies that conduct its businesses and activities in accordance with the Islamic Shari’ah must ensure that all its businesses and activities are compliant with the requirements set in this Takaful Insurance Regulation (“the Regulation”) and other regulations and standards issued by the Central Bank and the Higher Shari’ah Authority (“HSA”).

            1.2 This Regulation is issued pursuant to the powers vested in the Central Bank under the provisions of the Federal Law No. (6) of 2007 on Organization of Insurance Operations and its amendments, and the Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities and its amendments.

            1.3 Where this Regulation includes a requirement to provide information, or to take certain measures, or to address certain items listed as a minimum, the Central Bank may impose requirements, which are additional to the requirements provided in the relevant article.

        • Article (2)

          • الهدف

            الهدف من هذا النظام هو وضع حد أدنى للمتطلبات التي يجب على شركات التأمين التكافلي الالتزام بها في جميع أنشطتها وأعمالها، مع الأخذ في عين الاعتبار:

            أ.التحقق من سلامة أوضاع الشركات،
            ب.

            والمساهمة في تعزيز الاستقرار المالي، وحماية المشتركين.

             

        • Article (3)

          • Scope of Applicability

            3.1 The provisions herein apply to all Takaful Insurance Companies, incorporated, or to be incorporated, under the provisions of laws in force in the UAE, in practicing Takaful insurance business, as well as foreign Takaful Insurance Companies licensed to practice their businesses in the UAE, in accordance with the Islamic Shari’ah Provisions.

            3.2 Takaful Insurance Companies and their Takaful Insurance business are subject to the Executive Regulation, regulations, instructions, and resolutions issued by the Central Bank and the HSA pursuant to the provisions of Law and this Regulation.

        • Article (4)

          • Definitions

            4.1 The following words and expressions wherever used herein shall have the meanings ascribed thereto, unless the context requires otherwise:

            1. Islamic Shari’ah Provisions:
              1. The resolutions, Fatwas, regulations and standards issued by the Higher Shari’ah Authority in relation to activities and businesses of the Company ("HSA’s Resolutions"),
              2. The resolutions and Fatwas issued by the Internal Shari’ah Supervision Committee of the respective Company, in relation to activities and businesses of such Company ("ISSC’s Resolutions"), provided that they do not contradict HSA’s Resolutions.

               
            2. Contribution: The consideration which the Participant undertakes to pay on basis of the donation (Tabarru’) commitment for his/her subscription in Participants’ Account with the Company in order to compensate the damages or pay the benefits to the eligible beneficiary.
               
            3. Takaful Insurance: A collective contractual arrangement aiming at achieving mutuality and cooperation among a group of Participants against certain risks, whereby each Participant pays certain Contribution to form an account called the Participants’ Account. This account is used for paying the entitled compensations and/or benefits when risk is realized, in accordance with the terms and conditions. The Company manages this account and invests its funds.
              All transactions of the Takaful Insurance Company should be in accordance with the Islamic Shari’ah Provisions.
               
            4. Participants’ Account: An account created by the Company to deposit the Contribution amounts, the returns from its investment, and the revenues from the Takaful Reinsurance (Retakaful). The personal capacity implications should be attributed to this account and it should have financial independency from the Company. This account shall be responsible for compensating Participants, beneficiaries and affected third parties, in accordance with the terms of the Takaful Insurance Policies. The Wakala fees and the amounts of compensation and/or benefits are paid to the Participants from this account, in addition to the relevant allocations or reserves, as determined by the Central Bank. The Company must manage the account on behalf of the Participants by Wakala and it must represent it in all matters related thereto.
              This account is termed as (Risk Coverage Account) in family Takaful insurance.
               
            5. Takaful Insurance Accounts: It covers all the Company’s accounts, including Participants’ Accounts and/or Participants’ Accounts for family Takaful insurance, and shareholders’ accounts.
               
            6. Company/ Companies: The Takaful Insurance Company, which is incorporated and practices its business in accordance with the provisions of the Law, the Executive Regulation and this Regulation, and whose carried out businesses and activities are in accordance with the Islamic Shari’ah Provisions.
               
            7. Law: The Federal Law No. (6) of 2007 on Organization of Insurance Operations and its amendments.
               
            8. Executive Regulation: The executive regulation for the Federal Law No. (6) of 2007 issued under the resolution of the Insurance Authority’s Board of Directors No. (2) of 2009.
               
            9. Internal Shari’ah Supervision Committee: A body appointed by a Company, comprised of scholars specialized in Islamic financial transactions, which independently supervises transactions, activities, and products of the Company and ensure its compliance with Islamic Shari’ah in all its objectives, activities, operations, and code of conduct.
               
            10. Participant: An individual that holds a Participation Membership Policy and a Takaful Insurance Policy, who undertakes to regularly pay the Contribution, and who, or his/her legal heirs or assignees, where assignment is allowable, shall have the right to receive compensations or benefits provided by the Participants’ Account.
               
            11. Central Bank: Central Bank of the United Arab Emirates.
               
            12. Higher Shari’ah Authority: An authority that exercises the mandates and authorities stipulated in this Regulation and the notices issued by the Central Bank.
               
            13. Participation Membership Policy: The policy containing key bases and principles of Takaful Insurance applied by the Company to govern its relation with the Participants, which should be accepted by the Participant upon subscription.
               
            14. Takaful Insurance Policy: The policy concluded between the Company and the Participant that contains the contract’s terms and conditions, the rights and obligations of the parties or the beneficiaries of the Takaful Insurance as well as any endorsement to this policy.
               

            4.2 Save as provided for in Article (4.1), the words and expressions included herein shall have the same meaning assigned thereto under Article (1) of the Law.

        • Takaful Insurance Business

          • Article (5)

            • Practicing Takaful Insurance Business

              Takaful Insurance business shall be practiced by licensed Takaful Insurance Companies only.

          • Article (6)

            • Types of Takaful Insurance

              Direct Takaful Insurance activities are classified into three types:

              1. Takaful Insurance of persons and funds accumulation operations.
              2. Property Takaful Insurance.
              3. Liability Takaful Insurance.

          • Article (7)

            • Classes of Personal Takaful Insurance

              Personal Takaful Insurance includes the following classes:

              1. Family Takaful Insurance of all forms.
                 
              2. Health Takaful Insurance of all forms.
                 
              3. Personal Accident Takaful Insurance associated with family Takaful insurance.

          • Article (8)

            • Classes of Property and Liability Takaful Insurance

              Property and Liabilities Takaful Insurance includes the classes referred to in Article (5) of the Executive Regulation, provided that they do not include anything that contradicts Islamic Shari’ah Provisions.

          • Article (9)

            • Combining Takaful Insurance Types

              9.1 The Company may not combine the business of Personal Takaful Insurance and the business of Property and Liability Takaful Insurance.

              9.2 As an exception to Article (9.1) above, an existing Company that is licensed to carry out both types of insurance may continue to do so in accordance with the Article (25) of the Law.

          • Article (10)

            • Management of Takaful Insurance Operations

              Risk management and investment operations associated with Contributions shall be carried out by the Company on the basis of Wakala or Wakala and Mudaraba or any other form, provided that it is approved by the Central Bank and the HSA. The relationship between the Company and the Participant must be subject to these provisions stated in the Participation Membership Policy (“PMP”).

          • Article (11)

            • Participation Membership Policy

              11.1 The Company shall develop Participation Membership Policy to offer it to those who wish to subscribe in the Participants’ Account for any type or class of Takaful Insurance. The policy must be signed by both parties and a copy should be given to the Participant. The following must be taken in consideration when preparing the PMP:

              1. The PMP must be separate from the Takaful Insurance Policy, which must be consistent with the principles stated in the PMP.
              2. The PMP must address the bases and rules governing the Takaful relationship between the Company and the Participant, including the legal nature of this relationship.
              3. The PMP must elaborate that payments made by the Participant are made as donation (Tabarru’) commitment and/or investment for part of it, as applicable.
              4. The PMP must name the account in which the Participant will participate in.
              5. The PMP must disclose that the Company provides goodwill loan (Qard Hasan) when the assets of Participants’ Account are insufficient to repay the obligations incurred on such account.
              6. The PMP must state the amount of Wakala fees due to Company and the method of its calculation, as well as the share of the Company from the Mudaraba profit or Wakala fees for investing the Participants’ Account and the method of calculating such share or fees.
              7. The PMP must disclose the information that relates to the Company's policy for investing the portions allocated for investment from the Contributions, provided such policy is compliant with the Islamic Shari’ah Provisions.

              11.2 The PMP mentioned in Article (11.1) must be approved by the Company's ISSC.

              11.3 The PMP must then be presented to the Central Bank for approval before offering it to those concerned.
              After soliciting the opinion of the HSA, the Central Bank may object to the PMP contents if incorporating any provisions in contrary to legal provisions or Islamic Shari’ah Provisions, or if containing an explicit prejudice to the interests of the Participants.

              11.4 The Company must maintain a record of PMPs. Such record shall be subject to inspection and audit by the Internal Shari’ah Supervision Committee and the Central Bank.

        • Internal Shari’ah Supervision Committee

          • Article (12)

            • Formation of the Internal Shari’ah Supervision Committee

              12.1 The Company must form a committee to be called the Internal Shari’ah Supervision Committee (“ISSC”). The ISSC must consist of at least three members nominated and appointed as follows:

              1. The ISSC members must be nominated by the Company’s board of directors.
              2. The candidates' names and qualifications must be presented to the HSA at the Central Bank for approval at least forty-five days prior to the meeting of the Company's general assembly. In case the approval request is declined, the Company must nominate a substitute to the disapproved candidate.
              3. The candidates' names must be presented to the Company's general assembly to approve their appointment as ISSC members and must inform the Central Bank of the names of those appointed as ISSC members within ten days after the general assembly meeting.
              4. The ISSC membership term must be three years, which can be renewable.
              5. The ISSC members must elect a chairman and vice-chairman from amongst them. The chairman shall represent the ISSC before the Company’s board of directors, its general assembly, the Central Bank, and the HSA.

              12.2 In case a ISSC membership seat becomes vacant, the Company's board of directors must appoint a member to fill in the vacant membership to complete the duration stated in the Article (12.1/d), after presenting the nominee’s name and qualification to the HSA for approval. Such appointment must be presented to the general assembly of the Company in its first subsequent meeting for approval.

          • Article (13)

            • Fit and Proper Criteria

              A candidate to be a member in the ISSC must meet the conditions and criteria adopted by the HSA and issued by the Central Bank under this Regulation. Previous provisions in this regard must apply until the relevant standards are issued by the HSA.

          • Article (14)

            • Responsibilities of the Internal Shari’ah Supervision Committee

              14.1 The ISSC must undertake the following:

              1. Set the basic Shari’ah principles for the Company’s operations.
              2. Review all the Company's transactions, the Takaful insurance products, policies, contracts, and documents which the Company uses in order to ensure compliance with the Islamic Shari’ah Provisions; and approve the same before placing them into practical use.
              3. Review the Takaful insurance transactions and the investments conducted by the Company, and show to what extent they are compliant with the Islamic Shari’ah Provisions.
              4. Approve any activity carried out by the Company or reject it, if such activity is not compliant with the Islamic Shari’ah Provisions.
              5. Issue Fatwas, resolutions, and providing opinions in relation to Company’s activities presented to the ISSC. Insurance broker, surveyor, adjustor and consultant, and actuary - associated with a specific Takaful Insurance operation in a Takaful Insurance Company - may seek the opinion of the ISSC of the Company regarding the Islamic Shari’ah Provision for the operation they are involved in, and do that through the Company. The ISSC must provide them with its opinion through the Company.

              14.2 The ISSC may undertake other responsibilities that may be required by the HSA and issued by the Central Bank under this Regulation.

          • Article (15)

            • Authorities of the Internal Shari’ah Supervision Committee

              The ISSC resolutions are binding on the Company. The ISSC must have the right to access, at any time, all Company's records, contracts, and documents. The ISSC may require clarifications as it deems necessary to perform its tasks and the Company's senior management must provide such clarifications. In case the ISSC was not enabled to perform its functions, it must state that in a report to the board of directors. If the board of directors fails to meet the ISSC’s request, it must notify the HSA, whose resolution must be binding on the Company.

          • Article (16)

            • The Charter of the Internal Shari’ah Supervision Committee

              The Company must set, by a resolution of its board of directors, the charter for the ISSC. The charter must be in accordance with the format set by the HSA, and a copy thereof must be sent to the Central Bank for approval.

          • Article (17)

            • Annual Shari’ah Report

              17.1 The ISSC must prepare an Annual Shari’ah Report to the Company's general assembly, and it must be in accordance with the format set by the HSA, indicating the compliance of the Company with the provisions of Islamic Shari’ah in all its businesses and activities.

              17.2 The ISSC must provide the HSA with a copy of the Annual Shari’ah Report no later than one month prior to the date of the general assembly of the Company, in order to make any comments.

        • The Internal Shari’ah Control

          • Article (18)

            • The Internal Shari’ah Control

              Internal Shari’ah Control must be established in each Company according to what is required by the HSA and issued by the Central Bank.

        • The Higher Shari’ah Authority

          • Article (19)

            • The Higher Shari’ah Authority

              19.1 The HSA shall establish the Shari’ah general rules, standards, and Shari’ah principles for the businesses and activities of Companies. It shall undertake supervision and oversight on the ISSCs and the Shari’ah controls of Companies.

              19.2 The HSA shall state its opinion regarding the regulations and standards issued by the Central Bank pertaining to the Companies’ activities.

          • Article (20)

            • The Higher Shari’ah Authority Expenses

              Companies subject to the provisions of this Regulation must bear the expenses of the HSA, including remunerations, allowances and expenses of its members, and the mechanism of funding its establishment and continuity of its functioning, as determined by the board of directors of the Central Bank.

        • Takaful Insurance Accounts

          • Article (21)

            • Participants’ Accounts

              The Companies practicing all types and classes of Takaful Insurance must undertake to adopt complete separation between the personal Takaful Insurance business on the one hand, and the property and liability Takaful Insurance business on the other hand, in terms of technical, financial, and administrative aspects. In particular, there should be two accounts (or more) for the Participants completely separated per the type of insurance practiced by the Company.
              The funds available in each account must be allocated to meet the account’s liabilities and management expenses.

          • Article (22)

            • The Participants’ Accounts for Family Takaful Insurance

              The Contributions in the family Takaful insurance must be divided into two accounts:

              1. Investment Account: to which the portion of Contributions allocated for investment in this type of Takaful Insurance must be transferred.
              2. Risk Coverage Account: to which the portion of Contributions allocated for risk coverage in this type of Takaful Insurance must be transferred.

          • Article (23)

            • Accounts for Other Takaful Insurance Types and Classes

              23.1 One or more accounts called (Participants’ Account) must be opened with the Company per the non-family Takaful insurance types and classes. The accrued Contributions must be recorded in such account(s), in addition to the investment revenues realized from investing the funds accumulated in the said account(s).

              23.2 Due compensations and benefits must be paid from the Participants' Account in accordance with the terms and conditions of Takaful Insurance Policies.

              23.3 Inputs and outputs of such account(s) must be determined in accordance with the applicable accounting rules.

              23.4 The assets and liabilities of the Participants’ Account should be completely separate from the Company's assets and liabilities, and should not include the deposit required in accordance with Article (42) of the Law.

        • Participants' Rights

          • Article (24)

            • Sharing the Participants Accounts’ Surplus

              24.1 After soliciting the opinion of the ISSC, the Company must establish the rules under which Participants share the surplus realized in the Participants’ Accounts, either collectively for all accounts or individually for each account subject to complete separation between the family Takaful insurance accounts and other accounts; and provided that Participants in one account may not share in the surplus realized in the other account.

              24.2 The surplus in the Participants’ Accounts must be determined with the knowledge and approval of the Company's actuary.

              24.3 The Company may retain a portion of the surplus to form a contingency provision to counter future contingent circumstances, in addition to the technical provisions stated for in the Law as well as the instructions issued thereunder.

              24.4 The Company must not distribute profits to the shareholders from any surplus realized by the Participants’ Accounts, except for the consideration collected by the Company for managing such accounts as prescribed under the Participation Membership Policy or as an incentive in accordance with the Central Bank’s instructions in this regard.

          • Article (25)

            • Participation in the General Assembly Meetings

              25.1 After obtaining the approval of the competent authorities in the UAE, the Company must develop by-laws defining the eligible Participants who have the right to attend the Company's general assembly meetings of the Company. This must include setting the criteria to be met by the Participant to have the right to attend such meetings, either in terms of the size of his/her Contribution, the period of dealing with the Company, or other criteria. Such by-laws must be submitted to the Central Bank for approval.

              25.2 The Participants mentioned in Article (25.1) must be invited to attend the said meetings via the approved method in this regard, and they should be provided with all documents presented to the general assembly.

              25.3 The aforesaid Participants must have the right to attend and discuss matters arising. without having voting rights in the meetings.

          • Article (26)

            • The Actuarial Report on Reviewing the Takaful Insurance Accounts

              A Participant in the Takaful Insurance Accounts must have the right to receive a copy of the Actuary’s report on reviewing the Takaful Insurance Accounts, and the Company must meet his/her request within ten business days.

        • General Provisions

          • Article (27)

            • The Goodwill Loan (Qard Hasan)

              27.1 In case the Participants Account’s assets are insufficient to meet the account’s liabilities, the Company must provide a Qard Hasan to the Participants’ Account. This commitment in providing a Qard Hasan is not a contractual commitment towards the Participants’ Account but its purpose is to comply with this Regulation. The ISSC must ensure this commitment is not taken into account when determining the Wakala fee.

              27.2 The obligation to provide the Qard Hasan must be comprehensive subject to a maximum equal to the total of the Company’s shareholders equity.

              27.3 The Company has the right to recover this Qard Hasan from the realized surplus(s) in subsequent periods whether in one payment or several installments as decided by the Company's general assembly, and after obtaining the approval of the ISSC.

              27.4 In case the Company does not provide a Qard Hasan to meet a loss realized in the Participants’ Account(s), the Company must notify the Central Bank and carry out the necessary action within fifteen days from the date of notification. If the Company fails to do so, the Central Bank may take such actions deemed necessary, including the suspension of the Company from carrying out business for a period it deems appropriate.

          • Article (28)

            • Takaful Reinsurance

              28.1 The Company must ensure that its outbound or inbound Takaful reinsurance business (“Retakaful”) must be compatible with the Takaful Insurance basic principles and in pursuance to the directives and decisions of the ISSC.

              28.2 The Company may only cede the outbound reinsurance business to Retakaful or Takaful Insurance Companies. In case such Companies do not have the adequate capacity, or due to the requirements of distributing the liabilities and risks to a proper number of Companies, the Company has the right to deal with reinsurance Companies, as per the standards approved by the HSA and issued by the Central Bank under this Regulation.

              28.3 The Company may share the risks liability with Takaful Insurance Companies or insurance Companies as needed inside and outside the UAE.

          • Article (29)

            • Zakat Fund

              29.1 The Company must establish a Zakat fund to deposit the Zakat due on the Company's transactions as permissible under its articles of association.

              29.2 The Zakat fund must have an independent account from the other Company's accounts, whether those related to the shareholders or Participants. The ISSC must approve the method of managing the account.

              29.3 Disbursement from Zakat fund account must be made under a decision of the Company's board of directors, and in accordance with the Islamic Shari’ah Provisions as approved by the ISSC.

              29.4 The Company’s board of directors must develop by-laws to regulate the operation and management of Zakat fund, provided that members appointed to manage it must not receive any remuneration for their work in managing or supervising the fund.

              29.5 In all cases, the Company must calculate the Zakat due on the shareholders and must disclose it, after the approval of the ISSC, within the annual financial statements.

          • Article (30)

            • Breaching the Islamic Shari’ah Provisions

              In case it has been proven that the Company has carried out business not compliant with the Islamic Shari’ah Provisions, the Company must be required to rectify its status in line with the Islamic Shari’ah Provisions within thirty days from the date of notification. If the Company fails to do so, the appropriate legal actions may be taken, including the suspension of the Company from carrying out business. Anyone proven to have been involved in an intentional Shari’ah breach shall be held accountable.

          • Article (31)

            • Transfer of the Company Control

              The Company must obtain prior approval from the Central Bank regarding changes in the control over the Company. The control over the Company means having the capability whether directly or indirectly, to control the Company's decisions and its financial and Takaful policies.

          • Article (32)

            • Transfer of the Takaful Insurance Portfolio

              32.1 The provisions of the Law, in particular the provisions of Articles (71) and (72) thereof, shall apply to the procedures and method of transferring the Takaful Insurance portfolio.

              32.2 The Takaful Insurance portfolio may be transferred only to another Takaful Insurance Company that practices the same type and classes of the Takaful Insurance as practiced by the Company.

        • Final Provisions

          • Article (34)

            • Enforcement and Sanctions

              34.1 Violation of any provision of this Regulation may be subject to supervisory action and sanctions as deemed appropriate by the Central Bank.

              34.2 Without prejudice to the provisions of the Law, supervisory action and sanctions by the Central Bank may include withdrawing, replacing or restricting the powers of Senior Management or members of the Board, providing for the interim management of the Company, or barring individuals from the UAE insurance sector.

          • Article (35)

            • Interpretation of Regulation

              The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of this Regulation.

          • Article (36)

            • Publication and Application

              This Regulation shall be published in the Official Gazette in Arabic, and shall come into effect one month from the date of publication.

              1. A Company must comply fully with the provisions of this Regulation within the effective date.
              2. If the Company was not able to demonstrate full compliance within the effective date, then the Company must submit a plan within the effective date, to the Central Bank containing the steps that the Company will take in order to demonstrate full compliance. The Central Bank will decide on the adequacy of the proposed plan.

      • Standard re Shari’ah Governance for Takaful Insurance Companies

        • Article (1) Introduction

          1.1The Central Bank seeks to promote development of the Takaful Insurance activities to ensure its effectiveness and efficiency. To achieve this, Takaful Insurance Companies must have in place comprehensive and effective governance frameworks to enhance the compliance with Islamic Shari’ah Provisions to ensure their resilience, and promote general financial stability.
           
          1.2This Standard Re Shari’ah Governance For Takaful Insurance Companies (“the Standard”) is issued pursuant to the powers vested in the Central Bank under the provisions of the Federal Law No. (6) of 2007 on Organization of Insurance Operations and its amendments, and the Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities and its amendments.
           
           This Standard complements the requirements outlined in the Regulation Regarding Takaful Insurance and the Corporate Governance Regulation for Insurance Companies.
           
          1.3Where this Standard includes a requirement to provide information, to take certain measures, or to address certain items listed as a minimum, the Central Bank may impose requirements, which are additional to the requirements provided in the relevant article.
           

        • Article (2) Objective

          2.1The objective of this Standard is to set the minimum requirements for the Companies (“the Company”) to ensure their compliance with Islamic Shari’ah Provisions in all their objectives, activities, operations, and code of conduct.
           
          2.2This Standard elaborates on the supervisory expectations of the Central Bank with respect to Shari’ah Governance for Takaful Insurance Companies.
           

        • Article (3) Scope of Application

          3.1This Standard applies to all incorporated Takaful Insurance Companies. The Companies established in the UAE with Group relationships, including Subsidiaries, Affiliates, or international branches, must ensure that the Standard is adhered to on a solo and Group-wide basis.
           
          3.2This Standard must be read in conjunction with the standards and resolutions issued by the Central Bank and the Higher Shari’ah Authority (“HSA”) and notified to Takaful Insurance Companies.
           

        • Article (4) Definitions

          For the purposes of this Standard, the following words and phrases shall have the meanings stated below.
           
          a.Senior Management: The individuals or body responsible for managing the Company on a day-to-day basis in accordance with strategies, policies and procedures set out by the Board, generally including, but not limited to, the chief executive officer, chief financial officer, chief risk officer, and heads of functions of compliance, Internal Shari’ah Control, internal audit and Internal Shari’ah Audit.
           
          b.Independence: Ensuring that the ISSC is not subject to any form of undue influence when issuing resolutions and Fatwas in accordance with the Shari’ah parameters, and ensuring that the Internal Shari’ah Control Division and Internal Shari’ah Audit Division are also not subject to any form of undue influence. This should be carried out to strengthen the confidence of Participants, shareholders and stakeholders in the Company’s compliance with Islamic Shari’ah Provisions.
           
          c.External Shari’ah Audit: An annual assessment conducted by external body to inspect and assess the Company’s compliance with Islamic Shari’ah Provisions and the level of adequacy and effectiveness of its Shari’ah governance systems.
           
          d.Internal Shari’ah Audit: The regular process to inspect and assess the Company’s compliance with Islamic Shari’ah Provisions and the level of adequacy and effectiveness of Company’s Shari’ah governance systems.
           
          e.Islamic Shari’ah Provisions:
           
          a.The resolutions, Fatwas, regulations and standards issued or approved by the Higher Shari’ah Authority in relation to businesses and activities of the Company ("HSA’s Resolutions"),
           
          b.The resolutions and Fatwas issued or approved by the Internal Shari’ah Supervision Committee of the respective Company, in relation to businesses and activities of such Company ("ISSC’s Resolutions"), provided that they do not contradict HSA’s Resolutions.
           
          f.Contribution: The consideration which the Participant undertakes to pay on basis of the donation (Tabarru’) commitment for his/her subscription in Participants’ Account with the Company in order to compensate the damages or pay the benefits to the eligible beneficiary.
           
          g.Takaful Insurance: A collective contractual arrangement aiming at achieving mutuality and cooperation among a group of Participants against certain risks, whereby each Participant pays certain Contribution to form an account called the Participants’ Account.
           
           This account is used for paying the entitled compensations and/or benefits when risk is realized, in accordance with the terms and conditions. The Company manages this account and invests its funds.
           
           All transactions of the Company shall be in accordance with the Islamic Shari’ah Provisions.
           
          h.Participants’ Account: An account created by the Company to deposit the Contribution amounts, the returns from its investment, and the revenues from the Takaful Reinsurance (Retakaful). The personal capacity implications should be attributed to this account and it should have financial independency from the Company. This account shall be responsible for compensating Participants, beneficiaries and affected third parties, in accordance with the terms of the Takaful Insurance Policies. The Wakala fees and the amounts of compensation and/or benefits are paid to the Participants from this account, in addition to the relevant allocations or reserves, as determined by the Central Bank. The Company must manage the account on behalf of the Participants by Wakala and it must represent it in all matters related thereto.
           
           This account is termed as (Risk Coverage Account) in family Takaful insurance.
           
          i.Takaful Insurance Accounts: All accounts existing at the Company, including Participants’ Accounts and/or Participants’ Accounts for family Takaful insurance, and shareholders’ accounts, noting that the Takaful Insurance is exclusively of the Participants’ Accounts.
           
          j.Subsidiary: An entity (the 'first entity') is a subsidiary of another entity (the 'second entity') if the second entity:
           
          a.holds a majority of the voting rights in the first entity;
           
          b.is a shareholder of the first entity and has the right to appoint or remove a majority of the Board or managers of the first entity;
           
          c.is a shareholder of the first entity and controls alone, pursuant to an agreement with other shareholders, a majority of the voting rights in the first entity; or
           
          d.if the first entity is a subsidiary of another entity which is itself a subsidiary of the second entity.
           
          k.Affiliate: An entity that, directly or indirectly, controls, is controlled by, or is under common control with another entity. The term control as used herein shall mean the holding, directly or indirectly, of voting rights in another entity, or of the power to direct or cause the direction of the management of another entity.
           
          l.Fatwas: Juristic opinions on any matter pertaining to Shari’ah issues in Takaful Insurance, issued by HSA or ISSC.
           
          m.Internal Shari’ah Control Division (or Section): A technical division (or section) in the Takaful Insurance Company that supports the ISSC in its mandate.
           
          n.Internal Shari’ah Supervision Committee: A body appointed by a Company, comprised of scholars specialized in Islamic financial transactions, which independently supervises transactions, activities, and products of the Company and ensure its compliance with Islamic Shari’ah Provisions in all its objectives, activities, operations, and code of conduct.
           
          o.Board: Takaful Insurance Company’s board of directors.
           
          p.Group: A group of entities which includes an entity (the ‘first entity’) and:
           
          a.any Parent of the first entity;
           
          b.any Subsidiary of the first entity or of any Parent of the first entity;
           
          c.any Affiliate.
           
          q.Participant: An individual that holds a Participation Membership Policy and a Takaful Insurance Policy, who undertakes to regularly pay the Contribution, and who, or his/her legal heirs or assignees, where assignment is allowable, shall have the right to receive compensations or benefits provided by the Participants’ Account.
           
          r.Shari’ah Non-Compliance Risks: Probability of financial loss or reputational risk that Takaful Insurance Company might incur for not complying with Islamic Shari’ah Provisions.
           
          s.Confidential Information: Information that is publicly unavailable and which may only be disclosed where permitted.
           
          t.Regulation: Regulation regarding Takaful Insurance issued in 2022.
           
          u.Company/Companies: The Takaful Insurance Company, which is incorporated and practices its business in accordance with the provisions of the Law, the Executive Regulation and the Regulation regarding Takaful Insurance, and whose all businesses and activities are in accordance with the Islamic Shari’ah Provisions.
           
          v.Higher Shari’ah Authority: An authority that exercises the mandates and authorities stipulated in Regulation regarding Takaful Insurance and the notices issued by the Central Bank.
           

        • Article (5) General Requirements

          5.1The Company must comply with Islamic Shari’ah Provisions in all of its objectives, activities, operations and code of conduct at all times.
           
          5.2The Company must have in place governance controls and mechanisms in accordance to its size and complexity of its operations to ensure compliance with Islamic Shari’ah Provisions in all of its objectives, activities, operations and code of conduct.
           
          5.3Branches of foreign licensed Takaful Insurance Companies that conduct businesses and activities in accordance with the Islamic Shari’ah Provisions must adhere to this Standard or establish equivalent arrangements to ensure regulatory comparability and consistency. The equivalent arrangements, if applicable, shall include the matters related to general assembly, the Board and its committees without contradicting the prevailing laws in the UAE. The equivalent arrangements shall be submitted to the Central Bank for approval.
           
          5.4The Shari’ah governance of a Company must include the following as minimum requirements:
           
          a.Stating the responsibility of the Board in regards to the Company’s compliance with Islamic Shari’ah Provisions, the complete supervision on the Company, and establishing an adequate Shari’ah governance framework.
           
          b.Identification of the Senior Management responsibilities related to the Company’s compliance with Islamic Shari’ah Provisions and providing adequate resources for implementation of Shari’ah governance requirements to ensure that the Company’s businesses are carried out in compliance with Islamic Shari’ah Provisions.
           
          c.Appointment of a qualified Internal Shari’ah Supervision Committee (“ISSC”) in accordance with the fit and proper requirements set out in this Standard.
           
          d.Establishment of Internal Shari’ah Control Division.
           
          e.Establishment of Internal Shari’ah Audit Division1.
           
          f.Publication of the ISSC’s Resolutions regarding the Company’s products, services, fees, and other basic mechanisms governing its operations.
           
          5.5This Standard must be implemented through a set of policies and procedures that outline the structure, roles, responsibilities, accountability, scope and duties of different functions, and reporting lines and communication channels between different functions with regard to the Company’s compliance with Islamic Shari’ah Provisions.
           
          5.6The Company must spread awareness regarding Takaful Insurance and boost the culture of compliance with Islamic Shari’ah Provisions within the Company, including conducting workshops for the members of the Board and Senior Management on Takaful Insurance and compliance with Islamic Shari’ah Provisions.
           

          1 The requirements stated in (d) and (e) are not related to the number of employees within the concerned division, as the division can be managed by one person. The number of employees required is subject to the size and nature of the business of each Company. The number of employees is determined, after consultation with the ISSC, to carry out their responsibilities.

        • Article (6) Responsibilities of the Board

          6.1The Board of a Company is ultimately responsible for the Company’s compliance with Islamic Shari’ah Provisions. The Board is expected to be aware of Shari’ah Non-Compliance Risks and its potential impact on the Company. Accordingly, the Board is responsible for establishing and implementing a Shari’ah governance framework that is commensurate with the size and complexity of the Company’s operations and its risk appetite, to ensure its compliance with Islamic Shari’ah Provisions.
           
           The Shari’ah governance framework shall incorporate the three lines of defense approach comprising the business line, Internal Shari’ah Control function, and Internal Shari’ah Audit function.
           
          6.2The Board must nominate ISSC members to the general assembly which has the authority to establish the ISSC and to appoint its members.
           
          6.3The Board must, in coordination with the ISSC, ensure the development, approval and implementation of internal policies related to the Company compliance with Islamic Shari’ah Provisions.
           
          6.4The Board must maintain an effective communication with the ISSC, and conducting meetings to discuss issues pertaining compliance with the Islamic Shari’ah Provisions, with at least one meeting per financial year.
           
          6.5The Board must refer to the ISSC for all Shari’ah matters related to the Company’s activities, operations and code of conduct.
           
          6.6The Board must ensure that the annual Shari’ah report issued by the ISSC is submitted to the HSA for review and approval before presenting it to shareholders at the general assembly.
           
          Board’s Risk Committee
           
          6.7The Board’s Risk Committee (“Risk Committee”) must
           
          a.supervise and monitor management of Shari’ah Non-Compliance Risks, and set controls in relation to this type of risk, in consultation with ISSC and through the Internal Shari’ah Control Division.
           
          b.approve the establishment of framework for management of Shari’ah Non-Compliance Risks as part of the overall risk management system of the Company, and must review it and oversee its implementation by the Senior Management.
           
          c.ensure there is an information system that enables the Company to measure, assess and report Shari’ah Non-Compliance Risks. It must also ensure that reports are submitted on a timely manner to the Board and Senior Management, in suitable formats for their use and understanding.
           
          Board’s Audit Committee
           
          6.8The Board’s Audit Committee (“Audit Committee”) must:
           
          a.evaluate the effectiveness of the Company’s internal policies that were approved by the ISSC and designed to monitor compliance of the Company with Islamic Shari’ah Provisions.
           
          b.assess the effectiveness and adequacy of Internal Shari’ah Audit and its contribution in ensuring Company’s compliance with Islamic Shari’ah Provisions. The Audit Committee’s responsibility includes the following:
           
          -Assess the independence, effectiveness and adequacy of Internal Shari’ah Audit scope and programs.
           
          -Review the reports prepared by the Internal Shari’ah Audit Division to ensure that all necessary measures have been undertaken.
           
          -Facilitate the work of the Internal Shari’ah Audit Division.
           
          -Hold regular meetings with the head of the Internal Shari’ah Audit Division with a minimum of two meetings in a financial year.
           
          c.review the scope, results, and adequacy of the External Shari’ah Audit review (if applicable). In addition, the Audit Committee’s responsibility includes the following:
           
          -Facilitate the work of the External Shari’ah Auditor.
           
          -Review the reports prepared by External Shari’ah Auditor to ensure that the Senior Management have taken all necessary measures in this regard.
           
          -Hold meetings with the External Shari’ah Auditor with a minimum of once in the financial year.
           
          6.9It is recommended that the Audit Committee invites a member of the ISSC to attend the meetings when discussing the Internal Shari’ah Audit report to ensure compliance of the Company with the resolution of the ISSC concerning the content of the report. The Audit Committee and the member of ISSC cannot change the ISSC’s resolution in this regard.
           

        • Article (7) Responsibilities of the Senior Management

          7.1The Senior Management must execute and manage the Company’s businesses and activities in compliance with Islamic Shari’ah Provisions.
           
          7.2The Senior Management is responsible before the Board for:
           
          a.submitting Shari’ah matters related to all Company’s businesses and activities, including its policies, internal regulations, code of conduct, services and products to the ISSC, and should not consider approval of any of the Group’s Shari’ah supervision committees (or equivalent committees) outside the UAE as substitution to approval of the ISSC, and
           
          b.ensuring implementation of the ISSC’s Resolutions.
           
          7.3The Senior Management must fully disclose all relevant information required by the ISSC in a transparent, accurate and timely manner.
           
          7.4The Senior Management shall provide the ISSC with financial and human resources that are commensurate with the Company size and the nature of its business.
           
          7.5The Senior Management must:
           
          a.facilitate work of the Internal Shari’ah Control Division, Internal Shari’ah Audit Division and External Shari’ah Audit (if applicable),
           
          b.ascertain that the Shari’ah auditors are not obstructed in their work,
           
          c.enable Shari’ah auditors to access information or staff, from all different levels.
           
          7.6The Senior Management is responsible to establish sufficient knowledge regarding the compliance with Islamic Shari’ah Provisions in the Company.
           
          7.7The Senior Management must report to the Board regarding Company’s compliance with Islamic Shari’ah Provisions in all of its businesses, activities, policies, internal regulations, and code of conduct.
           

        • Article (8) Internal Shari’ah Supervision Committee

          Membership, Appointment and Composition
           
          8.1The Board shall nominate the members of the ISSC, and send the member’s appointment request to the HSA for approval prior to presenting its nomination to the general assembly.
           
          8.2The Company’s general assembly has the authority to appoint the ISSC members based on the Board’s nomination and after the HSA and the Central Bank’s approval.
           
          8.3The composition of ISSC members in a Company must not be less than (3) three members that meet the fit and proper criteria (as prescribed in this Standard).
           
          8.4Emirati members in the ISSC must not be less than one third.
           
          8.5The membership of each member in the ISSC is subject to the following:
           
          a.must not exceed three ISSC memberships in Takaful Insurance Companies inside the UAE,
           
          b.must not exceed a total of fifteen (15) ISSC (or equivalent committees) memberships in Islamic financial institutions and Takaful Insurance Companies inside and outside the UAE,
           
          c.only one member of the Company’s ISSC may have more memberships than what is stated in Article (8.5/b).
           
          8.6The HSA may exempt UAE nationals from the Article (8.5) if appropriate.
           
          8.7If a position of ISSC member becomes vacant, at any time, and that causes lack of quorum (more than the half), the Board must nominate a substitute member and seek approval as per the process in Article (8.2).
           
           However, if a position of ISSC member becomes vacant, at any time, and this leads to non-compliance with the Article (8.3) of this Standard, but it does not breach the quorum, the Board may appoint a member after obtaining approvals of the HSA and the Central Bank on the appointment. It is not required in this case to hold the general assembly for the appointment provided that the appointment is tabled to the general assembly for final approval in its next meeting.
           
          8.8The term of office for ISSC members shall be specified in the Company’s engagement letter with a minimum of three years, and may be renewed for a similar period based on the Board’s recommendation and after obtaining approvals of the HSA and the Central Bank, and presenting the same to the general assembly.
           
           The engagement letter must also specify the responsibilities of the ISSC members and their remuneration. The remuneration must not be linked to the performance of the ISSC members. Alongside the engagement letter, the Company must attach the ISSC charter.
           
          8.9The appointment of an ISSC member is valid for the said period, stated in Article (8.8), without the need to approach the HSA and general assembly for approvals every year. The approvals are required only in the following cases:
           
          a.First time appointment of the ISSC member/s; and
           
          b.Renewal of the appointment of the ISSC member/s for a similar period (three years).
           
          8.10The ISSC member must not serve the same Company as ISSC member for more than twelve years consecutively from the date of issuance of this Standard. The calculation of term period shall be restarted if membership is suspended for three years.
           
          Fit and Proper
           
          8.11Member of the ISSC must:
           
          a.be a Muslim individual (not a company);
           
          b.hold a bachelor degree (as a minimum) in Islamic Shari’ah, particularly in jurisprudence of financial transactions, from a university that is acknowledged in Shari’ah studies, or have a minimum of 10 years’ experience in Fatwas issuance related to jurisprudence of financial transactions;
           
          c.have proven competence and expertise, especially in jurisprudence of financial transactions;
           
          d.have a strong comprehension of insurance in general and Takaful Insurance in particular, and should have worked in the spectrum of Islamic finance and/or Shari’ah supervision for a minimum of ten (10) years whether in direct employment or advisory level, or at least fifteen (15) years of post-graduation experience in teaching and scientific research related to jurisprudence of financial transactions and Takaful Insurance;
           
          e.have good knowledge of the legal and supervisory framework related to financial and insurance activities in the UAE;
           
          f.be excellent in Arabic, and preferably to have good knowledge of English; and
           
          g.have good conduct and behavior, particularly with regard to credibility, integrity, and reputation in professional and financial transactions.
           
          8.12HSA may exempt UAE candidates from some of the clauses stated in Article (8.11) that would not impair their competence in performing their duties, provided that the candidate commits to the development and training required by the HSA.
           
          Termination or Resignation of ISSC Member
           
          8.13Termination or resignation of ISSC members requires a no-objection from the HSA and the Central Bank, before being presented to the general assembly for approval.
           
          8.14The request must clarify the reasons for termination or resignation of the ISSC member.
           
          Responsibilities of ISSC
           
          8.15The ISSC undertakes Shari’ah supervision of all businesses, activities, products, services, investments, contracts, documents, and code of conducts of the Company.
           
           The ISSC issues resolutions and Shari’ah Fatwas that are binding upon the Company. The members of the ISSC are accountable for the resolutions and Fatwas they issue to the Company, and their compliance with the standards and resolutions issued by the HSA.
           
          8.16The ISSC must monitor, through the Internal Shari’ah Control Division and Internal Shari’ah Audit Division, the Company’s compliance with Islamic Shari’ah Provisions.
           
          8.17The ISSC must hold at least four meetings per year, and at least one meeting per year with the Company's Board, in accordance to the format charter approved by the HSA.
           
          8.18The ISSC shall decide on Shari’ah matters that relate to all businesses and activities of the Company, including its policies, internal regulations and code of conduct, and this includes carrying out the following responsibilities:
           
          a.Reviewing the Takaful Insurance operating model, underlying contracts and supporting materials (e.g. underwriting and claims settlement manual/guidelines etc.).
           
          b.Reviewing and approving the policy and procedures that govern Takaful Insurance Accounts (e.g. segregation of accounts and transparent financial resources flow between the accounts etc.), surplus distribution, and deficit coverage
           
          c.Reviewing and approving the Company’s products, services and marketing materials.
           
          d.Reviewing and approving the investment policy and the Shari’ah screening criteria to ensure the compliance of the investment activities in both shareholders’ accounts and Participants’ Accounts, with the Islamic Shari’ah Provisions.
           
          e.Reviewing and approving the Retakaful agreements concluded by the Company to ensure their compliance with the Islamic Shari’ah Provisions.
           
          f.Setting controls for ceding to conventional reinsurance on an exceptional basis, and the permission to add the revenues from the conventional Reinsurance to the Participants’ Account.
           
          g.Setting controls for co-insurance with the conventional insurance companies.
           
          h.Reviewing the Zakat calculation and specifying the amount of Zakat due on each share of the Company.
           
          i.Reviewing the charity account before granting the approval for disposal.
           
          j.Reviewing the financial statements of the Company to ensure compliance with Islamic Shari’ah provisions.
           
          k.Preparing an annual Shari’ah report.
           
          l.Continuous monitoring the Company's business and activities, through Internal Shari’ah Control Division and Internal Shari’ah Audit Division, in terms of its compliance with the Islamic Shari’ah Provisions.
           
          8.19In fulfilling its responsibilities, the ISSC may engage the experts and consultants with appropriate expertise in the relevant fields (e.g. insurance, law, accountancy and investment management) as required. The said experts and consultants may attend and contribute to ISSC meetings without voting on the Fatwa or resolution.
           
          8.20In case a Shari’ah non-compliance issue is identified, the ISSC must review and approve:
           
          a.remedial measures, if such remediation is feasible.
           
          b.the treatment required by Shari’ah for the outcome of the Shari’ah non-compliance issue if the remediation is not feasible.
           
          c.preventive measures to avoid reoccurrence of such issues.
           
           Reporting the above to the Company’s Board or its relevant committee. If the Company fails to address the proposed remedial action, the ISSC must report it to the HSA or the Central Bank.
           
          8.21The ISSC must review and approve all business operations, products, services investments, and financial securities that the Company executes, issues, manages, promotes, or offers to its customers (Participants and potential Participants) in order to ensure the compliance with the Islamic Shari’ah provisions. The approvals from other ISSCs, within or outside the UAE, in relation to the above, should not be used as a substitute to the ISSC approval.
           
          Annual Shari’ah Report
           
          8.22The ISSC must issue an annual Shari’ah report stating the extent of Company’s compliance with Islamic Shari’ah Provisions. It should be published within the financial statement in the Company’s disclosures and other means possible, in accordance with this Standard and requirements issued by HSA.
           
          8.23The annual Shari’ah report of the ISSC must contain the main components specified by the HSA.
           
          8.24The annual Shari’ah report must be submitted to the HSA for review and approval prior to presenting the same at the general assembly.
           
          Performance Assessment of ISSC
           
          8.25The Company in coordination with the Chairperson of the ISSC shall develop an assessment for ISSC based on the following aspects:
           
          a.Shari’ah and scholarly aspects in terms of the member’s participation in decision making, discussions, and review of contracts, documents and reports submitted to the ISSC. This represents 70% of the assessment.
           
          b.Organizational aspect in terms of members’ attendance of meetings and adherence to meeting schedule (dates and times), and other procedures prescribed by the ISSC charter, in line with this Standard. This represents 30% of the assessment.
           
           The Company should inform each ISSC member upon appointment and at the beginning of each financial year about the assessment criteria.
           
          8.26At the end of the financial year, the Chairperson of the ISSC shall provide the HSA with a report on performance assessment taking into consideration the instructions issued by the Central Bank that relates to development and training of individuals who work in Shari’ah Supervision in Islamic financial institutions.
           
          8.27Based on the performance assessment, the Company may encourage the ISSC members to attend/participate to any relevant program/training that relates to global development in Takaful Insurance and Insurance.
           
          ISSC Charter
           
          8.28The Company must adopt a charter for the ISSC that defines details of decision making process and their implementation, and sets adequate methods to fulfill ISSC’s responsibilities without prejudice to the requirements of this Standard, and in accordance to the template approved by the HSA.
           
          ISSC Independence
           
          8.29ISSC members must be independent in conducting their responsibilities. The following controls and guidelines, as a minimum, must be observed to ensure the independence of ISSC members:
           
          a.A member of the ISSC must not have a first-degree relative as member of a Company’s Board or Senior Management in the Company.
           
          b.A member of the ISSC must not be an owner/shareholder of/in a company that provides consultancy or Shari’ah services to the Company where he/she acts as member of ISSC.
           
          c.A member of the ISSC must not be employees of the Company or any of its Affiliates when serving as member of the ISSC and should not provide services to the Company outside the scope of the ISSC’s assigned functions.
           
          d.A member of the ISSC shall not accept any allowance from the Company or its Affiliates other than the allowance he/she receives for being member of the ISSC, the allowance for attending ISSC meetings, and other matters related thereto. If a service or product is offered to a member of the ISSC, such member shall be treated as ordinary customers and shall not receive any preferential treatment.
           
          e.A member of the ISSC or his/her first or second-degree relatives, shall not own a share equal to/or more than 5% of the Company.
           
          f.A member of the ISSC must not hold controlling interests in companies’ shares and/or other investments in which the Takaful Insurance Accounts’ funds are invested in.
           
          g.The entitlement to ISSC allowances shall not be conditional on achieving certain results, or linking it to the results of the services provided by the ISSC (conditional remuneration).
           
          8.30In case of conflict of interest, including non-compliance with Article (8.29), a member of the ISSC must do the following to resolve the said case:
           
          a.disclose any conflict of interest cases, to the ISSC, related to his/her family members or business partners or companies he/she has interest in;
           
          b.where there is a temporary conflict of interest, abstain from participating in the relevant discussion, decision or action; or
           
          c.if the issue remains unresolved, the ISSC member with the issue of independence impairment must notify and report to the Company’s Senior Management in writing to take the necessary actions.
           
          8.31The Company must immediately notify the Central Bank if it becomes aware of any material information that may negatively affect the independence of any ISSC member.
           
          Accessibility
           
          8.32The ISSC members have the right to access at any time all the records, contracts and documents of the Company, and it may request the clarifications it deems necessary to perform its responsibilities, and the Company’s Senior Management must provide such clarifications and information.
           
          8.33In the event that the Company fails to enable the ISSC to perform its responsibilities, the ISSC must state the same in a report and submit it to the Company’s Board or the Board’s audit committee. If the ISSC’s request has not been addressed, the ISSC must inform the Central Bank and the HSA.
           
          Confidentiality
           
          8.34A member of the ISSC must not disclose Confidential Information of the Company unless such disclosure is required by the Central Bank or by law.
           
          Consistency
           
          8.35The ISSC members should strive to achieve unanimity in relation to the resolutions and Fatwas. The ISSC shall not resort to majority vote unless members are unable to reach unanimity within a reasonable period.
           
          8.36In cases where disagreement arises over a Shari`ah opinion, between members of the ISSC, or disagreement between the ISSC and the Board, over the compliance or noncompliance of a particular matter with the provisions of Islamic Shari`ah, the disagreement shall be referred to the HSA, whose opinion on the matter shall be final.
           

        • Article (9) Internal Shari’ah Controls

          9.1The Company must establish effective internal Shari’ah controls comprising three lines of defense approach that are independent from each other, which includes:
           
          a.the first line of defense, represented by the business line, which shall set clear policies, procedures, and controls, approved by the ISSC, for executing the business activities in a manner compliant with Islamic Shari’ah Provisions at all times.
           
          b.the second line of defense, represented by the Internal Shari’ah Control Division, which undertakes the functions prescribed in Article (10) , and it shall not be organizationally part of any business division or reporting to it.
           
          c.the third line of defense represented by Internal Shari’ah Audit Division, which undertakes Shari’ah audit and monitors compliance prescribed in Article (11), and it shall not be organizationally part of any business division or reporting to it.
           
          9.2The Company must provide sufficient financial and human resources that suit the size and nature of Company’s activities so that Internal Shari’ah Control Division and Internal Shari’ah Audit Division can carry out their work effectively and efficiently, in consultation with the ISSC.
           
          9.3The Internal Shari’ah Control Division and Internal Shari’ah Audit Division perform two different tasks, and must be separate from each other in terms of reporting and human resources, in accordance with the three lines of defense approach.
           

        • Article (10) Internal Shari’ah Control Division

          10.1.Each Company shall have in place an Internal Shari’ah Control Division in its Shari’ah governance framework. This division ascertains Shari’ah compliance and supports the ISSC in its duties. It is comprised a number of employees that is commensurate with the size and the nature of the Company’s operations. The ISSC shall supervise the work of this division from the technical perspective.
           
          10.2.The Company must have specified work procedures related to the Internal Shari’ah Control Division and it must carry out its duties in line with the said procedures.
           
          Fit and Proper
           
          10.3.The Company must appoint a head for the Internal Shari’ah Control Division, after obtaining the Central Bank’s approval, who shall report to the Board. The head of this division must:
           
          a.be a Muslim;
           
          b.have a university degree in Islamic Shari’ah, or relevant specializations;
           
          c.have a professional certificate in Shari’ah supervision and/or Takaful Insurance from one of the organizations that supports Islamic finance like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the General Council for Islamic Banks And Financial Institutions (CIBAFI), or other recognized institutions that issue similar certifications. It is also preferable to have a professional certificate in insurance issued by a local or an international organization;
           
          d.have an experience of ten (10) years, as a minimum, in the field of Shari’ah supervision in Islamic financial institutions, including at least five (5) years Shari’ah supervision in Takaful Insurance;
           
          e.practice his/her duties on full-time basis, and it is not permissible to combine between the job of a head of the Internal Shari’ah Control Division and any other job in the Company;
           
          f.have good conduct and behavior, where he/she must not have been sentenced by a court in crimes related to honor or honesty, or was convicted of offences and sentenced to imprisonment;
           
          g.have excellent command of English and reasonable command of Arabic.
           
          The Internal Shari’ah Control Functions
           
          10.4.The Internal Shari’ah Control Division shall undertake the following functions:
           
          Firstly: ISSC Secretariat Function
           
           This function undertakes the following:
           
          a.preparing, and organizing the meetings of the ISSC,
           
          b.preparing and drafting the minutes of the meetings,
           
          c.communicating the resolutions to the relevant functions of the Internal Shari’ah Control Division and Internal Shari’ah Audit Division in addition to other divisions in the Company,
           
          d.following up with resolution implementation as per the follow-up list required by the ISSC,
           
          e.filing resolutions and Fatwas, and
           
          f.Following up administrative matters related to the ISSC.
           
          Secondly: Shari’ah Consultations Function
           
           This function provides consultation based on the ISSC’s Resolutions in regards to:
           
          a.contracts, documents and other aspects related to the Company’s products and services, including products manual, policies, internal procedures,
           
          b.Company’s Shari’ah related inquiries and issues,
           
          c.marketing/advertising materials and publications,
           
          d.customers complaints (related to the compliance with Islamic Shari’ah Provisions), and
           
          e.other Shari’ah issues faced by the Company especially the ones related to Takaful Insurance operating model and products.
           
          Thirdly: Shari’ah Research & Development Function
           
           This function undertakes the following:
           
          a.conducting research for related Shari’ah and procedural issues requested by the ISSC,
           
          b.contributing, with other relevant divisions in the Company, to the development of products and formulation policies, procedures, and contracts, and
           
          c.other areas of development in the Company.
           
          Fourthly: Shari’ah Compliance Function
           
           This function does not report to any other compliance function in the Company. It concerns with Shari’ah compliance and it is responsible to conduct the following:
           
          a.performing regular Shari’ah monitoring and assessment on the Company’s businesses and activities to ensure Shari’ah compliance with resolutions, regulations, standards, which are issued by the Central Bank and the HSA,
           
          b.ensure the first line of defense conducts the tasks in accordance with the approved procedures from the relevant entities, in particular the ISSC (e.g. segregation between the Participants' Accounts and the Shareholders’ accounts, the existence of a documented and approved mechanism for the distribution of surplus to the participants, deficit in Participants' Account is covered via Shari’ah compliant mechanisms), and
           
          c.ensure the Company establishes a Zakat Fund.
           
           The Shari’ah compliance function must not be outsourced to external entities.
           
          Fifthly: Shari’ah Training Function
           
           This function is responsible for the following:
           
          a.conducting training for Company’s staff on those aspects of their duties related to Company’s compliance with Islamic Shari’ah Provisions,
           
          b.qualifying employees with the information and skills that they need based on the nature of work of each employee, to ascertain that the Company complies with Islamic Shari’ah Provisions at all times, and
           
          c.assisting the Senior Management in implementing a continuous professional Shari’ah-related training and development program.
           
          10.5.The Internal Shari’ah Control Division must not issue resolutions or Fatwas. Instead, the Internal Shari’ah Control Division must refer back to the ISSC in all matters that it considers and all tasks it carries out, unless there were resolutions or Fatwas issued for the matters before.
           
          10.6.Internal Shari’ah Control Division staff shall not undertake any executive powers or responsibilities related to the businesses and activities that may be monitored by themselves.
           
          Reporting Lines
           
          10.7.The Shari’ah compliance report must be submitted to the ISSC to look at the technical Shari’ah matters prior to submitting the same to the chief executive officer. The Shari’ah compliance function must have the right for direct access to the Board.
           
          10.8.The duties of the Shari’ah compliance function must complement the compliance function of the Company. This function must have a dotted reporting line to the head of compliance of the Company to submit reports regarding the compliance with Islamic Shari’ah Provisions for information. The head of compliance shall not have any authority or responsibility related to the Shari’ah Compliance function.
           
          10.9.In matters related to promotions, bonus, performance assessment, and termination, the Internal Shari’ah Control Division’s head and staff shall be carried out by the Board or its committees in consultation with the ISSC and it must not be carried out by the Senior Management.
           

        • Article (11) Internal Shari’ah Audit Division

          11.1.The Internal Shari’ah Audit Division undertakes Shari’ah audit and monitors Company’s compliance with Islamic Shari’ah Provisions. This is conducted through an annual plan to collect and assess evidence of Company’s activities and transactions to ensure their compliance with Islamic Shari’ah Provisions and ensure the adequacy of internal procedures and Shari’ah governance framework.
           
          11.2.Within the Shari’ah governance framework, the Company must have specified work procedures related to Internal Shari’ah Audit Division.
           
          Fit and Proper
           
          11.3.The Company must appoint a head for Internal Shari’ah Audit Division2, after obtaining the Central Bank’s approval, who shall report to the Board. The head of this division must:
           
          a.be a Muslim;
           
          b.have a university degree in Islamic Shari’ah, or relevant specializations;
           
          c.have a professional certificate in Shari’ah supervision and/or Takaful Insurance from one of the organizations that supports Islamic finance like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the General Council for Islamic Banks And Financial Institutions (CIBAFI), or other recognized institutions that issue similar certifications. It is also preferable to have a professional certificate in insurance issued by a local or an international organization;
           
          d.have an experience of ten (10) years, as a minimum, in the field of Shari’ah supervision in Islamic financial institutions, including at least five (5) years Shari’ah Control in Takaful Insurance;
           
          e.practice his/her duties on full-time basis, and it is not permissible to combine between the job of a head of Internal Shari’ah Audit Division and any other job in the Company;
           
          f.have good conduct and behavior and not have been sentenced by a court in crimes related to honor or honesty, or was convicted of offences and sentenced to imprisonment;
           
          g.have excellent command of English and reasonable command of Arabic.
           
          11.4.The internal Shari’ah auditor must meet the requirements mentioned in Article (11.3), except for the condition of experience; where the internal Shari’ah auditor must have a minimum practical experience of five (5) years in Internal Shari’ah Audit.
           
          The Internal Shari’ah Audit Functions
           
          11.5.Internal Shari’ah Audit Division shall carry out the following functions:
           
          a.Development of Internal Shari’ah Audit manual, and to undertake review and update the manual on a regular basis,
           
          b.Prepare the annual Shari’ah audit plan, which must be approved by the ISSC in coordination with the Audit Committee. This should adopt the best practices in this regard (for example, the risk based Shari’ah Audit),
           
          c.Undertake assessment of businesses and activities of the Company to ensure the Company’s Shari’ah compliance with the requirements issued by the Central Bank, resolutions of the HSA, and resolutions of the ISSC,
           
          d.Undertake assessment of effectiveness of the internal Shari’ah supervision to ensure that the Company’s compliance with Islamic Shari’ah Provisions,
           
          e.Ensure that the products and services, forms, contracts, agreements, the execution procedures of activities and transactions, and other related matters are approved by ISSC,
           
          f.Conduct regular field audit to the Company’s internal and external divisions, and branches (if any),
           
          g.Coordinate and exchange their findings and reports with the internal audit division,
           
          h.Prepare internal audit forms and programs required for conducting inspection, and to verify and document the sound execution of transactions in light of the HSA’s Resolutions and ISSC’s Resolutions,
           
          i.Conduct meetings with the Company’s divisions to discuss the Shari’ah observations and require setting appropriate measures to avoid such issues, in cooperation with relevant entities inside the Company, and
           
          j.Prepare a report of the outcomes of the Internal Shari’ah Audit.
           
          11.6.Internal Shari’ah Audit Division staff shall not undertake any executive powers or responsibilities related to the businesses, activities, and contracts that may be audited by them.
           
          11.7.The Internal Shari’ah Audit must not be outsourced to external entities. The Internal Shari’ah Audit division may be assisted by additional external bodies after the approval of the Central Bank.
           
          Reporting Lines
           
          11.8.The head of Internal Shari’ah Audit Division shall report to the Board. The head of Internal Shari’ah Audit Division shall submit the reports to the ISSC for resolutions on Shari’ah matters stated in his/her reports. He/she shall then report with the ISSC resolutions to the Audit Committee for the implementation of their content and follow-up of their requirements.
           
          11.9.The Internal Shari’ah Audit Division submits its reports to the ISSC and to the Audit Committee biannually (at minimum3).
           
          11.10.In matters related to promotions, bonus, performance assessment, and termination, Internal Shari’ah Audit Division’s head and staff shall not report to the Senior Management they are auditing, but to the Board, through the Audit Committee, and in consultation with the ISSC.
           

          2 In the event of not appointing a head for Internal Shari’ah Audit Division, the Company shall appoint a trainee auditor or more (depending on the Company’s size) and he/she meets the minimum requirements for internal Shari’ah auditor (not requirements for a head) to be trained in Shari’ah auditing. After five years of the issuance of this Standard, the name of trainee auditor shall be submitted to the Central Bank for approval as a head of this division. At the same time, the Company shall appoint an external Shari’ah auditing company to perform the responsibilities of the head of Internal Shari’ah Audit Division with the participation of the trainee Shari’ah auditor.
          3 The frequency of reports submitted by the Internal Shari’ah Audit division depends on the size and nature of the Company’s works, which might require submitting more reports.

        • Article (12) External Shari’ah Audit

          12.1The Company may appoint a specialized external body to conduct External Shari’ah Audit. This task must be undertaken by an independent external Shari’ah audit company approved by the Central Bank (“External Shari’ah Auditor”).
           
          12.2.The External Shari’ah Auditor shall assess compliance of the Company with the Islamic Shari’ah Provisions in light of inter alia the following:
           
          a.regulations and standards issued by the Central Bank from time to time; and
           
          b.HSA’s Resolutions and ISSC’s Resolutions.
           
           He/she must meet the ISSC members to discuss the findings, before preparing the report.
           
          12.3.The External Shari’ah Auditor shall prepare a report for the Company’s Board and ISSC, giving their opinion on:
           
          a.the status of Shari’ah compliance of the Company;
           
          b.the risks associated with the Shari’ah non-compliance;
           
          c.the capacity and quality of the entity’s risk management system to measure, manage and mitigate the Shari’ah Non-Compliance Risks; and
           
          d.any other issues deemed significant in External Shari’ah Auditor with respect to Islamic Shari’ah Provisions.
           

        • Article (13) Cancelation of the Previous Decision

          This Standard shall cancel and supersede the Insurance Authority Decision No. (50) of 2019 Concerning Enhancing the Shari’a Controller’s Role in Takaful Insurance Companies Operating in the State.

        • Article (14) Interpretation of Standard

          The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of this Standard.

        • Article (15) Compliance with the Standard

          15.1.The Company must set a Shari’ah governance framework in accordance to this Standard within 180 days from the date of issuing this Standard. The same must be submitted to the Central Bank for approval.
           
          15.2.The Company must comply fully with the requirements of this Standard within one year from publishing this Standard.
           

      • Standard Re Annual Shari’ah Report of Internal Shari’ah Supervision Committee for Takaful Insurance Companies

        N 880/2024 Effective from 9/2/2024

        • Article (1) Introduction

          1.1This Standard Re Annual Shari’ah Report of Internal Shari’ah Supervision Committee for Takaful Insurance Companies (“Standard”)complements the requirements outlined in the Regulation Regarding Takaful Insurance (“Regulation”),and the Standard Re Shari’ah Governance for Takaful Insurance Companies issued by the Central Bank, with the aim to promote development of the insurance system and to ensure its effectiveness and efficiency.
                     		  
          1.2Takaful Insurance Companies (“Company/Companies”) are required to have in place Shari’ah governance policies and mechanisms to ascertain that Annual Shari’ah Report that is issued by the Internal Shari’ah Supervision Committee (“Annual Shari’ah Report”) is compliant with requirements outlined in this Standard, and applicable standards and regulations.
                     		  
          1.3Where the Standard requires providing information, or undertake certain measures, or address particular provisions, as a minimum requirement, the Central Bank may impose (new) requirements additional to those specified in the relevant article (of the Standard).
                     		  

        • Article (2) Objectives

          2.1This Standard contains requirements and guidance that facilitate the implementation of the requirements related to the issuance of the Annual Shari’ah Report.
                     		  
          2.2The Standard provides clarity on the supervisory expectations with respect to the Annual Shari’ah Report.
                     		  

        • Article (3) Scope of Applicability

          3.1The Standard applies to all Takaful Insurance Companies licensed by the Central Bank.
                     		  
          3.2The Standard must be read in conjunction with the standards and resolutions issued by the Higher Shari’ah Authority (“HSA”) and notified to Companies.
                     		  

        • Article (4) General Requirements For Issuing The Annual Shari’ah Report

          4.1The Annual Shari’ah Report represents annual disclosure of the Internal Shari’ah Supervision Committee (“ISSC”) on the level of Company’s compliance with Islamic Shari’ah Provisions. Accordingly, responsibility for preparing the Annual Shari'ah Report rests with the ISSC, within the mechanisms and requirements stipulated in the Standard.
                     		  
          4.2The Annual Shari’ah Report shall be presented at the general assembly in accordance with the applicable regulatory requirements.
                     		  
          4.3The Annual Shari’ah Report shall be submitted to the HSA for review and approval prior to its submission at the general assembly, no later than one month prior to the date of the general assembly of the Company, in order to make any comments.
                     		  
          4.4The ISSC must verify accuracy and validity of all information in the Annual Shari’ah Report before its submission to the HSA.
                     		  
          4.5The ISSC must ascertain that all information required to be stated in the Annual Shari’ah Report as per the template in Article (6) are included in the designated places of the report before submitting it to HSA.
                     		  
          4.6The ISSC must ensure that all duties fulfilled by the ISSC, as outlined in the Annual Shari’ah Report, are well documented for audit purposes.
                     		  
          4.7The Company shall publish the Annual Shari’ah Report in the Company’s disclosures of financial statements and other available means.
                     		  

        • Article (5) Compliance With The Standard

          5.1The template of the Annual Shari’ah Report as per the Article (6) sets out the minimum requirements as to the principal information and disclosures to be included in the Annual Shari’ah Report.
                     		  
          5.2The ISSC may add further information to the Annual Shari’ah Report, if necessary, according to the template in this Standard.
                     		  

        • Article (6) Template For The Annual Shari’ah Report (English)

          Template for the Annual Shari’ah Report (English)

          Annual Report of the Internal Shari’ah Supervision Committee of (name of theTakaful Insurance Company)

          Issued on: (issue date)

          To: Shareholders of (name of the Takaful Insurance Company) (“the Company”)

          After greetings,

          Pursuant to requirements stipulated in the relevant laws, regulations and standards (“the Regulatory Requirements”), the Internal Shari’ah Supervision Committee of the Company (“ISSC”) presents to you the ISSC’s Annual Report for the financial year ending on 31 December (“Financial Year”).

           

          1.

          Responsibility of the ISSC

          In accordance with the Regulatory Requirements and the ISSC’s charter, the ISSC’s responsibility is stipulated as to:

          undertake Shari’ah supervision of all businesses, activities, products, services, contracts, documents and business charters of the Company; and the Company’s policies, accounting standards, operations and activities in general, memorandum of association, charter, financial statements, allocation of expenditures and costs, and distribution of profits between participants’ accounts and shareholders’ accounts (“Company’s Activities”) and issue Shari’ah resolutions in this regard, and

          determine Shari’ah parameters necessary for the Company’s Activities, and the Company’s compliance with Islamic Shari’ah Provisions within the framework of the rules, principles, and standards set by the Higher Shari’ah Authority (“HSA”) to ascertain compliance of the Company with Islamic Shari’ah Provisions.

          The senior management is responsible for compliance of the Company with Islamic Shari’ah Provisions in accordance with the HSA’s resolutions, fatwas, and opinions, and the ISSC’s resolutions within the framework of the rules, principles, and standards set by the HSA (“Compliance with Islamic Shari’ah Provisions”) in all Company’s Activities, and the Board bears the ultimate responsibility in this regard.
           

          		  
          2.

          Shari’ah Standards

          The ISSC shall comply with the Shari’ah standards issued and approved by the HSA.
           

          		  
          3.

          Duties Fulfilled by the ISSC During the Financial Year

          The ISSC conducted Shari’ah supervision of the Company’s Activities by reviewing those Activities, and monitoring them through the internal Shari’ah control division or section, internal Shari’ah audit division or section, and (if applicable) external Shari’ah audit, in accordance with the ISSC’s authorities and responsibilities, and pursuant to the Regulatory Requirements in this regard. The ISSC’s activities included the following:
           

          		  
           a.Convening (number) meetings during the year.
                     		  
           b.Issuing fatwas, resolutions and opinions on matters presented to the ISSC in relation to the Company’s Activities.
                     		  
           c.Reviewing and monitoring compliance of policies, procedures, accounting standards, operating model and product structures, contracts, documentation, business charters, and other documentation submitted by the Company to the ISSC for approval.
                     		  
           d.Reviewing the Takaful Insurance operating model, underlying contracts and supporting materials (e.g. underwriting and claims settlement manual/guidelines etc.).
                     		  
           e.Reviewing and approving the Company’s products, services and marketing materials.
                     		  
           f.Reviewing and approving the policy and procedures that govern Takaful Insurance Accounts (e.g. segregation of accounts and transparent financial resources flow between the accounts etc.), surplus distribution, and deficit coverage.
                     		  
           g.Ensuring the compliance of the segregation between Takaful Insurance accounts and shareholders accounts, allocation of costs and expenditures on the accounts, and the underwriting surplus policy with Islamic Shari’ah Provisions.
                     		  
           h.Reviewing the financial statements of the Company to ensure compliance with Islamic Shari’ah provisions.
                     		  
           i.Reviewing the investment policy and approving the Shari’ah screening criteria to ensure the investment activities in both shareholders’ accounts and participants’ accounts, are comply with the Provisions of Islamic Shari’ah.
                     		  
           j.Reviewing the risk ceding arrangements of the participants’ account with other insurance companies (Retakaful insurance, conventional reinsurance, co-insurance with Takaful insurance/conventional insurance companies) and confirming its compliance with Islamic Shari’ah Provisions.
                     		  
           k.Supervision through the internal Shari’ah control division or section, internal Shari’ah audit division or section, and (if applicable) external Shari’ah audit, of the Company’s Activities including supervision of executed transactions and adopted procedures on the basis of samples selected from executed transactions, and reviewing reports submitted in this regard.
                     		  
           l.Providing guidance to relevant parties in the Company - to rectify (where possible) incidents cited in the reports prepared by internal Shari’ah control division or section, internal Shari’ah audit division or section, and/or (if applicable) external Shari’ah audit - and issuing of resolutions to set aside revenue derived from transactions in which non-compliances were identified for such revenue to be disposed towards charitable purposes.
                     		  
           m.Approving corrective and preventive measures related to identified incidents to preclude their reoccurrence in the future.
                     		  
           n.Reviewing the Zakat calculation and specifying the amount of Zakat due on each share of the Company.
                     		  
           o.Communicating with the Board and its subcommittees, and the senior management of the Company (as needed) concerning the Company’s compliance with Islamic Shari’ah Provisions.
                     		  
           p.(add other works that the ISSC wants to mention in this report).
                     		  
            The ISSC sought to obtain all information and interpretations deemed necessary in order to reach a reasonable degree of certainty that the Company is compliant with Islamic Shari’ah Provisions. (the phrase “External Shari’ah audit” is included in the report if applicable, otherwise it should be deleted).
                     		  
          4.

          Independence of the ISSC

          The ISSC acknowledges that it has carried out all of its duties independently and with the support and cooperation of the senior management and the Board of the Company. The ISSC received the required assistance to access all documents and data, and to discuss all amendments and Shari’ah requirements. (Factors that have affected independence, if any, must be mentioned).
           

          		  
          5.

          The ISSC’s Opinion on the Shari’ah Compliance Status of the Company

          Premised on information and explanations that were provided to us with the aim of ascertaining compliance with Islamic Shari’ah Provisions, the ISSC has concluded with a reasonable level of confidence, that the Company’s Activities are in compliance with Islamic Shari’ah Provisions, except for the incidents of non-compliance observed, as highlighted in the relevant reports. The ISSC also provided directions to take appropriate measures in this regard.

          (Add a statement on any other breaches to the Shari’ah provisions, resolutions and controls established by the Higher Shari’ah authority, if applicable). 

          The ISSC formed its opinion, as outlined above, exclusively on the basis of information perused by the ISSC during the financial year.

          		  

           

           Signatures of members of the Internal Shari’ah Supervision Committee of the Company

          Member’s NameType of Membership Signature
          Member’s NameType of Membership Signature
          Member’s NameType of Membership Signature

           

           

          (End of the Template)

      • Standard Re Charter of Internal Shari’ah Supervision Committee for Takaful Insurance Companies

        N 882/2024 Effective from 9/2/2024

        • Article (1) Introduction

          1.1 This Standard Re Charter of Internal Shari’ah Supervision Committee forTakaful Insurance Companies (“Standard”) complements the Standard Re Shari’ah Governance forTakaful Insurance Companies that conduct their activities and businesses in accordance with the provisions of Islamic Shari’ah (“Company”/ “Companies”).
                     		  
          1.2 The Companies must establish Shari’ah governance policies and governance mechanisms to ascertain that the adopted Charter of the Internal Shari’ah Supervision Committee (“Charter”) is compliant with requirements outlined in this Standard and the relevant requirements outlined in the regulations, standards and resolutions issued by the Central Bank and the Higher Shari’ah Authority (“Regulations, Standards and Resolutions”).
                     		  
          1.3 Where the Standard requires providing information, or undertaking certain ( measures, or addressing particular provisions as a minimum requirement, the Central Bank may impose (new) requirements additional to those specified in the relevant article (of the Standard).
                     		  

        • Article (2) Objectives

          2.1 This Standard contains provisions and guidance to facilitate the implementation of requirements related to setting the Charter as stated in the Standard Re Shari’ah Governance for Takaful Insurance Companies.
                     		  
          2.2 This Standard clarifies the supervisory expectations with respect to the Charter.
                     		  

        • Article (3) Scope of Applicability

          3.1 The Standard applies to all Takaful Insurance Companies licensed by the Central Bank.
                     		  
          3.2 The Standard must be read in conjunction with the standards and resolutions issued by the Higher Shari’ah Authority and notified to Companies.
                     		  

        • Article (4) Compliance with the Standard

          4.1 The Template of the Charter, as per the Appendix, sets out the minimum requirements that must be stated in the Charter. The Company may state additional articles or details to the Charter’s Template provided that such addition does not contradict with the requirements stated in the relevant Regulations, Standards, and Resolutions.
                     		  
          4.2 The Takaful Insurance Companies must comply with the requirements stated in this Standard within one year from the date of issuance of the Standard.
                     		  

           

           

           

           

           

           

          Khaled Mohamed Balama

          Governor of the Central Bank of the UAE

           

        • Appendix: Template of the Charter

          • Charter for Internal Shari’ah Supervision Committee in (insert the name of the Takaful Insurance Company)

            • 1. Introduction

              This Charter specifies the functional controls of Internal Shari'ah Supervision Committee of (insert the name of the Takeful Insurance Company, and its meetings’ management, decision-making process, and other procedural matters (“Charter”).

            • 2. Definition of Internal Shari’ah Supervision Committee

              The Internal Shari’ah Supervision Committee (“ISSC”) is a body appointed by the Takaful Insurance Company, comprised of scholars specialized in Islamic financial transactions, with the mandate to independently supervise transactions, activities, and products of the Company to ensure it is compliant with Islamic Shari’ah in all its objectives, activities, operations, and code of conduct.

            • 3. Qualification of Members of ISSC

              Every member considered for, and appointed to the ISSC must meet the fit and proper requirements stipulated in the Regulations, Standards and Resolutions issued by the Central Bank and the Higher Shari’ah Authority (“Regulations, Standards and Resolutions”).

            • 4. Independence of the ISSC

              The Company must comply with the controls and guidelines specified in the Regulations, Standards and Resolutions to ascertain independence of the ISSC members.

            • 5. Appointment of ISSC, Membership Meriod, Dismissal And Resignation Of The Members

              1.5 The Company shall ensure that it executes and outlines:

                a.appointment and formation of the ISSC,
               
                b.duration of the membership, 
               
                c.dismissal or resignation of its members, as specified in the Regulations, Standards and Resolutions.
               
              2.5 The ISSC shall select from among its members a chairperson and a deputy chairperson in its first meeting.
               

            • 6. Responsibilities And Authorities Of The ISSC

              The ISSC shall adhere to the requirements regarding responsibilities and authorities of the ISSC stipulated in the Regulations, Standards and Resolutions.

            • 7. The ISSC’s Meetings And Issuance of Resolutions

              7.1The ISSC shall meet regularly, at least four times in the fiscal year, and the period between any two meetings shall not exceed 120 days.
                             		  
              7.2Quorum for ISSC meetings is constituted by presence of majority of the ISSC members. The ISSC resolutions are issued through the unanimous agreement or the majority vote by its members present in a meeting, and in case of tied votes, the vote of the chairperson prevails. The opinion of the member who is not in favour of the ISSC’s resolution must be recorded in the minutes of meeting with its reasoning.
                             		  
              7.3Attendance of an ISSC member must not be less than 75% of the total meetings held during a year. An ISSC member may attend or convene the meeting in full through video or audio means of communication, if necessary, provided that this is recorded in the minutes of the meeting and approved by the ISSC members.
                             		  
              7.4The ISSC may invite to its meeting the Company’s directors, employees, experts, advisors, and other parties that ISSC decides in order to obtain clarification regarding data and information needed by ISSC in relation to the issues under their review. The said attendees must not be present at the time of the ISSC’s decision-making in the related matters.
                             		  
              7.5The ISSC may issue resolutions by circulation in urgent cases, provided unanimity is reached. Every resolution issued by circulation shall be recorded in the minutes of the first meeting held after the issuance. In case of a disagreement, the ISSC shall hold a meeting as soon as possible in order to resolve lack of consensus.
                             		  
              7.6Resolutions of the ISSC must be written in a clear form, and be accompanied by procedures necessary for implementation of the provisions contained therein in a manner that ensures adequate execution. The ISSC specifies the details that must be accompanied with the resolution in relation to its implementation.
                             		  

            • 8. Methodology Of ISSC’s Functions

              8.1The ISSC must thoroughly investigate matters on its agenda to establish adequate (fact-based) understanding related to nature of the presented matter. If a matter does not become clear to the ISSC, the ISSC may postpone issuance of the resolution or request additional information or supporting studies, and accordingly (in this case) the subject matter shall be presented again after the request is addressed.
                             		  
              8.2The Company shall ensure that the ISSC is given sufficient time to investigate the matters submitted to the ISSC, and review any contracts and documents that may relate to the presented matters.
                             		  
              8.3The ISSC shall explore the Shari’ah ruling on the matter it is examining by leveraging the opinions of Shari’ah jurists in the credible schools of law, while ensuring that the Shari’ah ruling does not contradict the Shari’ah standards or resolutions issued by the HSA, even if such ruling differs from rulings issued by the ISSC in the past.

                             		  
              8.4Fatwas issued by ISSCs of other institutions are not binding on the Company’s ISSC, and existence of those fatwas do not obviate the need for a resolution from the Company’s ISSC, even if the members are same.
                             		  
              8.5The resolutions of the ISSC are binding on the Company in accordance with the applicable laws and standards.
                             		  
              8.6The Company shall comply with interpretations of the ISSC regarding the HSA’s resolutions and standards and their implementation.
                             		  

            • 9. Subcommittees Of The ISSC

              To facilitate the decision-making process in urgent matters, the ISSC may choose to authorize an executive member or an executive sub-committee, from among its members, and determine their responsibilities. Resolutions of the executive member or the executive subcommittee shall be presented to the ISSC at its subsequent meeting. Neither the executive member nor the executive committee has the right to issue a resolution on:

                a.transactions that contain new structures, business models, mechanisms, or documentation that have not previously been endorsed by the ISSC,
               
                b.transactions that may negatively impact some of the participants e.g., approving a particular policy for surplus distribution, or
               
                c.adopting a plan of internal Shari’ah audit or endorsing reports submitted by the internal Shari’ah audit.
               

            • 10. Internal Shari’ah Controls Functions

              The Company shall comply with the requirements related to Internal Shari'ah Control functions as stipulated in the Regulations, Standards and Resolutions.

            • 11. Engagement (Appointment) Letter

              The Company shall ensure that:

                a.the engagement letter by which a candidate is appointed to the ISSC conforms to the requirements specified in the Regulations, Standards and Resolutions,
               
                b.the candidate has accepted the content of the engagement letter before his/her name is submitted to the HSA and the General Assembly for approval, and
               
                c.the engagement letter must be available in Arabic.
               

            • 12. Approval, Effectiveness, Amendment and Review of the Charter

              The Charter may be amended based on a request by the ISSC and approved by the board of directors, and the amendment will be effective from the date of its approval. The ISSC reviews the Charter at least once every two years or sooner if needed.

               

              Approval of the Charter

               

              Sheikh:Mr./Ms.:
              Chairman of the ISSC Chairman of the Board

               

               

              ....................................................

               

               

              .......................................................

              Date of Signing:Date of Signing:
              Date of Approval: (Date of the latest signature above)

               

               

               

              (End of the Charter’s template)

    • Financial Regulations / Takaful

      • Insurance Authority Board Decision Number (26) of 2014 Pertinent to Financial Regulations for Takaful Insurance Companies

        IA-BOD-RES 26/2014 Effective from 28/12/2014

        Chairman of Insurance Authority

        Having considered:

        - Federal Law No. (6) of 2007 on Establishment of the Insurance Authority and Organization of the insurance operations and its amendments;

        - Board Decision No. (2) of 2009 related to the issuance of the Executive Regulation of the Federal Law No. (6) of 2007 on Establishment of the Insurance Authority and Organization of the insurance Operations and its amendments;

        - Decision No. (4) of the Insurance Authority' Board of Directors for the year 2010 on the Takaful Insurance Regulations; and

        - Pursuant to what has been presented by the Director General of the Authority and approved by the Insurance Authority Board of Directors, it was decided to issue the following Financial Regulations for Takaful Insurance Companies:

        Preamble: Glossary.

        Part One: Financial Regulations:

        Section 1The Basis of Investing the Rights of the Participants - Takaful.
        Section 2The Solvency Margin and Minimum Guarantee Fund - Takaful.
        Section 3The Basis of Calculating the Technical Provisions - Takaful.
        Section 4Determining the Takaful Operator’s assets that meet the accrued insurance liabilities.
        Section 5The Records which the Takaful Operator shall be obligated to Organize and Maintain as well as the Data and Documents that shall be made Available to the Authority.
        Section 6The Principles of Organizing Accounting Books and Records of Each of the Takaful Operators, Agents and Brokers and Determining Data to be maintained in these Books and Records.
        Section 7Accounting policies to be adopted and the necessary forms needed to prepare reports and financial statements and presentations - Takaful.

         

        Part Two: General Provisions.

        • The Board of Directors’ Decision No.( 22 ) of 2017 Concerning the Application of the Investment Limits Stipulated in the Financial Regulations for Insurance Companies and the Financial Regulations for Takaful Insurance Companies

          The Director General of the Insurance Authority;

          Having perused:

          - The Federal Law No. (6) of 2007, concerning the Establishment of the Insurance Authority and the Organization of Insurance Operations as amended, and its Executive Regulation;

          - The Board of Directors’ Decision No. (25) of 2014, Concerning the Financial Regulations for Insurance Companies;

          - The Board of Directors’ Decision No. (26) of 2014, Concerning the Financial Regulations for Takaful Insurance Companies;

          - And, pursuant to what has been presented by the Director General of the Authority and approved by the Insurance Authority Board of Directors,

          Has decided:

          • Preamble

            • Definitions

              • First Article – Glossary

                The following words and expression shall bear the meaning indicated beside each of them unless the context provides otherwise:

                StateThe United Arab Emirates.
                LawFederal Law No. (6) of 2007 on Establishment of the Insurance Authority and Organization of the insurance Operations and its amendments.
                Executive RegulationsThe Executive Regulation of the Federal Law.
                MinisterThe Minister of Economy.
                AuthorityThe Insurance Authority established by virtue of the provision of the Federal Law.
                BoardBoard of Directors of the Insurance Authority.
                DirectorGeneral Director General of the Insurance Authority.
                The CompanyThe Takaful operator, or foreign branch of a Takaful operator, licensed to carry out Takaful operations in the State, conducting its business according to the provisions of the Law, the Executive Regulations and the System of Regulations herein, whereas all its transactions are in conformity with the principles of Shari’a Law.
                Board of DirectorsBoard of Directors of the Company or its equivalent in the governance structure of Foreign Takaful Operators.
                Takaful InsuranceA collective contractual system aiming at attaining cooperation between a group of participants to face specific risks whereby each one of them pays a certain contribution that leads to formation of an account called the participants' account through which the due compensation will be paid to whomever the risks are realized in his respect. The Takaful operator will manage the account and invest the amounts collected therein against a specified remuneration.
                ParticipantThe person associated with a membership contribution document and concluded Takaful insurance contract and obligated to pay the contribution, who has the right, or his legal heirs have the right, or those assigned thereto have the right, in cases an assignment is permitted, to receive the compensation or benefits offered by the participant's account with company.
                ContributionThe amount which the participant undertakes to pay as an obligation to make donation against his contribution in Takaful insurance account with the company to compensate damages or pay benefits to whosoever deserve them.
                Takaful Insurance PolicyThe policy concluded by and between the company and the participant which embraces the terms of contract, the rights and obligations of the two parties and the beneficiaries of Takaful insurance and any endorsements thereto.
                Membership Contribution DocumentThe document containing the fundamentals and principles of Takaful insurance as approved by the company in respect of the participants' relation therewith which the participant has to agree thereto upon his contribution.
                Property and Liability Takaful InsuranceProperty Takaful insurance and Third Party Liability Takaful insurance shall include the branches referred to in Article (5) of the Executive Regulations provided they contain no matter in violation of the principles of Shari’a Law.
                Takaful Insurance of PersonsIt includes all forms of Takaful insurance of persons, Medical Takaful insurance of all forms and personal accidents Takaful insurance associated with Takaful insurance of persons.
                Technical ProvisionsThe provisions which the insurer (the Company) must deduct and maintain to meet the insured’s accrued financial liabilities as per Law's stipulations.
                ActuaryThe person who estimates values of the insurance contracts, documents and the related accounts.
                Risk Management PolicyThe process of identification, evaluation and mitigation of the economic effects of the past, present or future events, or their impact, that cause a Company to deviate from its stated objectives whether positively or negatively. These events can impact both the asset and liability side of the Company’s balance sheet, the Company’s profit and loss account, its cash flows, its earning capacity, profitability, ability to continue operating, reputation and its intellectual and technological capital. Risk management should be well integrated into the organizational structure and decision making processes.
                Risk AppetiteThe degree of risk that the Company and Board of Directors are willing to accept in respect of conducting the business.
                DerivativesA financial asset or liability whose value is derived from an underlying asset, liability or related index. Common forms of derivative instruments include forwards, futures, options, swaps, credit derivatives or combinations thereof (as applicable).
                InvestmentsThe act of investing, laying out money or capital by a Company with the expectation of profit.
                HedgingTo invest in a manner that reduces the risks related to underlying assets or liabilities.
                Total Invested AssetsThe sum of all assets held for investment purposes, including derivatives or other hedging instruments and cash.
                Admissible AssetsThe value of total assets, after taking into account the constraints and limitations that are taken into consideration when calculating the solvency margin of the Company.
                Solvency MarginFunds that the Company is required to maintain to fulfill the obligations of the Minimum Capital Requirement, Minimum Guarantee Fund and Solvency Capital Requirement.
                Minimum Capital RequirementThe minimum capital required to be maintained by a Company at all times as directed by the Authority.
                Own FundsThe capital that an insurance Company has available to meet solvency requirements, which includes Admissible Assets less liabilities.
                Solvency Capital RequirementFunds that the Company must maintain to cover current and projected operations during the next twelve months, which are measured to ensure that all quantitative risks have been taken into account.
                Minimum Guarantee FundFunds that the Company must maintain to cover current and projected operations during the next twelve months, which is at least one third of the Solvency Capital Requirement or a greater amount as determined by the Authority.
                Unearned Contribution Reserves (UPR)Provisions for the contributions which represent the portion of the contribution corresponding to the responsibilities extended beyond the date of the statement of financial position.
                Unexpired Risk Reserves (URR)Provisions for the contributions which represent the portion of the contribution subsequent to the financial statement date and where the contribution is expected to be insufficient to cover anticipated claims, expenses and a reasonable profit margin.
                Outstanding Loss Reserves (OSLR)Provisions representing claims that have been reported but not yet settled. Typically, this is the sum of the remaining liabilities for each open claim estimated on a case-by-case basis.
                Incurred but Not Reported (IBNR)Provisions for claims that have been incurred but not yet reported or have not obtained enough information related to such claims as of the reporting date.
                Allocated Loss Adjustment Expense (ALAE)or Unallocated Loss Adjustment Expense (ULAE) Provisions representing future claim expenses and related handling costs. The Allocated (ALAE) reserve is for expenses and costs that can be assigned to a specific claim. The Unallocated (ULAE) reserve is for all other overhead expenses and costs that can’t be assigned to a specific claim.
                Mathematical ReserveProvisions created for long-term insurance contracts (Takaful Insurance of Persons and Fund Accumulation operations products more than one year) to cover all future claim liabilities as determined by the Actuary.
                External AuditorThe External auditor licensed to operate in the State.
                Authority ExaminersEmployees of the Authority, or delegated personnel, authorized to perform examination and inspection of Company records, transactions and documents.
                Insurance AgentThe person approved and authorized by the Company to carry out insurance operation on its behalf or in behalf of any branch thereof.
                BeneficiaryThe person who acquired the rights of the Takaful insurance contract at the start or these rights that have been legally transferred thereto.
                Insurance or Underwriting SurplusThe residual amount in the participant’s fund of the total premium contributions provided by participants and its investments in addition to Re-Takaful yields or other revenues during the financial period after deducting the total of paid claims, changes in technical provisions and Wakala and Mudaraba fees during the period.
                Unit Linked Insurance PoliciesInsurance plans that provide the option to invest in any number of qualified investments, such as stock, bonds, mutual funds.
                  

                 

                 

                • Article (1)

                  The following words and expressions shall bear the meaning indicated beside each one of them unless the context provides otherwise:

                  State: The United Arab Emirates.

                  Law: Federal Law No. (6) of 2007 on Establishment of the Insurance Authority and Organization of the insurance Operations and its amendments.

                  Executive Regulation: the Executive Regulation of the Federal Law.

                  Authority The Insurance Authority.

                  Board: The Insurance Authority Board of Directors.

                  Director General: The Director General of the Insurance Authority.

                  The Company: The insurance company incorporated in the state or a branch of a foreign insurance company, licensed to carry out insurance operations in the State either through a branch or an insurance agent, including Takaful Insurance Companies.

                  Financial Regulations: Board of Directors’ Decision No. (25) of 2014 Pertinent to Financial Regulations for Insurance Companies and Board of Directors’ Decision No. (26) of 2014 Pertinent to Financial Regulations for Takaful Insurance Companies, as the case may be.

                  Investments: The act of investing, laying out money or capital by a Company with the expectation of profit or the process of investing or engaging funds or capital by the Company with the aim of achieving an expected profit, provided that this is compliant with the Islamic Shari’a provisions, as the case may be.

                  Investment limits: The limits of Asset distribution and allocation stipulated in the Financial Regulations.

                  Minimum Capital Requirement: The minimum capital required to be maintained by a Company at all times as directed by the Authority.

                  Solvency Capital Requirement: Funds that the Company must maintain to cover current and projected operations during the next twelve months, which are measured to ensure that all quantitative risks have been taken into account.

                  Minimum Guarantee Fund: Funds that the Company must maintain to cover current and projected operations during the next twelve months, which is at least one third of the Solvency Capital Requirement or as determined by the Authority.

                  Associate companies: The Company in which the insurance company owns 20% to 50% and has a significant effect on its decisions and in accordance with International Financial Reporting Standards.

                • Second Article – Glossary Application

                  The Glossary mentioned in the first article of this Section should be applied to all regulations and provisions identified in Part One and Part Two of these regulations.

                • Third Article – Regulations Application

                  The provisions of the regulations herein should be applied to Takaful insurance companies incorporated in the State and the Takaful foreign insurance companies licensed to practice the activity in the State.

            • Part One: Financial Regulations for Takaful Insurance Companies

              • Scope of Application

                • Fourth Article – Financial Regulations

                  The Financial Regulations for Takaful Insurance Companies include the following sections:

                  Section 1:Regulations Pertinent to the Basis of Investing the Rights of the Participants – Takaful
                  Section 2:Regulations Pertinent to the Solvency Margin and Minimum Guarantee Fund – Takaful
                  Section 3:Regulations Pertinent to the Basis of Calculating the Technical Provisions – Takaful
                  Section 4:Regulations Pertinent to Determining the Takaful Operator’s Assets that Meet the Accrued Insurance Liabilities
                  Section 5:Regulations Pertinent to the Records which the Takaful Operator shall be obligated to Organize and Maintain as well as the Data and Documents that shall be made Available to the Authority
                  Section 6:Regulations Pertinent to the Principles of Organizing Accounting Books and Records of Each of the Takaful Operators, Agents and Brokers and Determining Data to be maintained in these Books and Records
                  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 (2)

                    1: The Company shall implement the provisions contained in this decision when applying the Asset distribution and allocation limits contained in Chapter I of the financial Regulations.

                    2: The provisions of this Decision shall be read in conjunction with the financial Regulations and shall be deemed complementary thereto.

                    • Section (1) Regulations Pertinent to the Basis of Investing the Rights of the Participants – Takaful

                      • Article (1) – General Requirements for Investments

                        The Company shall apply the following rules in investments operations:

                        1. The Company must ensure that the assets are diversified and adequately spread and allow the Company to respond adequately to changing economic circumstances. In particular for developments in the financial and real estate markets or major catastrophic events; the Company must assess the impact of irregular market circumstances on its assets and must diversify the assets in such a way as to reduce such impact.
                           
                        2. Investments in products or instruments issued by the same issuer or by issuers belonging to the same group must not expose the Company to excessive risk concentrations. Limits defined for asset class and counterparty are defined in Article (3) and should be adhered to.
                           
                        3. An active Investment Committee should be in place to ensure there is adequate segregation of duties between execution, recording, authorization, reconciliation and related assurance.
                           
                        4. For the purpose of matching of Assets and Liabilities subject to paragraph (6) of this Article, the assets held by a Company to cover its technical provisions and all other long-term insurance liabilities must:

                          a) Have characteristics of safety, yield and marketability which are appropriate to the type of business carried on by the Company; and

                          b) Be diversified and adequately spread.
                           
                        5. The assets referred to in paragraph (4) must be of a sufficient amount, and of an appropriate currency and maturity, to ensure that the cash inflows from those assets will meet the expected cash outflows from the Company's Takaful liabilities as they become due.
                           
                        6. For the purpose of paragraph (4), a Company must take into consideration any options which exist in the Company's Takaful contracts when determining expected cash outflows.
                           
                        7. For the purpose of these regulations, paragraph (4) does not apply to assets held to cover unit-linked liabilities, except where the respective long-term insurance contract in question includes a guarantee of investment performance or some other guaranteed benefits, paragraph (4) will nevertheless apply to assets held to cover that guaranteed element.
                           
                        8. Further guidance for investments in Addendum (1) of the regulations herein shall be applied.

                      • Article (2) – General Rules for Investment Policy

                        1. To ensure proper investment of funds, each Company must put in place investment and risk management policies that are in line with the risk appetite set by the Board of Directors of the Company. The investment and risk management policies shall be approved and reviewed on an annual basis by the Board of Directors and cover overall investment strategy and proper risk management systems, including oversight mechanisms.
                           
                        2. The risk management systems must cover the risks associated with investment activities that may affect the coverage of Takaful liabilities and capital adequacy. The main risks include market, credit and liquidity risks.
                           
                        3. Appropriate procedures shall be in place to monitor and ensure that asset limits and counterparty concentration limits are as directed in Article (3) and are being adhered to.
                           
                        4. An appropriate process to assess the credit-worthiness of counterparties to whom the Company is significantly exposed to in large transactions must be in place.
                           
                        5. The Company shall establish a stress testing framework and policy for all its investments (including regular stress testing for a range of market scenarios and changing investment and operating conditions, like socio-economic or regulatory changes, in order to assess the appropriateness of asset allocation limits) and stress testing is to be performed at least annually as per the Company policy.
                           
                        6. Branches of Foreign Takaful Operators need to demonstrate in all cases to the authority that the stress testing framework and policy for investments are established at the head office level which shows the UAE operations.
                           
                        7. The Authority may impose requirements on an individual Company to invest in a specified manner, or restrict or prohibit a Company from investing in certain asset classes or individual asset to safeguard Takaful funds. Such requirements, restrictions or prohibitions will form part of supervisory actions as a result of the Authority assessment of a Company’s risk profile and investment risk management practices.
                           
                        8. The Company shall have a separate investment strategy for Family Takaful insurance operations and Property and Liability Takaful insurance operations in situations where both businesses are undertaken by the same entity.
                           
                        9. The Company shall have different strategy for investment of participants' fund (including Qard Hasan funds available from shareholders) and shareholders fund.
                           
                        10. For Participants Takaful operations, a Company shall also have separate investment strategies for ‘participants’ investment fund and ‘participants’ risk fund due to potential differences in objectives of both funds.
                           
                        11. The Company shall document its Contingency Funding Plan, including the Qard Hasan facility submitted by the shareholders, to address how it will meet its current and future insurance liabilities in case it does not have adequate assets or liquidity of assets to honor its current and future insurance liabilities. The Company shall address the events or circumstances identified in the Contingency Funding Plan. The Contingency Funding Plan is an internal document that should be made available to the Authority upon request.
                           
                        12. Further guidance on the Investment policy in Addendum (2) of the regulations herein shall be applied.

                      • Article (3) – Asset Distribution and Allocation Limits

                        1. For asset distribution and allocation limits, the following apply:
                          Type of Invested AssetMaximum Limit for aggregate exposure in a particular asset classSub-limit for exposure to a single counter-party
                          Real Estate30%No Sub Limit
                          Equity instruments in listed and not listed companies within UAE.30%10%
                          Equity instruments issued by companies listed and not listed outside UAE.20%10%
                          Government securities/instruments issued by the UAE and/or by one of the Emirates in the UAE.100%25%
                          Government securities/instruments issued by (A) rated countries.80%25%
                          Cash and deposits with Islamic Financial Institutions within the UAE (e.g. current account, demand deposits, term deposits, notice deposits, certificates of deposit, etc.)Minimum 5%50%
                          Loans secured by insurance policies of persons and accumulation of funds operations (excluding unit-linked funds’ related policies) issued by the Company.30%No Sub Limit
                          Derivatives or complex Islamic financial instruments to be used for hedging purposes only.1%No Sub Limit
                          Secured loans, deposits with non-banks, debentures, Sukuk & other debt instruments which are rated strong or very strong by reputed and independent rating agency.30%20%
                          Other Invested Assets10%No Sub Limit

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           

                           


                           

                           

                        2. The above limits shall be applicable for Total Invested Assets.
                           
                        3. For the purpose of the application of the limits contained in paragraph (1) of this Article, real estate shall be at market value. As an exception to what is stated in paragraph (1) of this Article, the Authority may allow, in specific cases, Takaful operators to invest in real estate with a maximum of up to 40% on the basis of a request from the Company stating the reasons for the exception, along with an investment risk analysis report as described in Article (10) of the regulation herein.
                           
                        4.  As an exception to what is stated in paragraph (1) of this Article, Derivative limits may exceed 1% if employed to hedge against currency fluctuation only.
                           
                        5. Statutory Deposits provided as collateral for the Company to fulfill its obligations are excluded from the concentration and asset allocation limits listed in paragraph (1) of this Article.
                           
                        6. The limits mentioned in this Article are not applicable to unit-linked funds.
                           
                        7. For branches of Foreign Takaful Operators, the limits mentioned in paragraph (1) of this Article shall be applicable to the assets backing the insurance fund for UAE policies only.
                           
                        8. In addition to the above, asset allocation limits shall ensure that investments made are compliant with the Islamic Shari’a provisions.
                           
                        9. Strong and very strong rating by an independent agency for investments inside or outside UAE would mean ratings equivalent to or better than following weighted average ratings for each asset class portfolio:
                        S&PFitchA.M. BestMoody’s
                        AAAA2

                         

                      • Article (4) – Compliance Period for Concentration and Asset Allocation Limits

                        1. A Company not in compliance with the limits of assets in real estate listed in paragraph (1) of Article (3) will have three (3) years to comply with the limits effective from the day following the date of publication of these regulations in the Official Gazette.
                           
                        2. The compliance period is two (2) years for Companies not in compliance with the limits other than real estate listed in paragraph (1) of Article (3), effective from the day following the date of publication of these regulations in the Official Gazette.

                      • Article (5) – Investment Related Risks

                        1. For the purpose of this Article, “Investment Risk” refers to the possibility of an adverse movement in the value of a Company’s on-balance sheet assets or certain off-balance sheet obligations. Investment risk derives from a number of sources including market risk, credit quality risk, investment concentration risk, and liquidity risk, as well as risk associated with the use of derivatives.
                           
                        2. The Company's Board of Directors shall endorse policies and procedures regarding the risks detailed in Addendum (3) to be implemented by its senior management, who shall take adequate steps to disseminate the policy and train the relevant staff such that they can effectively implement the policies and procedures.
                           
                        3. Further guidance on investment related risks in Addendum (3) of the regulations herein shall be applied.

                      • Article (6) – Domiciling of Investments

                        1. The Company is permitted to hold, for the purpose of investment, assets of its Takaful fund for UAE policies in a foreign jurisdiction with a sovereign rating which is better or at least equivalent to the sovereign rating of the UAE. Total invested assets held outside the UAE shall not exceed 50% of the total invested assets or 100% of the total technical provisions for policies outside the UAE only (excluding unit-linked funds), whichever is greater.
                           
                        2. This restriction in terms of the location and value of invested assets held outside the UAE is applicable to both the Takaful fund for UAE policies and the shareholders' fund, notwithstanding whether the invested assets are held to support the solvency margin.
                           
                        3. The restriction in terms of the location and value of invested assets held outside the UAE for branches of Foreign Takaful Operators is applicable to the insurance fund for the UAE policies only, notwithstanding whether the invested assets are held to support the solvency margin.
                           
                        4. The Company shall at all times invest inside the UAE the assets required to match the technical provisions, for policies inside the UAE only, with consideration of Article (2) of Section (3) in regards to the Regulations Pertinent to the Basis of Calculating the Technical Provisions.
                           
                        5. The above domiciling investment limits are not applicable to unit-linked funds.

                      • Article (7) – Derivatives

                        1. Companies are allowed to engage in derivative activities for hedging purposes where such derivative transactions are identified with the corresponding risk exposures being hedged, and the risks associated with such derivative transactions are insignificant and remote given the risk reduction benefits that can reasonably be expected from the transactions.
                           
                        2. Derivative positions which no longer meet the hedging intent shall be closed out promptly.
                           
                        3. Further guidance on derivatives in Addendum (4) of the regulations herein shall be applied.

                      • Article (8) – Investment Outsourced Activities

                        The Company is entitled to engage with a third party inside the UAE to execute and manage its investment policy, provided that:

                        1. The policies, procedures and limits for the outsourced party must meet the same objectives of the Company’s investment policies and procedures approved by its Board of Directors.
                           
                        2. The arrangements for outsourcing the investment activities to the third party are in compliance with supervisory expectations specified by the Authority.
                           
                        3. The Company is responsible for the management of investment activities with an authorized third party.
                           
                        4. The Company provides the Authority with a copy of the agreement with the third party and any amendments thereto and any other requirements as requested by the Authority.
                           
                        5. Further guidance on investment outsourced activities in Addendum (5) of the regulations herein shall be applied.

                      • Article (9) – Borrowed Funds

                        The Company shall not utilize borrowed funds for the purpose of investments to cover Gross Technical provisions, Minimum Capital Requirement, Minimum Guarantee Fund and Solvency Capital Requirement. For this purpose, borrowed funds include bank loans and other debt instruments, but it does not include Surplus Bonds issued to raise working capital in lieu of Shares.

                      • Article (10) – Reporting Requirements to the Authority

                        1. The Company shall submit to the Authority a quarterly report and analysis of its investment portfolio classified as per the regulations in Article (3) of this Section, and authenticated by its External Auditor, the deadline for the submission of these reports to be within (45) days from the end of the quarter period.
                           
                        2. The Company shall submit to the Authority an annual risk analysis report of its investment portfolio, strategy and management process which is certified by the Actuary, authenticated by the External Auditor and endorsed by the Chairman of the Board of Directors. The timeline for submission of this report will be at the same time as the submission of the audited annual financial results. The risk analysis report should include, but is not limited to, the following:

                          a) A summary of the overall investment strategy as outlined in Addendum (2);

                          b) Analysis of the investment portfolio classified as per the regulations in Article (3) above; and

                          c) Analysis of the Market and Liquidity (Investment) Risk and Credit Risk, including scenario / stress testing, as outlined in Addendum (3).

                      • Article (11) – Addendums

                        The Addendums attached to these regulations are an integral part of the regulations and are to be read along with the regulations.

                        • Addendums to Section 1 Basis of Investing the Rights of the Participants – Takaful

                          • Addendum (1)

                            1. The investment portfolio shall consider the type of business carried out by the Company, in particular the nature, amount and duration of expected claim payments, in such a way as to secure the sufficiency, liquidity, security, quality, profitability and matching of its assets .
                               
                            2. With respect to the whole portfolio of assets, Takaful operators shall only invest in assets and instruments whose risks can be properly identified, measured, monitored, managed, controlled and reported thereof, and appropriately take into account in the assessment of its overall solvency needs as detailed in the Solvency Margin and Minimum Guarantee Fund regulations.
                               
                            3. All assets, in particular those covering the Minimum Capital Requirement, Solvency Capital Requirement and Minimum Guarantee Fund, shall be invested in such a manner as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In addition the localization of those assets shall be as such to ensure their availability.
                               
                            4. Assets held to cover the technical provisions shall also be invested in a manner appropriate to the nature and duration of the Takaful and Re-Takaful liabilities. Those assets shall be invested in the best interest of all participants and beneficiaries taking into account any disclosed policy objective.
                               
                            5. Wherever possible, the Company must use ‘mark-to-market’ to measure the value of the investments.

                              a) When using ‘mark-to-market’, the Company must use the more prudent side of bid/offer unless the Company is a significant market maker in a particular position type and it can close out at the mid-market price.

                              b) When calculating the current exposure value of a credit risk or exposure for counterparty credit risk purposes:
                               
                              1. 1) The Company must use the more prudent side of bid/offer or the mid-market price and the Company must be consistent in applying the basis it chooses; and

                              2. 2) If the difference between the more prudent side of bid/offer and the mid-market price is material, the Company must consider making adjustments or establishing reserves.
                                 
                            6. When ‘mark-to-market’ is not possible, the Company must use ‘mark to model’ to measure the value of the investments. Marking to model is any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input as follows:

                              a) When the model used is developed by the Company, that model must be:
                               
                              1. 1) Based on appropriate assumptions which have been assessed and challenged by suitably qualified parties independent of the development process;

                              2. 2) Independently tested, including validation of the mathematics, assumptions, and software implementation;
                                 
                              3. 3) Independently certified by an Actuary; and
                                 
                              4. 4) Developed or approved independently by the Investment Committee.
                                 
                              b) The Company’s senior management must ensure that the Investment Committee, or its equivalent in the governance structure of Foreign Takaful operators, is aware of the positions which are subject to the ‘mark-to-model’ valuation and understand the materiality of the uncertainty this creates in the reporting of the performance of the business of the Company and the risks to which it is subject.

                              c) The Company must source market inputs in line with market prices as far as possible and assess the appropriateness of the market inputs for the position being valued and the parameters of the model on a frequent basis.

                              d) The Company must use generally accepted valuation methodologies for particular products where these are available.

                              e) The Company must establish formal change control procedures, hold a secure copy of the model, and periodically use that model to check valuations.

                              f) The Company must ensure that its risk management function personnel are aware of the weaknesses of the models used and how best to reflect those in the valuation output.

                              g) The Company must periodically review the model to determine the accuracy of its performance. Examples of periodic review include assessing the continued appropriateness of the assumptions, analysis of profit and loss versus risk factors and comparison of actual close out values to model outputs.

                              h) The market valuation of the investment in real estate shall be performed as follows for the calculation of Admissible Assets:
                               
                              1. 1) One independent real estate firm shall perform the revaluation of the investment in real estate for investments worth less than AED 30 million.

                              2. 2) Two independent real estate firms shall perform the revaluation of the investment in real estate for investment worth more than AED 30 million; the average of both valuations will be accounted for. If needed a third firm could be employed to perform the valuation in case the difference between the first two firms was more than 20% of the lowest valuation. Accordingly, the valuation will be calculated based on the average of the two firms negating the valuation with the largest of the three excluded.

                              3. 3) The independent real estate firms should be a technical expert for valuation of investment in real estate.
                                 
                              4. 4) The valuation of the real estate shall be performed by the Company at least annually or as required by the Authority.

                              5. 5) The same independent real estate firm shall not be appointed for two consecutive periods to perform the valuation of the same estate. This restriction doesn’t apply to the government-based Land Department.

                              6. 6) For real estate valuation purposes, the Company shall hire real estate firms accredited by at least two banks operating in the State or real estate experts licensed for this matter or the government-based Land Department.

                              i) The discounted cash flow valuation of the investment in real estate shall be performed as follows for the purpose of calculating the Solvency Margin requirements:
                               
                              1. 1) Estimate the value of annual rental income over the expected life of the property, not to exceed thirty (30) years.
                                 
                              2. 2) The total rental income per year shall be reduced to account for a reasonable vacancy rate for similar properties.
                                 
                              3. 3) The total rental income per year shall not be increased in future years for inflation.
                                 
                              4. 4) The annual rental income shall be discounted at the current risk free rate to determine the total cash flow valuation.

                            • Addendum (2)

                              1. The policy on overall investment strategy shall cover, at least, the following elements:

                                a) The investment objectives, both at Company and fund-specific levels;

                                b) The risk and liability profiles of the Company;

                                c) The strategic asset allocation, i.e., the long-term asset mix for the main investment categories, and their respective limits;

                                d) The extent to which the holding of certain types of assets is restricted or disallowed, such as illiquid or highly volatile assets; and

                                e) An overall policy on the usage of derivatives and structured products.
                                 
                              2. The Company should have in place a Board of Directors (BOD) level Investment Committee. The Investment Committee should have its own charter, investment policy and guidelines approved by the BOD. The Investment Committee can act as a management committee with members of the Investment Committee being elected by the Board of Directors. Members can be executive directors, executive management or members of any of the committees established by the Board of Directors. At a minimum, the Investment Committee shall be responsible for:

                                a) Establishing the investment strategy and policy for approval by the Board of Directors;

                                b) Setting the investment guidelines;

                                c) Reviewing / monitoring the investments;

                                d) In conjunction with the Audit Committee, determining the scope of the rigorous audit procedures that include full coverage of the investment activities to ensure timely identification of internal control weaknesses and operating system deficiencies; and

                                e) Assisting the Board of Directors in its evaluation of the adequacy and efficiency of the investment policies, procedures, practices and controls applied in the day-to-day management of its business through an audit report (either independent internal or external) that is to be submitted to the Audit Committee.
                                 
                              3. Senior management is responsible for managing and reviewing the investment policies of the Company and reporting the same to the Investment Committee and Shari’a Committee. The function of senior management with the responsibility of executing the investment policy is to:

                                a) Manage and review the investment policies of the Company and reporting the same to the Investment Committee;

                                b) Ensure proper implementation of investment policies, procedures, practices and controls approved by the Investment Committee are applied in the day-to-day management of its business in accordance with the established levels of risk appetite;

                                c) Provide timely and regular reporting to the Investment Committee of the Company’s investment activities;

                                d) Establish adequate internal controls to ensure that assets are managed in accordance with approved investment policies, and in compliance with legal, accounting and relevant risk management requirements. These controls shall ensure that investment procedures are documented and subject to effective oversight; and

                                e) Ensure adequate segregation of duties between execution, recording, authorization, reconciliation and related assurance activities.
                                 
                              4. The Company shall establish adequate internal controls to ensure that assets are managed in accordance with approved investment policies, and in compliance with legal, accounting and relevant risk management requirements. These controls shall ensure that investment procedures are documented and subject to effective oversight. There shall be in place adequate segregation of duties between execution, recording, authorization, reconciliation and related assurance.
                                 
                              5. The Company shall have in place audit procedures that include full coverage of the investment activities to ensure timely identification of internal control weaknesses and operating system deficiencies. If the audit is performed internally, it shall be independent and shall report to the Audit Committee, or its equivalent in the governance structure of Foreign Takaful operators.
                                 
                              6. The Company shall consider the following, along with the supporting policies, procedures and infrastructure, when adopting internal controls:

                                a) Identification of personnel who are responsible and accountable for all transactions involving sales and purchase of assets;

                                b) Observations of restrictions on the empowerment of all parties to enter into any particular transaction. This will require close and regular communication with those responsible for compliance, legal and documentation issues in the Company;

                                c) Agreement from all parties of a given transaction with the terms of the deal. Procedures for sending, receiving and matching confirmations shall be independent from the issuance and marketing functions of the Takaful insurance policies;

                                d) Formal documentation is completed promptly;

                                e) Positions are properly settled and reported, and any late payments or late receipts are identified;

                                f) All transactions are carried out in conformity with prevailing market terms and conditions;

                                g) Authority limits are strictly enforced and all breaches are reported and remedial actions are taken promptly;

                                h) Independent checking of rates or prices and choice of rates shall not solely rely on dealers for rate/price information;

                                i) Set out the process for recommending, approving, and implementing decisions; and

                                j) Prescribe the frequency and format of reporting to relevant internal and external authorities.
                                 
                              7. Appropriate procedures shall be in place to enable the Company to monitor the interaction of its assets and liabilities to ensure that exposure to asset classes is contained within limits approved by the Company. The Company must define the exposure limits. The Company must ensure that the exposure limits are within the limits defined in paragraph (1) of Article (3). Procedures shall include testing of sensitivity to realistic scenarios that are relevant to the circumstances of the Company.
                                 
                              8. Appropriate procedures shall be in place to enable the Company to monitor the location of its assets and liabilities, so as to ensure that risk of localization mismatch is contained within limits approved by the Company. Procedures shall include testing of sensitivity to realistic scenarios, including political risk scenarios that are relevant to the circumstances of the Company.
                                 
                              9. The Company shall consider asset and liability risks on an integrated basis. Systems shall not consider only risks taken in isolation, but shall consider how even when individual risks are addressed, combinations of circumstances may still expose the Company to loss. This is of particular relevance where a single outcome is exposed to more than one risk.
                                 
                              10. In terms of Shari'a governance on investment, the Company shall put in place appropriate procedures to ensure investment portfolios are Shari'a-compliant including the process required in respect of returns from tainted / non-halal income. The roles of the Company Shari'a Committee shall be clearly spelled out to ensure the effectiveness of the Shari'a governance.

                              • Addendum (3)

                                1. Liquidity Risk

                                  a) The Company shall have access to sufficient liquidity to meet all cash outflow commitments to participants (and other creditors) as and when they fall due.

                                  b) The risk management system for liquidity risk will normally include at least the following:
                                   
                                  1. 1) Procedures to identify and control the level of mismatch between expected asset and liability cash flows under normal and stressed operating conditions (using realistic scenarios relevant to the circumstances of the Company);

                                  2. 2) Procedures to monitor the liquidity of assets;

                                  3. 3) Procedures to identify and monitor commitments to meet liabilities including Takaful liabilities;

                                  4. 4) Procedures to monitor the uncertainty of incidence, timing and magnitude of Takaful liabilities;

                                  5. 5) Procedures to identify and monitor the level of liquid assets held by the Company; and

                                  6. 6) Procedures to identify and monitor other sources of funding including Re-Takaful, borrowing capacity, lines of credit and the availability of intra-group funding, and to identify the need for such sources to be made available.

                                  c) When assessing its liquidity requirements the Company shall also consider the currency in which the assets and liabilities are denominated, and the locations in which those assets and liabilities are situated or payable.

                                  d) For the purposes of determining the adequacy of its overall financial resources, the Company must carry out appropriate stress testing and scenario analysis, including taking reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which liquidity risk might occur or crystallize.

                                  e) The choice of scenarios that the Company uses will depend on the nature of its activities. For the purposes of testing liquidity risk, however, the Company shall normally consider scenarios based on varying degrees of stress and both Company-specific and market-wide difficulties.

                                  f) The Company shall review frequently the assumptions used in stress testing scenarios to gain assurance that they continue to be relevant.
                                   
                                2. Credit Risk
                                  The Company faces Credit risk whenever it is exposed to loss if another party fails to perform its financial obligations to the Company, including failing to perform them in a timely manner. This also includes the impact on investments of credit rating downgrades and widening of credit spreads. Credit exposures can increase the risk profile of a Company and adversely affect financial viability. Credit exposure includes both on-balance sheet and off-balance sheet exposures (including guarantees, derivative financial instruments and performance related obligations) to single and related counterparties.

                                  The risk management system for credit risk will normally include at least the following:

                                  a) Credit Risk Limits (at the minimum as defined in Article (3) for credit exposures to:
                                   
                                  1. 1) Single counterparties and groups of related counterparties;

                                  2. 2) Entities to which the Company is related;

                                  3. 3) Single industries; and

                                  4. 4) Single geographic locations.

                                  b) Processes to monitor and control credit exposures against pre-approved limits.

                                  c) Processes for identifying breaches of limits and for ensuring that breaches of limits are brought within the pre-approved limits within a set timeframe.

                                  d) Processes for reducing or cancelling limits to a particular counterparty where the counterparty is known to be experiencing problems.

                                  e) Processes for approving requests for temporary increases in limits.

                                  f) Processes to review credit risk exposures (at least annually but more frequently in cases where there is evidence of deterioration in credit quality).

                                  g) A management information system that is capable of aggregating exposures to any one counterparty (or group of Related counterparties), asset class, industry or region in a timely manner.

                                  h) A process for reporting to the Board of Directors and senior management.
                                   
                                  1. 1) Significant breaches of limits; and

                                  2. 2) Large exposures and other credit risk concentrations.
                                   
                                3. Market Risk

                                  a) Market risk includes equity risk, foreign exchange (FX) risk, commodity risk and yield rate risk.

                                  b) The risk management system for market risk will normally include at least the following:
                                   
                                  1. 1) Procedures to document its policy for market risk, including its risk appetite and how it identifies, measures, monitors and controls that risk;

                                  2. 2) Procedures to document its asset and liability recognition policy. Documentation shall describe the systems and controls that it intends to use to comply with the policy; and

                                  3. 3) Procedures to establish and maintain risk management systems to identify, measure, monitor and control market risk (in accordance with its market risk policy), and to take reasonable steps to establish systems adequate for that purpose.

                                • Addendum (4)

                                  1. Investment in derivatives must contribute to a reduction of investment risks or facilitate efficient portfolio management and such investments must be valued on a prudent basis, taking into account the underlying assets, and included in the valuation of the Company's assets. Investments in derivatives should be restricted to hedging purposes only.
                                     
                                  2. The Company must avoid excessive risk exposure to a single counterparty and to other derivative operations.
                                     
                                  3. Prior to undertaking any derivative transactions, the Board of Directors of the Company is expected to ensure that:

                                    a) It understands the scope and nature of derivative activities to be undertaken;

                                    b) The derivative transactions are consistent with the investment and risk management policies of the Company;

                                    c) Approved policies, systems and procedures that are commensurate with the level and nature of derivative activities to be undertaken by the Company are in place and have been clearly communicated to all levels of staff concerned; and

                                    d) The Company has appropriate resources (e.g., competent, capable and qualified personnel), capacity and adequate infrastructure to effectively manage and monitor derivative positions.
                                     
                                  4. The Company shall ensure that controls over derivatives and other investment instruments have been implemented and are adequate to ensure that risks are properly assessed, regularly reviewed in the light of changing market conditions and experience, and consistent with the overall investment strategy decided upon and approved by the Company.
                                     
                                  5. The senior management of the Company shall put in place a written risk management policy, approved by the Board of Directors. In respect of derivative activities, the risk management policy shall cover the following primary components of risk management practices:

                                    a) The purpose for which derivatives may be used;

                                    b) The scope and types of permitted derivatives, including the risk tolerance level in respect of its derivative activities;

                                    c) Procedures for the proper authorization of any change in significant risk management policies or procedures;

                                    d) Procedures on authorization of new derivative products for use by the Company;

                                    e) Restrictions on counterparties with whom derivative transactions may be executed;

                                    f) Details on persons authorized to enter into derivative transactions and limits of authority;

                                    g) Clear lines of responsibility for the monitoring and management of the Company’s derivative positions;

                                    h) Procedures for regular reporting to senior management and the Board of Directors on derivative activities; and

                                    i) A provision for periodic review by the Board of Directors and senior management of the Company’s risk management policy to gauge its effectiveness in managing risk exposures and to ensure that the policy remains consistent with the Company’s corporate strategies and financial and management capabilities, particularly in the light of changing circumstances.

                                  • Addendum (5)

                                    1. The Company must establish comprehensive policies and procedures to govern the strategic investment policy of any outsourced Takaful funds, establish an effective risk management system to monitor and continuously assess material risks, and for the Takaful funds to be segregated and not co-mingled with other funds managed by the outsourced entity. The Company must regularly monitor the performance of the outsourced entity, at least quarterly, and take appropriate actions if the investment performance of the outsourced entity would adversely affect the investment returns to participants or their reasonable expectations cannot be achieved.
                                       
                                    2. For this purpose, the Company must ensure that adequate expertise and resources are retained in-house to support the monitoring function of the outsourced entity. The Company must ensure that, under the terms of the contract, they regularly receive sufficient information to evaluate the compliance of the outsourced entity with the investment mandate. The Board of Directors of the Company shall continue to be accountable to manage the risks arising from the outsourcing arrangements. The Company shall also remain responsible for the fiduciary duty and professional aspects of the outsourced activity.

                    • Section (2) Regulations Pertinent to the Solvency Margin and Minimum Guarantee Fund – Takaful

                      • Article (1) – Minimum Capital Requirement

                        The Minimum Subscribed and Paid Up Capital of each Company should not be less than the following:

                        1. AED 100 million for Takaful operators.
                        2. AED 250 million for Re-Takaful operators.

                      • Article (2) – Minimum Guarantee Fund

                        1. The Minimum Guarantee Fund shall not be at any point in time less than (1/3) of the Solvency Capital Requirement.
                           
                        2. The Minimum Guarantee Fund shall be calculated based on a minimum amount of funds required to support each type of business written by the Company. The minimum funds for each type of business shall include an absolute minimum and a percentage of net earned premium or similar measure, whichever is greater, as determined by the Authority.

                      • Article (3) – Group Capital Adequacy

                        1. A Group consists of Takaful or Re-Takaful operators and any other regulated entities where the Group owns 100% of the companies' shares or a controlling interest (as per IFRS) of the companies' shares.
                           
                        2. The Group capital requirement is the sum of the capital requirements calculated on the consolidated Takaful operators/branches and capital requirements of other regulated entities.

                      • Article (4) – Solvency Margin

                        1. The solvency template developed by the Authority shall be based on following principles:

                          a) The Solvency Capital Requirement shall be calculated on the presumption that the Company will pursue its business as a going concern.

                          b) The Solvency Capital Requirement shall be calibrated so as to ensure that all quantifiable risks to which each Company is exposed are taken into account. It shall cover existing business, as well as the new business expected to be written over the following twelve (12) months. It shall correspond to the Value-at-Risk of the Basic Own Funds of a Company subject to a confidence level of 99.5 % over a one year period.

                          c) The Solvency Capital Requirement should cover the following risks:
                           
                          1. 1) Underwriting risk;

                          2. 2) Market and Liquidity (Investment) risk;

                          3. 3) Credit risk; and

                          4. 4) Operational risk.

                          d) The Solvency Capital Requirement for the Company are the solvency level of all its Participants’ Risk Funds and Shareholders Funds. The solvency level for all Participants’ Risk Funds (PRF) shall be consistent with the overall risk profiles mentioned in subparagraph (c).

                          e) The Solvency Capital Requirement for a Company is determined in accordance with the guidelines set above for Participants’ Risk Funds and Shareholders Funds, in addition to:
                           
                          1. 1) A reserve for Participants’ Risk Funds shall have adequate solvency resources to provide assurance that it could meet claims from the Takaful participants.

                          2. 2) Adequate capital resources are maintained for shareholders to meet their financial and legal obligations. This is in addition to funds kept aside for meeting the requirements of deficiencies in PRFs.

                          3. 3) The entire Shareholders’ Funds shall be made available to provide Qard Hasan in case of a deficit in the Participants’ Risk Funds.

                          4. 4) The expected impact of fluctuations in the value of assets and liabilities must be carried out taking into account by the shareholders of the funds to cover the deficit in solvency calculations required for the risk involved.

                          5. 5) The collected funds set aside by the shareholders to provide for the deficiency in solvency for the Participants’ Risk Funds shall take into consideration the foreseeable fluctuations in asset and liability valuations. The assets earmarked for Qard Hasan needs to be accounted for separately and be valued for solvency as per the guidelines on asset valuation detailed in Asset Valuation Instructions.

                          6. 6) The right to receive repayment toward Qard Hasan provided to the Participants’ Risks Funds shall not be considered an asset toward calculating the shareholders solvency.

                          f) If the Participants’ Investment Fund is relating to a Family linked investment fund, this fund shall not be taken into consideration in assessing the Solvency Capital Requirement of various Participants’ Risk Funds in a Company.
                           
                        2. The Company is required to calculate their Solvency Margin based on the solvency template developed, and amended from time to time, by the Authority.
                           
                        3. The Solvency Capital Requirement shall be calculated as follows:

                          a) At the UAE level only for branches of foreign Takaful and Re-Takaful operators;

                          b) At the group level for local Takaful and Re-Takaful operators having branches or subsidiaries outside the UAE; and

                          c) At the UAE level only for all other Takaful and Re-Takaful operators.
                           
                        4. For the purpose of solvency reporting, the Authority may:

                          a) Determine the nature, scope and format of the information required for solvency, based on certain frequencies as follows:
                           
                          1. 1) On an annual basis;

                          2. 2) On a quarterly basis;

                          3. 3) Upon occurrence of predefined events; and

                          4. 4) During enquiries regarding the situation of the Company.

                          b) Obtain any information regarding contracts which are held by intermediaries or regarding contracts which are entered into with third parties; and

                          c) Require information from external experts.

                      • Article (5) – Risk Assessment and Evaluation of Solvency in Main Areas of Risk

                        1. When assessing risks and solvency, the Company needs to take into account mainly the following risks: Underwriting Risk, Market and Liquidity (Investment) Risk, Credit Risk and Operational Risk.
                           
                        2. Further guidance on risk assessment and evaluation of solvency in main risk areas in Addendum (1) of the regulations herein shall be applied.

                      • Article (6) – Risk Management System

                        1. The Company shall have in place a documented risk management framework and strategy, risk management policies and procedures, and allocated responsibilities and controls.
                           
                        2. The Company shall establish a stress testing framework and policy.
                           
                        3. Further guidance on the risk management system and framework in Addendum (2) of the regulations herein shall be applied.

                      • Article (7) – Own Funds

                        1. Own Funds shall consist of the sum of Basic Own Funds and Ancillary Own Funds.
                           
                        2. Basic Own Funds shall consist of the following items:

                          a) The excess of Admissible Assets over liabilities (surplus), which shall be reduced by the amount of Treasury shares held by the Company.

                          b) Subordinated liabilities (group level debt in a holding company with the prior approval of the Authority).
                           
                        3.  Ancillary Own Funds shall consist of items other than Basic Own Funds which can be called up to absorb losses, with the prior approval of the Authority. Ancillary Own Funds may comprise the following items to the extent that they are not Basic Own Funds items:

                          a) Unpaid share capital or initial fund that has not been called up;

                          b) Letters of credit and guarantees; and

                          c) Any other legally binding commitments receivable by the Company.
                           
                        4. In case of a Company with variable contributions, Ancillary Own Funds may also comprise any future claims which that Company may have against its members by way of a right to call for supplementary contribution, within the following twelve (12) months.
                           
                        5. Where an Ancillary Own Funds item has been paid in or called up, it shall be treated as an asset and cease to form part of Ancillary Own Funds items.
                           
                        6. At least 100% of the Minimum Capital Requirement should be met by the Basic Own Funds.
                           
                        7. At least 100% of the Solvency Capital Requirement and Minimum Guarantee Fund should be met by the Own Funds, which is calculated as the Basic Own Funds plus only 50% of the Ancillary Own Funds.

                      • Article (8) – Maintenance of Solvency Margin

                        1. The Company shall at all times comply with the requirements of the Solvency Margin, which means maintaining Own Funds as per Article (7) above for the largest of the following:

                          a) Minimum Capital Requirement;

                          b) Minimum Guarantee Fund; and

                          c) Solvency Capital Requirement.
                           
                        2. The Company shall immediately report to the Authority the event of non-compliance with maintaining the Minimum Capital Requirement or Solvency Capital Requirement. In this case, the Company shall submit a realistic recovery plan to re-establish the level of Own Funds covering the Minimum Capital Requirement or Solvency Capital Requirement for approval by the Authority within thirty (30) days from the date of submitting the report. The recovery plan must achieve compliance with the Minimum Capital Requirement or Solvency Capital Requirement within six (6) months of the date of observation of non-compliance with the Minimum Capital Requirement or Solvency Capital Requirement.
                           
                        3. The Company shall immediately report to the Authority the event of non-compliance with maintaining the Minimum Guarantee Fund. In this case, the Company shall submit a realistic recovery plan to re-establish the level of Own Funds covering the Minimum Guarantee Fund for approval by the Authority within thirty (30) days from the date of submitting the report. The recovery plan must achieve compliance with the Minimum Guarantee Fund within three (3) months of the date of observation of non-compliance with the Minimum Guarantee Fund.
                           
                        4. In the event of non-compliance with either the Minimum Guarantee Fund or Solvency Capital Requirement, the Company shall submit a progress report to the Authority every thirty (30) days following the approval of the recovery plan and until such time that the recovery plan has been realized.
                           
                        5. In the event of non-compliance with the Minimum Capital Requirement, the Company shall submit progress reports based on the timing approved by the Authority until such time that the recovery plan has been realized.
                           
                        6. In the event of exceptional circumstances, the Authority may extend the recovery period by three (3) months, if appropriate.
                           
                        7. In the event that the Company is unable to re-establish the level of Own Funds or fails to show significant progress in re-establishing the level of Own Funds to meet the Solvency Margin within the period identified by the Authority, or in other exceptional circumstances at the discretion of the Authority, the Director General will raise the concern to the Board of the Authority to take the necessary actions in that regard as per the Law’s stipulations.

                      • Article (9) – Reporting Requirements for Solvency

                        1. The Company shall submit to the Authority the solvency template and related information on an annual basis in relation to solvency, including the validation certification of the solvency template by the Actuary and the External Auditor and endorsed by the Chairman of the Board of Directors and submit it to the Authority within a period not exceeding (4) months from the fiscal year end. The report should arrive at the Authority no later than (30) days prior to the invitation to the General Assembly.
                           
                        2. The Company shall submit to the Authority a report regarding the Solvency Capital Requirement certified by the Actuary on a quarterly basis, within a period of (45) days from the quarter end.

                      • Article (10) – Reporting Requirements for Financial Condition Report

                        1. When required by the Authority, the Company shall submit to the Authority a Financial Condition Report (FCR) which is certified by the Actuary and endorsed by the Chairman of the Board of Directors. The requirements of the FCR should include, but is not limited to, the following which could be required separately or as a single complete report:

                          a) An actuarial certification of the Technical Provisions as per Section (3), Article (5) (Regulations Pertinent to the Basis of Calculating the Technical Provisions);

                          b) A risk-based analysis of its investment portfolio, strategy and management process as per Section (1), Article (10) (Regulations Pertinent to the Basis of Investing the Rights of Participants – Takaful);

                          c) An analysis of the Solvency Capital Requirement as per paragraph (1), Article (9) above;

                          d) Evaluation of its Re-Takaful structure and management process;

                          e) A risk-based analysis of the underwriting policies and procedures of the Company;

                          f) Evaluation of the pricing policies and procedures of the Company; and

                          g) Evaluation of the Enterprise Risk Management policies and procedures of the Company.

                      • Article (11) – Limits for assets to be considered for Solvency

                        The Admissible Assets to be considered towards the calculation of solvency shall be valued as follows:

                        1. The admissible value of all the invested assets shall be restricted as per the limits defined in the Regulations Pertinent to the Basis of Investing the Rights of the Participants - Takaful.
                           
                        2. The admissible value of all other assets shall be as required by the Authority.

                      • Article (12) – Addendums

                        The Addendums attached to these regulations are an integral part of the regulations and are to be read along with the regulations.

                        • Addendums to Section 2 Solvency Margin and Minimum Guarantee Fund - Takaful

                          • Addendum (1)

                            Risk Assessment and Evaluation of Solvency in Main Areas of Risk

                            1. Underwriting Risk

                              a) The Family Takaful underwriting risk module in the solvency template reflects the risk arising from insurance of persons’ and fund accumulation obligations, in relation to the perils covered and the processes used in the conduct of business. The module calculates the Solvency Capital Requirement for underwriting risks based on a factor of capital at risk and technical provisions adjusted for Re-Takaful.

                              b) The Property and Liability Takaful underwriting risk reflects the risk arising from property and liability insurance obligations, in relation to the perils covered and the processes used in the conduct of business. The module calculates the Solvency Capital Requirement in the template based on a higher factor of gross contribution or technical provisions adjusted for Re-Takaful.
                               
                            2. Market and Liquidity (Investment) Risk

                              The market risk shall reflect the risk arising from the level or volatility of market prices of financial instruments which have an impact upon the value of the assets and liabilities of the Company. It shall properly reflect the structural mismatch between assets and liabilities, in particular with respect to the duration thereof. In the template, the Solvency Capital Requirement for this module is calculated as a combination of the capital requirements for the following sub-modules:

                              a) The sensitivity of the values of assets, liabilities and financial instruments to changes in the term structure of yield rates, or in the volatility of yield rates (yield rate risk);

                              b) The sensitivity of the values of assets, liabilities and financial instruments to changes in the level or in the volatility of market prices of equities (equity risk);

                              c) The sensitivity of the values of assets, liabilities and financial instruments to changes in the level or in the volatility of market prices of real estate (real estate risk);

                              d) The sensitivity of the values of assets, liabilities and financial instruments to changes in the level or in the volatility of credit spreads over the risk-free yield rate term structure (spread risk); and

                              e) Additional risks to a Company, either stemming from lack of diversification in the asset portfolio, or from large exposure to default risk by a single issuer of securities or a group of related issuers (concentration risk).
                               
                            3. Credit Risk

                              The counterparty default risk module in the template reflects possible losses due to unexpected default, or deterioration in the credit standing of the counter-parties and debtors of the Company. The counterparty default risk covers reinsurance arrangements, securitizations and derivatives, cash at bank, cash equivalent, other deposits, unpaid but called up capital, guarantees, letter of credit and receivables from intermediaries and participant loans.
                               
                            4. Operational Risk

                              The capital requirement for operational risk shall reflect operational risks to the extent they are not already reflected in other risk components. That requirement shall be calibrated to ensure that all quantifiable risks to which a Company is exposed are taken into account. The template calculates the capital based on a higher factor of earned contributions or technical provisions.

                            • Addendum (2)

                              1. Risk Management is defined as the process of identification, evaluation and economically effective mitigation of past, present or future events or their impact that cause a Company to deviate from its stated objectives whether positively or negatively. These events can impact both the asset and liability side of the Company’s balance sheet, the Company’s profit and loss account, its cash flows, its earning capacity, profitability, ability to continue as a going concern, reputation and its intellectual and technological capital.
                                 
                              2. Risk management should be well integrated into the organizational structure and decision making processes and should include the following:

                                a) A clear Risk Appetite set by the Board of Directors;

                                b) An entity-wide assessment of risks across all risk types, including emerging risks; and

                                c) Management information that is timely, consistent and accurate and used for internal and external reporting.
                                 
                              3. The nature and extent of the systems and controls which a Company needs to maintain will depend upon a variety of factors including:

                                a) The nature, size and complexity of its business;

                                b) The diversity of its operations, including geographical diversity;

                                c) Past experience and historical performance;

                                d) The volume and size of its transactions; and

                                e) The degree of risk associated with each area of its operations.
                                 
                              4. The Company shall regularly review its management of risk in the context of relevant internal and external factors and changes in these factors.
                                 
                              5. The risk management strategy shall cover not only the identification, assessment, control and monitoring of risks but also contingency plans to deal with risks should they materialize, or adverse developments in important areas of risk. This will be augmented by stress and scenario testing tailored to the risk characteristics of the Company including:

                                a) The Company shall have in place an effective risk management framework consisting of strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report the risks on a continuous basis, at an individual and at an aggregated level, to which they are or could be exposed, as well as their interdependencies. The risk management system shall be effective and well integrated into the organizational structure and in the decision-making processes of the Company with proper consideration of the persons who effectively run the Company or have other key functions.

                                b) The risk management system shall cover the risks to be included in the calculation of the Solvency Capital Requirement, namely:

                                1. 1) Underwriting Risk;

                                2. 2) Market and Liquidity (Investment) Risk;

                                3. 3) Credit Risk; and

                                4. 4) Operational Risk.

                                c) Moreover it shall cover the risks which are not or not fully included in the calculation thereof. The risk management system shall cover at least the following areas:
                                 
                                1. 1) Underwriting and reserving;

                                2. 2) Asset–liability management;

                                3. 3) Investment, in particular derivatives and similar commitments;

                                4. 4) Liquidity and concentration risk management;

                                5. 5) Operational risk management; and

                                6. 6) Reinsurance and other risk-mitigation techniques.

                                d) With regard to investment risk, the Company shall demonstrate that it complies with the “prudent person” principle in addition to adherence to Section (4) of these regulations (Determining the Company’s assets that meet the accrued insurance liabilities).

                                e) The Company shall establish a risk management function which shall be structured in such a way as to facilitate the implementation of the risk management system.

                    • Section (3) Regulations Pertinent to the Basis of Calculating the Technical Provisions - Takaful

                      • Article (1) – Types of Technical Provisions

                        The Company shall establish the required technical provisions to meet its obligations towards participants and their beneficiaries, including:

                        1. Unearned Contribution Reserves
                           
                        2. Unexpired Risk Reserves
                           
                        3. Outstanding Loss Reserves
                           
                        4. Incurred But Not Reported Reserves
                           
                        5. Allocated Loss Adjustment Expense and Unallocated Loss Adjustment Expense Reserves
                           
                        6. Mathematical Reserves

                      • Article (2) – Technical Provisions

                        With regard to Article (6) of Section (1) in these Regulations Pertinent to the Basis of Investing the Rights of the Participants – Takaful, investments equivalent to the total technical provisions for all Takaful policies issued inside the UAE shall be maintained as follows:

                        1. Investments equivalent to the sub-total of the Technical Provisions in paragraphs (1), (2) and (6) of Article (1) above (excluding unit-linked funds’ related technical provisions), gross of Re-Takaful, shall be maintained in the UAE.
                           
                        2. Investments equivalent to the sub-total of the Technical Provisions in paragraphs (3), (4) and (5) of Article (1) above (excluding unit-linked funds’ related technical provisions), net of Re-Takaful, shall be maintained in the UAE.

                      • Article (3) – Calculation of Technical Provisions

                        1. Unearned Contribution Reserve (UPR) / Unearned Risk Reserve (URR)

                          a) The Unearned Contribution Reserve (UPR) shall be calculated linearly (Pro rata basis calendar year from the date of risk inception). Taking into consideration the UPR for Marine Insurance (Cargo - Individual Shipment Only) to be calculated separately as per subparagraph (e) of this Article below.

                          b) Where the pattern of the risk over the policy period is clearly non-uniform (e.g., in the case of Engineering Business where the risk usually increases with time) and where reflection of such un-uniformity in the Unearned Contribution Reserve calculation would result in a larger reserve, then a larger reserve should be provided. The Actuary should determine which Unearned Contribution Reserve method to use in this instance, with reference to the risk profile of the business.

                          c) If a Company considers its UPR as inadequate to cover the future liabilities, it should create an Unexpired Risk Reserve (URR) at the line of business level to cover the shortfall in the unearned contribution reserve in each line of business. The Unearned Contribution Reserve is mandatory but any URR shall be created as needed by line of business. The calculation of the URR should include consideration of the cost of capital or other profit loadings.

                          d) In case of the date of initiation of a policy being different from the date of initiation of risk, the UPR should be calculated on a pro-rata basis from the date of initiation of risk.

                          e) The UPR is to be provided as a minimum of 25% of the total contributions for the year for Marine Insurance (Cargo) (Individual Shipment only). However, should the Actuary be able to justify to the Authority that a lower percentage is more appropriate given the risk profile of the marine polices, then the lower percentage can be used supported by Authority approval.

                          f) Actuarial certification shall be required in case of UPR and URR on an annual basis at the minimum.
                           
                        2. The Outstanding Loss Reserve (OSLR or case reserves) shall be calculated for each claim reported but outstanding as on the reporting date by the Company. The Actuary shall assess the OSLR based on the overall portfolio by each Line of Business.
                           
                        3. Incurred But Not Reported (IBNR)

                          a) IBNR shall be provided for all short term products (all Property and Liability Takaful products and one year Family Takaful and Fund Accumulation products).

                          b) The Actuary shall certify the adequacy of the aggregate Outstanding Loss Reserve (OSLR) and IBNR. In doing so the Actuary shall consider the requirement of providing for any loss adjustment expenses as noted in paragraph (4) of this Article. Such certification shall be carried out on an annual basis at the minimum.

                          c) IBNR should be calculated according to the Addendum (1) of the herein regulations.
                           
                        4. Allocated Loss Adjustment Expense (ALAE) & Unallocated Loss Adjustment Expense (ULAE) Reserves

                          a) ALAE shall be provided for Property and Liability Takaful short term products as well as Family Takaful and Fund Accumulation short term products. The ALAE reserves can be grouped with the loss reserves (OSLR and IBNR) or accounted separately.

                          b) ULAE shall be provided for Property and Liability Takaful short term products as well as Family Takaful and Fund Accumulation short term products. The ULAE reserves must accrue for all claims handling expenses not included in ALAE.

                          c) The Actuary shall certify the adequacy of the aggregate ALAE and ULAE as part of the certification of the overall technical provisions. Such certification shall be carried out on an annual basis at the minimum.
                           
                        5. Mathematical Reserve

                          a) Mathematical Reserve shall be provided for all operations related to insurance of persons and Fund Accumulation. An actuarial certification on Mathematical Reserve is required at least annually to be submitted to the Authority.

                          b) Mathematical Reserve should be calculated according to the Addendum (2) of the herein regulations.
                           
                        6. Appropriate credit for Re-Takaful should be computed for all the above reserves, so that the Technical Provisions are calculated both gross and net of all applicable Re- Takaful.

                      • Article (4) – Actuarial Requirements for Technical Provisions

                        The following provisions apply to the actuarial requirements for technical provision:

                        1. The Board of Directors shall appoint an Actuary who is registered by the Authority. The Company should inform the Insurance Authority of the Actuary appointed and any subsequent change to the Actuary with reasons for change to be notified to the Authority.
                           
                        2. The Actuary shall review and approve the Company’s Technical Provisions, both gross and net of Re-Takaful.
                           
                        3. The Actuary shall assess the quality of the data which is used for the calculation of the Technical Provisions to ensure it is appropriate for the purpose of calculating the Technical Provisions. The responsibility for ensuring the accuracy of the data lies with the management of the Company.
                        4. The Actuary shall be professionally liable for the advice and technical services provided to the Company.
                           
                        5. The Actuary shall provide the Insurance Authority with an annual report that presents the immediate or future risks facing the Company. The Actuary's report can cover any aspect, which in the Actuary's opinion constitutes a contravention of the insurer's ability or prejudices the insurer's ability to meet its liabilities and capital adequacy currently or in the future.
                           
                        6. An External Auditor shall review the actuarial reports that present immediate or future risks facing the Company, and provide their opinion on the risks mentioned in the actuarial report to the Authority.

                      • Article (5) – Reporting Requirements to the Authority

                        1. The Company shall report quarterly to the Authority the details of the Technical Provisions which is certified by the Actuary and authenticated by the External Auditor within a period of forty-five (45) days from the quarter end; and
                           
                        2. The Company shall submit annually to the Authority a report on the details of the Technical Provisions which is certified by the Actuary, authenticated by the External Auditor and endorsed by the Chairman of the Board of Directors. The timeline for the annual submission of the Technical Provisions will be at the same time as the submission of the audited annual financial results.

                      • Article (6) – Addendums

                        The Addendums attached to these regulations are an integral part of the regulations and are to be read along with the regulations.

                        • Addendums to Section 3 Basis of Calculating the Technical Provisions - Takaful

                          • Addendum (1)

                            When calculating the Incurred But Not Reported (IBNR) provisions the following should be considered:

                            1. There shall be sufficient data available with the Company to facilitate the IBNR calculation. The Company’s management shall be responsible to certify the completeness, appropriateness and accuracy of the insurance data to be used for the calculation of the IBNR.
                            2. The Company will use actuarial methods that are applicable depending on size, scale and complexity of business. The Actuary shall provide adequate explanation to the methods adopted and the methods should be consistent from year to year. In case the Actuary decides to change the methods previously adopted and this methodology change has a material impact on results, sufficient explanation on the reason and impact needs to be provided to the Authority. The Authority reserves the right to ask for additional explanation and information for the change in methods adopted.

                              Estimation of Incurred But Not Reported provisions (IBNR)
                            1. These instructions are relevant to determination of IBNR provisions for direct insurance and facultative reinsurance accepted business. Estimation of IBNR provisions on treaty accepted and Excess of Loss accepted business may require other methods more appropriate to the nature of the portfolio and its claims development pattern. Likewise, estimation of IBNR provisions for specialized business such as credit guarantee insurance may require other methods more appropriate to the nature of the business.
                               
                            2. In these instructions, the term IBNR covers both provisions for claims not yet reported (Incurred But Not Yet Reported or IBNYR) as well as incomplete provisions for reported claims (Incurred But Not Enough Reported or IBNER). It is not necessary to establish separate provisions for IBNYR and for IBNER so long as the method(s) used will take into account both elements.
                               
                            3. The method stated in these instructions is the “preferred method” and is generally suitable to estimate the IBNR provision. If the Actuary considers the method stated in these instructions to be not suitable, he should set out the reasons for such conclusion and provide justification for the alternative method(s) proposed to be used, being considered more appropriate. Where the method(s) used is not one of the well-known methods, the Actuary should also describe the method(s) and the underlying assumptions in that method(s).
                               
                            4. All mathematical methods of estimation are based on a set of assumptions. So, the validity of the assumptions underlying the method proposed to be used should be fully set out and validated sufficiently to lend credibility to the exercise.
                               
                            5. Calculation of the provision for IBNR should be done separately for each year of occurrence or year of underwriting and the figures should be aggregated to arrive at the total amount to be provided.
                               
                            6. The calculation of the ALAE provision can be included with the loss provision, but when calculated separately the same level of detail in terms of method(s) used, validation of assumptions, estimation by year, etc. as described above for loss provisions should be done for the ALAE provisions. The calculation of the ULAE provision is generally done with simpler, yet actuarially sound, methods.

                              Examination and validation of basic data
                            1. The Actuary should apply such checks as practically possible to assess the quality and completeness of the data to improve the accuracy of the IBNR provision estimates.
                               
                            2. Data should be examined separately for each of the classes set out in the instruction notes. If data of any class is aggregated with data for another class, care should be taken to see that the two classes are homogeneous in nature.
                               
                            3. The Actuary should examine the changes in underwriting policy over the period of observation and in particular, the changes made in current underwriting policy. The impact of such changes on the claims development pattern and claims ratio should be estimated if appropriate.
                               
                            4. The Actuary should examine the development of contributions written over recent years. If the average level of deductible has undergone material change over the recent years, its impact on the claims development pattern should be taken into account.\
                               
                            5. The compilation of data on an underwriting period basis instead of a period of occurrence (accident period) basis may be proposed in some cases. Where this basis is followed the Actuary should support the reason for change of basis on objective reasons.

                            Claims handling

                            1. A detailed review of the claims handling practices should be conducted. Where material changes are identified, their impact on the claims development pattern should be taken into account.
                               
                            2. Each claim is to be recognized upon occurrence of the insured event. The way this is implemented in practice may differ from one company to another, but it should include various claim transactions and reserves for the estimated liability on a case by case basis (case reserves). The impact of inadequate provision for claims on claims development can be significant and should be taken into account.
                               
                            3. In addition to recognition of claims, which the Takaful operator follows to determine the provision to be made and the mechanism to review such provision, the Takaful operator has the responsibility toward having prompt and fair settlement related to the claims. The Takaful operator may sell or accept the collectable returns as a part of the settlement and include the practice of downsizing the claims provision in cases where there has been no movement in the claim over a certain period, which may be important factors in claims development.
                               
                            4. The Company should consider that claim development patterns can be materially affected by the occurrence of unusual events over the period of observation such as:

                              a) Individual large claims;

                              b) Catastrophic events causing a large number of claims;

                              c) Changes in Law affecting the incidence and size of claims;

                              d) Impact of external factors on the average size of claims; and

                              e) Judicial changes related to accrued compensation.
                               
                            5. When estimating IBNR after adjustment for reinsurers’ share, note should be taken of any changes in reinsurance protections and changes in size of retentions over recent years.

                            Claims cost trends

                            1. In order to make adequate adjustment for trends, the following aspects should be studied:

                              a) Composition of portfolio;

                              b) External factors such as economic environment, inflation, changes in legal, political or social conditions;

                              c) The underwriting policy of the Takaful operator; and

                              d) Changes in the Takaful operator’s claim settlement practices.
                               
                            2. A significant indicator of claims experience trends is the frequency of claims occurrence and the average size per claim paid and per claim outstanding. These should be studied and any variations observed should be looked into.

                            Test of credibility

                            1. To ensure completeness of IBNR provision estimation, tests of credibility for the results produced should be applied including, evaluating the frequency of claims occurrence, ultimate incurred loss ratios, average cost per claim paid and per claim outstanding, etc.
                               
                            2. It is generally inappropriate to accept any negative values for the IBNR provision in total. To avoid such a situation, estimation of IBNR should be made separately for each year of occurrence. Negative values of IBNR for any year can be allowed where it is actuarially justified based on the nature of the risk, claims practices and historic development trends. The actuary must include a detailed description of the reasons for including negative IBNR in total for any type of business. While negative IBNR in total for a type of business may be appropriate if actuarially justified and documented, the negative IBNR shall not be an Admissible Asset.
                               
                            3. An essential check on the credibility of the estimation exercise is to see how the claims developed during the preceding twelve months as compared to the projection and estimation made last year. The outstanding claims provision and provision for IBNR made at the last Balance Sheet date should be compared with the aggregate of claims paid during the year, claims outstanding and the provision for IBNR at the end of the current year, for the years of occurrence up to and including the date of the last Balance Sheet.
                               
                            4. When estimation methods produce less reliable results for the most recent years, the results for the more recent years may need to be revised based on the Actuary’s knowledge of the business and the Company’s portfolio.

                            • Addendum (2)

                              Calculation of the Mathematical Reserve

                              1. The Mathematical Reserve is to be determined separately for each insurance contract by a prospective method of valuation in accordance with the instructions below.
                                 
                              2. The valuation method shall take into account all prospective contingencies under which any contributions (by the participant) or benefits (to the participant/beneficiary) may be payable under the policy, as determined by the policy conditions. The level of benefits takes into account the reasonable expectations of participants (with regard to bonuses, including terminal bonuses, if any) and any established practices of the Company for payment of benefits.
                                 
                              3. The estimated amount of liability under each policy shall be determined based on prudent assumptions of all relevant parameters and in line with global actuarial standards. The value of each such parameter shall be based on the Company’s expected experience and shall include an appropriate margin for adverse deviations that may result in an increase in the amount of the mathematical reserve.
                                 
                              4. In case of a negative reserve, the Actuary shall set the amount of such mathematical reserve at zero, or to the guaranteed surrender value in case of such guaranteed surrender value deficiency reserve, as the case may be. For unit-linked business, the mathematical reserve may be negative, but the Actuary shall set the mathematical reserve to a level so that the sum of the mathematical reserve and the unit reserve is at least as large as the guaranteed surrender value.
                                 
                              5. The Actuary shall not make allowance for any future lapse, surrender, making paid-up or revival of a contract where such an allowance would result in a decrease in the liability in respect of that contract.
                                 
                              6. The Actuary shall take into account vested, declared or allotted bonuses or other forms of participation to which participants are already either collectively or individually contractually entitled.
                                 
                              7. The Actuary shall take into account discretionary charges and deductions from Policy Benefits, in so far as they do not exceed the reasonable expectations of participants.
                                 
                              8. The Actuary shall take into account expenses, including commissions. The expenses shall take either implicit or explicit account of future increases considered likely in expenses for existing business based on prudent assumptions as to the future rates of changes in prices and earnings.
                                 
                              9. Consideration shall be given to the impact of selective withdrawals in the allowance for future expenses, particularly where the allowance is not assessed on a per policy basis.
                                 
                              10. Explicit allowance for future expenses is required for all contracts under which no future contributions are receivable where these are not provided by disclosed margins in the valuation rate of yield.
                                 
                              11. Proper provision must be made for claims handling expenses, directly or indirectly. This is particularly relevant to classes of business such as permanent health insurance where these expenses are likely to be significant.
                                 
                              12. Where a net contribution method is used it is permissible to take credit for the difference between the gross contribution and the valuation net contribution in assessing the provision to be made for meeting the expenses likely to be incurred in the future in fulfilling the existing contracts, but only to the extent allowed by global actuarial standards.
                                 
                              13. The Actuary shall take into account any rights under contracts of reinsurance.
                                 
                              14. The Actuary shall take into account any other options that the participant has in respect of the policy, or by virtue of the contract, and that provision shall be made on prudent assumptions to cover any increase in liabilities caused by participants exercising options under their contracts. Treatment of options should be in line with global actuarial standards.
                                 
                              15. 15. The provisions for unit-linked funds should be the unit value and depends on what the guarantees are in the product. So the provisions should be provided keeping in mind guaranteed return if any in addition to basing it on the future expected unit value.
                                 
                              16. The Actuary shall use one of the common methods which would be suitable for the size, nature and complexity of the business. Common methods like Gross Contribution Method of valuation or retrospective method may be used if demonstrated to be at least as prudent. The Actuary shall give an explanation for the method adopted and the method shall be consistent from year to year. In case the Actuary decides to change the method being used from previous years, sufficient explanation to the same needs to be provided.
                                 
                              17. The method of calculation of the amount of liabilities and the assumptions for the valuation parameters shall not be subject to arbitrary discontinuities from one year to the next. The calculation of the net present value of payments is to be based on a portfolio of (AAA) rated sovereign risk securities with a similar expected payment profile to the liability being measured. In case the market yields for longer term durations are not available within UAE, in such a case US$ market yield of a (AAA) rated sovereign risk securities should be considered as a measure for AED longer term durations.
                                 
                              18. The determination of the amount of mathematical reserve shall take into account the nature and term of the assets representing those liabilities and the value placed upon them and shall include prudent provision against the effects of possible future changes in the value of assets on the ability of the Company to meet its obligations arising under policies as they arise.
                                 
                              19. Technical Provisions (including Mathematical Reserves) considered for Solvency purposes should not include unit-linked funds’ reserves to the extent that it does not include the guaranteed portion of the insurance policies with the unit-linked funds.
                                 
                              20. Mortality Rates used must be conservative. The Actuary should provide reinsurance rates or refer to any published mortality table that is justifiable.
                                 
                              21. ensitivity to assumptions used should be provided.
                                 
                              22. Persistency – Lapse analysis should be provided where applicable.
                                 
                              23. In the event of lack of clarity on specific assumptions not defined above for calculating the Mathematical Reserves, the Actuary can apply actuarial best practices but must provide justification and quote relevant actuarial standards in the valuation report.

                              • Addendum (3)

                                Report of the Actuary on the Estimation of Reserves

                                The report of the Actuary should contain the following elements at a minimum. Some elements will be at an overall company level, and the others should be at the line of business or coverage level to document the analysis of the Actuary

                                Name of Takaful operator:
                                Name of Actuary:
                                Insurance activity practiced by the company:

                                Section 1 – The Takaful operator and its business:

                                1. The contribution scale of the Takaful operator and the classes of business it writes. Has the growth of contribution income been steady and reasonable? Fluctuations in growth rates or high or low growth rates may be indicative of a change in the composition of business or changes in underwriting policy.
                                   
                                2. What is the underwriting policy of the Takaful operator in respect of:

                                  a) Selection of risks;

                                  b) Rates and deductibles; and

                                  c) Delegation of underwriting authority.
                                   
                                3. Has the underwriting policy remained stable over the past three years? Note any changes in key underwriting personnel and the impact on the underwriting policy of the Takaful operator.
                                   
                                4. What is the claims processing and settlement policy of the Takaful operator in the matter of:

                                  a) First recognition of claim;

                                  b) Provision for claims where no information or inadequate information on facts are available;

                                  c) Periodicity of review of the provision for a claim;

                                  d) Negotiation of bodily injury claims relating to motor accidents;

                                  e) Processing and settlement of claims; and

                                  f) Pursuit of recovery or sale of salvage.
                                   
                                5. Has the claims processing and settlement policy remained the same over the past years? Note any changes in key claims personnel and the impact on the claims settlement practice of the Takaful operator.
                                   
                                6. Has the Takaful operator experienced any cash flow or financial problems over the observation period? Note any effects on the Takaful operator’s underwriting or claims settlement practices as a result of these problems.
                                   
                                7. Has the claims data been affected by catastrophic events such as earthquake, flood, windstorm, individual large claims, etc. or any significant changes in the business environment such as a severe economic recession that would have affected the business experience and impacted the claims figures?
                                   
                                8. Any changes in the general business and insurance industry conditions in matters such as legislative environment, competition, consumerism, levels of court awards, etc.? Note the impact of these changes.

                                  Section 2 – The data
                                1. The data should be compiled separately for each class of insurance business as required by the insurance regulations. If not, comment on the reasons for variation.
                                   
                                2. Comment on the source of data and steps taken to ensure that the data is consistent, reliable, complete and in agreement with the financials.
                                   
                                3. Comment on the observed trends in the growth of contributions, frequency of loss occurrence, average cost per claim paid and per claim outstanding, speed of emergence of claims and speed of settlement. Also state how these have been taken into account in the selection process of assumptions used in the estimation of provisions.
                                   
                                4. Note any individually large claims that affect the claims development figures and how the estimation process was adapted as a result of these claims.
                                   
                                5. The estimation of provisions should be done pre- and post-adjusting for the reinsurance share (gross and net of reinsurance). A description of the process followed to determine the provisions post-adjusting for reinsurance share should be provided. Any material change in the reinsurance program, along with how the estimation process was adapted to adjust for the change should be provided. If data on a net of reinsurance basis is not readily available, it is up to the Actuary to work on the provision estimates on a gross basis and work on the estimate of provisions for the share of reinsurance ceded, if that is more easily possible.

                                  Section 3 – The methods
                                1. Describe the methods used for estimation of provisions. If the methods used now are different from the methods used previously, state the reason(s) for change.
                                   
                                2. Document the assumptions underlying the methods and discuss to what extent the validity of the assumptions was verified.
                                   
                                3. Where the method(s) used is not commonly understood, explain the methodology and provide adequate working sheets to understand the calculations and results.
                                   
                                4. The review and the examination of the results should be executed using another method.

                                  Section 4 – Evaluation of the results
                                1. Compare the prior estimated claim provisions (that were pending at the end of the previous year’s estimate), with the paid claims in the subsequent year for each claim in order to test the accuracy of the prior estimates.
                                   
                                2. The difference between the claim reserves booked by the Company and the claim reserves estimated by the Actuary must be disclosed. If the Company estimates are lower than the estimates by the Actuary, then additional tests that were conducted to assess the accuracy of the estimates should be disclosed.

                                  Section 5 – Overall results

                                  Comment on calculated incurred claim ratios for the Takaful operator over the years. In particular, comment whether the claim ratios for the more recent years are logical and state how the estimation process was modified to achieve more credible results.

                                  Section 6 – Attachments

                                  The data collected from the database of the Takaful operator, the compiled cumulative figures, the calculation sheets and the final results should be attached to the report.

                                  Section 7 – Certification
                                1. The Actuary should not put forward or certify any figures, which lack credibility, with serious reservations.
                                   
                                2. The Actuary should certify that he has checked the data to the best of his ability and is satisfied that they are consistent, reliable and complete and that the assumptions underlying the methods used for estimation of provisions are reasonable.
                                   
                                3. The report should be signed with date by the Actuary.

                    • Section (4) Regulations Pertinent to Determining the Takaful Operator’s Assets that Meet the Accrued Insurance Liabilities

                      • Article (1) – General Rules for Asset Valuation

                        The Company shall apply the following rules in the valuation of its assets:

                        1. The Company shall invest all their assets in accordance with the “prudent person principle” and shall be in accordance with the considerations of the Islamic Shari’a.
                           
                        2. With respect to the whole portfolio of assets, the Company shall only invest in assets and instruments, whose risks can be adequately identified, measured, monitored, managed, controlled and reported, and appropriately take into account in the assessment of their overall solvency needs by the Company.
                           
                        3. All assets, in particular those covering the Minimum Capital Requirement, Minimum Guarantee Fund and the Solvency Capital Requirement, shall be invested in such a manner to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In addition the localization of those assets shall be such as to ensure their availability.
                           
                        4. Without prejudice to paragraph (2) above, and with respect to assets held in respect of Takaful Insurance of Persons where the investment risk is borne by the participants, the following shall apply:

                          a) Where the benefits provided by a contract are directly linked to the value of unit-linked funds, or to the value of assets contained in an internal fund held by the Company, usually divided into units, the technical provisions with respect to those benefits must be represented as closely as possible by those units or, in the case where units are not established, by those assets.

                          b) Where the benefits provided by a contract are directly linked to a share index or some other reference value other than those referred to in subparagraph (a) above, the technical provisions with respect to those benefits must be represented as closely as possible either by the units deemed to represent the reference value or, in the case where units are not established, by assets of appropriate security and marketability which correspond as closely as possible with those on which the particular reference value is based.

                          c) Where the benefits referred to above include a guarantee of investment performance or some other guaranteed benefit, the assets held to cover the corresponding additional technical provisions shall be subject to paragraph (3) of this Article.
                           
                        5. With consideration to paragraph (2) and with respect to assets, Regulations Pertinent to the Basis of Investing the Rights of the Participants - Takaful shall apply.
                           
                        6. Companies must comply with the detailed provisions regarding the general rules for asset valuation as prescribed in the Addendum of this Article attached to these regulations.

                      • Article (2) – Limits for assets to be considered for Solvency

                        The Admissible Assets to be considered towards the calculation of solvency shall be valued as follows:

                        1. The value of all the invested assets shall be restricted as per the limits defined in the Regulations Pertinent to the Basis of Investing the Rights of the Participants -Takaful.
                           
                        2. All other assets shall be valued as required by the Authority.

                      • Article (3) – Addendum

                        The Addendum attached to these regulations is an integral part of the regulations and is to be read along with the regulations.

                        • Addendum to Section 4 Determining the Takaful Operator’s Assets that Meet the Accrued Insurance Liabilities

                          • Addendum

                            Measurement of Assets for the purpose of calculation of the solvency margin shall be as detailed below:

                            1. Investments in Non-Takaful Subsidiaries and Associates

                              a) Valuation of investments in Subsidiaries and Associates that are listed securities must be on the closing market quotation or the latest available market quotation (whichever is lower).

                              b) Valuation of investments in Subsidiaries and Associates that are not listed securities must be at economic or market value. A suitable valuation may be used to arrive at this value, but undertakings shall also consider the risks that arise from holding a balance sheet item, using assumptions that market participants would use in valuing the asset or liability.

                              c) The International Accounting Standards Board’s (IASBs) International Financial Reporting Standards (IFRS) related to "Fair Value Measurement" accounting is considered a suitable measure for true economic value. This proposes a ‘mark-to-market’ approach or, if not possible, a ‘mark-to-model’ approach for all participations, listed and unlisted, taking into account the guidance given by the IASB related to "The valuation of assets and liabilities for solvency assessment purposes". Where the holding is not material however, a Net Asset Value (NAV) approach may be used.
                               
                            2. Real Estate Investments

                              a) For Admissible Asset purposes, real estate assets such as land and buildings must be valued at market value as assessed by an independent qualified expert. The Company may elect to use book value where that value is less than market value, however where no proper valuation exists the Authority is to appoint an authorized independent real estate firm at the Company’s expense and use the results of the valuation.

                              b) The admissibility test is to be applied in total to both land and building in instances where the realizable value of the asset is dependent on both the land and the building.

                              c) For solvency margin calculation purposes, real estate assets such as land and buildings must be valued on a ‘cash flow’ basis.
                               
                            3. Debt / Government Securities

                              a) Government securities/bonds (both fixed and variable yield securities) must be valued at:
                               
                              1. 1) In the case of listed securities, the closing market quotation or the latest available market quotation (whichever is lower);

                              2. 2) In the case of securities which are not transferable, the amount payable on surrender or redemption of such securities as at the date the security is being valued; and

                              3. 3) In any other case, the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof.

                              b) Debt securities (both fixed and variable yield securities) not covered in subparagraph (a) above must be valued at:
                               
                              1. 1) In the case of listed securities, the closing market quotation;

                              2. 2) In the case of securities which are not transferable, the amount payable on surrender or redemption of such securities as at the date the security is being valued; and

                              3. 3) In any other case, the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof.
                               
                            4. Equity Shares

                              a) Valuation of equity shares that are listed securities is based on the closing market quotation or the latest available market quotation (whichever is lower).

                              b) Valuation of equity shares that are not listed securities must be valued at economic or market value. A suitable valuation may be used to arrive at this value, but undertakings shall also consider the risks that arise from holding such a balance sheet item, using assumptions that market participants would use in valuing the asset or liability.

                              c) The IFRS related to "Fair Value Measurement" accounting is considered a suitable measure for true economic value. This proposes a ‘mark-to-market’ or, if not possible, a ‘mark-to-model’ approach for all participations, listed and unlisted, taking into account the guidance given by the IASB related to "The valuation of assets and liabilities for solvency assessment purposes". Where the holding is not material however, a Net Asset Value (NAV) approach may be used.
                               
                            5. Traded Derivative Contract

                              A traded derivative contract that is a listed security, for a share or a debenture must be valued at the closing market quotation, and otherwise at the amount which would reasonably be paid by way of consideration for an immediate transfer or assignment thereof.
                               
                            6. Loans Secured by Insurance Policies Issued by the Company
                              Valuation of a loan secured by an insurance policy issued by the Company must be as the amount of the loan but not exceeding the amount payable on a surrender of the policy as at the date the policy is being valued.
                               
                            7. Other Assets

                              a) Valuation of deposits and current account balances with approved financial institutions must be at their carrying value. The admissible value of these assets is their carrying value.

                              b) The admissible value of any cash holding is its carrying value.

                              c) Amounts due under contracts of Takaful and Re-Takaful, including salvage and subrogation rights, must be valued at the amounts that can be expected to be recovered. The exceptions being:
                               
                              1. 1) Advance commission paid to intermediaries which must be valued at nil, except in case of long term life insurance contracts, where advance commission paid should be valued at carrying value in its first year; and

                              2. 2) Amounts that pertain to a subsidiary or associate of the Company must be valued in accordance with subparagraph (1) above.

                              3. 3) Any debt should be valued depending on the exact nature of the debt and its recoverability. In any event and for all debtors, International Financial Reporting Standards related to the “impairment of assets” should be considered.

                              d) Qard Hasan shall be treated as receivable and considered in calculation of MCR / SCR / MGF as an unsecured and uncovered loan. It should be written off completely if outstanding for three (3) years. Each year's Qard Hasan should be considered separately.

                              e) For investments that are not specifically covered above, if the investment is due, or will become due, within twelve months from the date at which the investment is being valued (or would become so due if the company exercised some right), valuation should be based on the amount which can reasonably be expected to be recovered in respect of the investment, taking due account of any security held in respect thereof.
                               
                            8. Total Invested Assets

                              a) For the purposes of asset valuation regulations, ‛Total Invested Assets’ is defined as the sum of the assets in the categories listed in paragraph (1) of Article (3) of the Basis of Investing the Rights of the Participants – Takaful, in Section (1) of this regulation.

                              b) The Total Invested Assets for the Property and Liability Takaful business shall be segregated and maintained separately from the Total Invested Assets held for Family Takaful and Fund Accumulation operations.

                    • Section (5) Regulations Pertinent to the Records which the Takaful Operator shall be obligated to Organize and Maintain as well as the Data and Documents that shall be made Available to the Authority

                      • Article (1) – General Requirements for Records

                        1. The Company must maintain complete transaction records for all local and international operations for as long as they are deemed relevant for the purposes for which they were made. Records of completed transactions may be retained in either hard copy and/or electronic format, but must be kept in their original form. Completed transaction records for business booked in the UAE must be maintained in the UAE and be easily accessible to the Authority.
                           
                        2. Any Company that is licensed for both Takaful Insurance of Persons & Fund Accumulation operations and Property and Liability Takaful insurance operations, must maintain separate records in respect of both types of Takaful insurance operations. The transactions relating to each kind of business must be maintained separately. The Company must maintain such accounting and other records as necessary to identify all assets and liabilities in respect of each kind of business.
                           
                        3. The Company shall maintain backup for all records. The backup shall be maintained in a separate location from the original records.
                           
                        4. Regardless of any information mentioned in other regulations, the electronic information or information generated from the computer system, fax and e-mail are considered adequate and valid if the authoritative controls were adhered to.

                      • Article (2) – Period of Retention for Records

                        1. The retention period of the records and backups along with any other related documents and data, should be for ten (10) years or more, as of the end date of the activity or the working relation with insured.
                           
                        2. The Company will maintain records beyond the normal statute of limitation periods as stipulated in paragraph (1) above, when the records are subject to ongoing investigations or prosecution in court. In such cases, the retention period shall be two years from the date of final verdict or the resolution issuance.

                      • Article (3) – Types of Records

                        1. The Takaful operator must maintain adequate records for all lines of business and shall include:

                          a) Underwriting, Policy Issuance and Policy Servicing records;

                          b) Claim transaction records;

                          c) Complaints records;

                          d) Technical Provisions records;

                          e) Financial Solvency records;

                          f) Product related records;

                          g) Reinsurance contracts and related records;

                          h) Investment records;

                          i) Actuarial records;

                          j) Records of Company’s transactions with its subsidiaries and affiliates;

                          k) Records for the participants' funds under management;

                          l) Records for shareholders funds;

                          m) Major agreements of the Company;

                          n) Policies and Procedures for all the processes within the Company including Risk Management Policy and Procedures;

                          o) Records of actuarial reports;

                          p) Records for professionals related to insurance; and

                          q) Any other records that the Authority may require.
                           
                        2. Further guidance on types of records in Addendum (1) of the regulations herein shall be applied.

                      • Article (4) – Examination of Records

                        1. The Authority examiners or any person assigned by it shall have the right to conduct office and field examinations of all accounts, records, documents, and transactions related to the Takaful affairs of the Company and the Takaful and Re-Takaful Services Provider. The Company employees shall provide all information, particulars and documents required by the examiners.
                           
                        2. When appointing an Actuary, the Company shall waive any duty of confidentiality on the part of the Actuary, such that the Actuary may report to the Authority any concerns held regarding material failures by the Company to comply with Authority requirements.
                           
                        3. The Authority may from time to time inspect under conditions of secrecy the records of the Company and of any of its branch offices.
                           
                        4. The Authority has the right to submit a formal letter to any Company employee for the following reasons:

                          a) Provide the Authority with any information; or

                          b) Appear before the Authority to discuss any topic that the Authority may request.
                           
                        5. An examiner authorized by the Authority shall examine, without any prior notice, the documents related to:

                          a) The Company, or its agent, inside or outside the UAE; or

                          b) The Company in liquidation or an insurance company whose license has been suspended.
                           
                        6. The examiner may examine the Company or a person whom he believes to be acquainted with the facts and circumstances of the case, including the External Auditor or the Actuary of the Company, the Company or the person shall give such document or information as the examiner may require within such time as he may specify.
                           
                        7. An External Auditor or an Actuary shall not be liable for breach of a contract relating to, or duty of, confidentiality for giving a document or information to the examiner.
                           
                        8. In case it becomes evident to the Authority that the actuarial report does not reflect the correct financial status of the Company, the Authority may order a re-examination by an Actuary appointed by Authority and the expenses to be borne by the Company for re-examination ordered by the Authority.
                           
                        9. In the case of any material discrepancies in the data or the records provided by the Company, the Authority may request to amend them within a specified period.
                           
                        10. The Company should submit any documents or information requested by the Authority or any Company that has an ownership relationship with the Company, pertaining to the Company’s records and within the time period set by the Authority.

                      • Article (5) – Records for Agents

                        1. The agent shall keep records for all the data, information and documents related to the Takaful agency business he is practicing on behalf of the Company or any of its branches, as the case may be, including the following:

                          a) Name and address of the Company or any of its branches he is practicing the Takaful business for;

                          b) A copy of the agency agreement concluded between him and the Company;

                          c) Memos and correspondences related to his business;

                          d) The proposals received on behalf of the Company or any of its branches;

                          e) Name of the proposer of Takaful, the insured and the beneficiary, as well as the date of issuance and the contribution collected in respect thereof;

                          f) Where the agent is entitled to underwrite and issue policies on behalf of the Company, the agent shall document Takaful policies and their endorsements concluded by him on behalf of the Company or any of its branches;

                          g) A copy of Takaful policies that the participant concludes with the Company;

                          h) Records with serial numbers related to collecting, paying, recording, settling claims and any financial transactions regarding the Takaful agency business practiced; and

                          i) Bank records regarding the Takaful agency business practiced.
                           
                        2. The records referred to above shall be in the form of originals or in any other form of electronic archiving systems.
                           
                        3. The agent shall keep the records along with the backups for a period of not less than those stated in the insurance agent’s regulations.
                           
                        4. The agent shall maintain records beyond the normal statute of limitation periods as stipulated in the insurance agent’s regulations, when the records are subject to ongoing investigations or prosecution in court, until such records are no longer needed.
                           
                        5. The Authority may assign an employee(s) or appoint an external party to inspect, at appropriate times, the records of the agent. The agent shall have all his records available and cooperate with the employee(s) or the external party so that they can fully perform their duties. The agent shall bear all the expenses for the external party as decided by the Authority, unless the Authority deems otherwise.

                      • Article (6) – Records for Brokers

                        Brokers shall maintain records in accordance with terms and provisions identified in the insurance brokerage regulations in force and decisions issued pursuant thereto.

                      • Article (7) – Addendum

                        The Addendum attached to these regulations is an integral part of the regulations and is to be read along with the regulations.

                        • Addendum to Section 5 Records which the Takaful Operator shall be obligated to Organize and Maintain as well as the Data and Documents that shall be made Available to the Authority

                          • Addendum

                            1. The Company shall maintain the following as a minimum for Policy Issuance, Underwriting and Policy Servicing records:

                              a) Takaful application and proposal;

                              b) Takaful policy;

                              c) Wakala and Mudaraba fee details;

                              d) Agreement on any terms of Re-Takaful cover;

                              e) Re-Takaful contracts;

                              f) The participants and beneficiary’s proof of identification;

                              g) Underwriting policy and procedures;

                              h) The technical basis of the Takaful policies and contribution ratios;

                              i) List of insured personnel for group policies;

                              j) Medical declaration for family and healthcare Takaful;

                              k) Participants register;

                              l) Re-Takaful registers for assumptions and cessions showing details of underwriting information by treaty, subscriptions, losses, commissions, etc., balances due to/from Re-Takaful operators, and supporting source documents; and

                              m) Customer Complaints register.
                               
                            2. The Company shall maintain claim records pertaining to participants’ claims and classify them into paid, unpaid, and rejected claims. Each record shall include the following:

                              a) Takaful application and proposal, if available;

                              b) Copy of the Takaful policy and procedures;

                              c) Claims policy and procedures;

                              d) Participants’ claim information;

                              e) Claims register;

                              f) Adjusters and assessor’s report and any other documents pertaining to the claim and the direct reason leading to the covered loss;

                              g) Proportional share of any other Takaful and re-Takaful policies in effect;

                              h) Action taken by the Company and the status of the claim;

                              i) A power-of-attorney from the participants to the Company to subrogate it in the following cases;
                               
                              1. 1) Third party liability for the loss; and

                              2. 2) Defending the participants in disputed liability or in determining the indemnity amount.

                              j) Signed settlement agreement by a person for a paid claim except in the cases of electronic medical claims where the signed settlement agreement is waived.
                               
                            3. The Company shall maintain the following records in relation to the calculations of Technical Provisions:

                              a) The methods and assumptions used in establishing the Company's reserves, including the margins for adverse deviation, and the reasons for their use;

                              b) The nature of, reasons for, and effect of, any change in approach, including the amount by which the change in approach increases or decreases its reserves;

                              c) Stress testing and scenario analysis prepared as required;

                              d) Reserve calculations performed for each period; and

                              e) Claims developments within the preceding five (5) years to show the variances in building the technical provisions.
                               
                            4. The Company shall maintain records related to investment operations such as investment statements, summary of investment income from Takaful and other operations, details of derivatives and pledged assets, supporting documentation including securities registers (including information regarding securities held by the Company outside the UAE), Ijara register and Ijara documents.
                               
                            5. In support of the investment operations, the Company shall maintain the following records:

                              a) Working papers, with properly referenced audit trails, to support the financial statements/ regulatory data required to be submitted to the Authority;

                              b) Bank statements, cheque registers, monthly banks reconciliations, vouchers and receipts pertaining to the operations in the UAE, and adequate documentation to confirm that amounts due in respect of the Takaful operations of the Company flow to the bank accounts in the UAE;

                              c) Records supporting amounts due to or from the head office and affiliated entities (if any);

                              d) Policy movement reports and reserve amounts;

                              e) Contribution registers detailing contributions written, earned, and unearned;

                              f) Listing of policy loans, amounts on deposit by policy, related income or expense, and originals or copies of policy loan applications;

                              g) A description of the accounting system;

                              h) All agreements, including outsourcing agreements with third party and affiliates;

                              i) All signed contracts, which are material to the Company, that relate to the administrative operation of the Company;

                              j) Policies and practices governing the Company’s operations in the UAE;

                              k) Risk management policies and procedures;

                              l) Details of Board of Directors minutes and other committee minutes;

                              m) Details of any current litigation matters; and

                              n) Actuarial reports, including valuation reports, external review reports, experience studies, etc., and supporting documentation.

                    • Section (6) Regulations Pertinent to the Principles of Organizing Accounting Books and Records of Each of the Takaful Operators, Agents and Brokers and Determining Data to be maintained in these Books and Records

                      • Article (1) – Types of Accounting Books

                        1. Following types of accounting books shall be maintained at minimum:

                          a) Accounting Books for participants including Technical accounting books;

                          b) Accounting books for shareholders;

                          c) Wakala and Mudaraba fee accounting books;

                          d) Ledgers and sub-ledgers for participants and shareholders;

                          e) Journals for participants and shareholders;

                          f) Adequate accounting and other books to identify and support the contracts and the assets, liabilities, revenues and expenses attributable to its operations; and

                          g) Any other books as required by the Authority.
                           
                        2. The Company which is carrying on both Takaful Insurance of Persons & Fund Accumulation operations and Property and Liability Takaful insurance operations must maintain separate books in respect of both operations. Transactions relating to each business operation must be maintained separately. The Company must maintain accounting and technical books needed to identify all assets and liabilities relating to the business operations.
                           
                        3. The Company shall maintain separate accounts for shareholders and participants.
                           
                        4. The Authority may from time to time inspect under conditions of secrecy the books, accounts and transactions of any Company and of any of its branch offices.
                           
                        5. The Company should submit any documents or information requested by the Authority on any Company that has an ownership relationship with the Company, pertaining to the Company’s books and within the time period that is set by the Authority.
                           
                        6. The Company shall maintain backup for all records. The backup shall be maintained in a separate location from the original records.
                           
                        7. Regardless of any information mentioned in other instructions, the electronic information or information generated from the computer system, telefax, fax and e¬mail are considered adequate and valid if the authoritative controls were adhered to.
                           
                        8. The books referred to above shall be in the form of originals, or in any other form of electronic archiving systems.
                           
                        9. The Authority may assign an employee(s) from their end or appoint an external party to inspect, at appropriate times, the books of the Company. The Company shall have all its books available and cooperate with the employee(s) or the external party so that they can fully perform their duties. The Company shall bear all the expenses for the external party as decided by the Authority, unless the Authority deems otherwise.
                           
                        10. For inspection purposes, the Company shall allow the Authority access to its books, accounts and documents and shall give such information and facilities as may be required to conduct the inspection.
                           
                        11. The retention period of the books and backups along with any other related documents and data, should be for ten (10) years or more, as of the end of the financial year or as of the end date of the activity or the working relation with the participants.
                           
                        12. The Company will maintain books beyond the normal statute of limitation periods as in paragraph (11), when the books are subject to ongoing investigations or prosecution in court, until such books are no longer needed.

                      • Article (2) – Records for Agents

                        1. Every insurance agent shall prepare for every accounting year the following:

                          a) A financial position as at the end of each accounting period;
                          b) An income statement for that period;
                          c) A cash flow statement;
                          d) A change in equity statement; and
                          e) Additional statements and notes to accounts as may be required by the Authority.
                           
                        2. Every insurance agent shall maintain separate ledger accounts for each of its clients.
                           
                        3. The retention period for records identified in this Article and their backup copies shall be in line with the applicable insurance agent’s regulations.
                           
                        4. The agent shall maintain records beyond the normal statute of limitation periods as stipulated in the applicable insurance agent’s regulations, when the records are subject to ongoing investigations or prosecution in court, until such records are no longer needed.
                           
                        5. The Authority may assign an employee(s) from their end or appoint an external party to inspect, at appropriate times, the records of the agent. The agent shall have all his records available and cooperate with the employee(s) or the external party so that they can fully perform their duties. The agent shall bear all the expenses for the external party as decided by the Authority, unless the Authority deems otherwise.

                      • Article (3) – Records for Brokers

                        Insurance brokers shall maintain accounting and technical books and prepare the financial statements in accordance with the terms and provisions identified in the insurance brokerage regulations and decisions issued pursuant thereto.

                      • Article (4) – Auditing of Accounting Books

                        1. The Company shall appoint one or more qualified and experienced External Auditors for its accounts for every financial year.
                           
                        2. If a Company fails to appoint an External Auditor within four months from the beginning of the financial year, the Authority shall appoint such External Auditor at the Company’s expense.
                           
                        3. The External Auditor shall review actuarial reports that represent immediate or future risks facing the Company, and the Authority shall be provided with copies of these reports in a timely manner.
                           
                        4. The Actuary shall, in the presence of immediate or future risks facing the Company that would hinder the Company from fulfilling its short term and long term liabilities, submit a report on a timely basis directly to the Company’s Board of Directors. The Board of Directors shall examine the report and recommend corrective actions, and forward all related information to the Authority including the Board of Director’s recommendations related to the report.
                           
                        5. The Company’s Board of Directors shall form an Audit Committee consisting of at least three members from non-executive managers (a Chairman and two other members), of whom a member shall be an expert in financial and accounting affairs. The Board of Directors shall select the committee members among its members other than the members of the executive management or any of the committees established by the Board of Directors. One or more members from outside the Company may be appointed in case the number of non-executive Board of Directors members is not sufficient. The Audit Committee shall meet at least once every three months, or whenever necessary.
                           
                        6. The Company shall:

                          a) Establish an Internal Audit department, which shall report directly to the Audit Committee. The Internal Audit Head in charge of this department must be a holder of a professional certificate in the related discipline and have relevant and adequate experience.

                          b) Appoint a regulatory compliance officer. This officer shall verify compliance with all rules, regulations and instructions. This officer shall directly report to the Chief Executive Officer and shall contact the Authority directly and provide it with information according to the procedures that it specifies.
                           
                        7. The Company shall submit to the Authority the management letter issued by the External Auditor, on an annual basis, before publication of the financial statements.
                           
                        8. Further guidance on auditing of accounting books and other related guidelines in Addendums (1) and (2) of the regulations herein shall be applied.

                      • Article (5) – Addendums

                        The Addendums attached to these regulations are an integral part of the regulations and are to be read along with the regulations.

                        • Addendums to Section 6 Principles of Organizing Accounting Books and Records of Each of the Takaful Operators, Agents and Brokers and Determining Data to be maintained in these Books and Records

                          • Addendum (1)

                            1. Additional Tasks for the External Auditor:
                              a) The Authority may request additional duties from the External Auditor, including:
                               
                              1. 1) Submission of such additional information relating to the audited accounts as the Authority may specify;

                              2. 2) Enlarging the scope of the audit;

                              3. 3) Notifying the Authority of any financial violations discovered during the course of the audit;

                              4. 4) Notifying the Authority of any reservations regarding the accounts or the reserves of the Company;

                              5. 5) Notifying the Authority of any discrepancy in the financial systems, controls, and of any material inaccuracies or inconsistency in the Company’s financial statements; and

                              6. 6) Preparing such financial reports and statements as required by the Authority. External Auditor's fees for such additional tasks shall be borne by the Company.

                              b) While carrying out such additional duties, listed in paragraph (a), as requested by the Authority, the External Auditor shall not be in breach of any duties towards the Company, the Authority, the shareholders or any third parties.
                               
                            2. The External Auditor shall be independent and shall not be the Chairman or a director in the Company’s Board of Directors or a managing director, agent, representative or taking up any administrative work therein, or supervising its accounts, or a next of kin to someone who is responsible for the administration or accounts of the Company, or having an extraordinary interest in the Company or any of its competitors.
                               
                            3. If any of the circumstances referred to in the paragraph (2) occurs after the appointment of the External Auditor, the Company must appoint another External Auditor.
                               
                            4. The Company shall provide the External Auditor with all information and assistance necessary for carrying out his duties.
                               
                            5. The duties of the External Auditor shall include the preparation of a report on the final and interim accounts. The report shall contain a statement on whether the Company's accounts are fairly stated and reflect materially, the actual state of affairs of the Company and whether the Company has provided the External Auditor with all required information and clarifications.
                               
                            6. If the Company is a foreign Company, its final audited accounts together with the External Auditor's report shall be sent to its main office abroad and a copy shall be sent to the Authority.
                               
                            7. External Auditor Access to Relevant Information: Outsourcing agreements must ensure that the Company’s Internal and External Auditors have timely access to any relevant information they may require to fulfill their responsibilities.

                            • Addendum (2)

                              1. Major Roles and Responsibilities of the Internal Auditor:

                                a) Evaluates and provides reasonable assurance that risk management, control, and governance are functioning as intended for all required systems, processes and/or risks enabling the Company to meet its objectives and goals;

                                b) Reports risk management issues and internal control deficiencies identified directly to the Audit Committee, or equivalent group-level governance structure for Foreign Companies, and provides recommendations for improving the Company’s operations, in terms of both efficient and effective performance;

                                c) Evaluating the risk exposures relating to the achievement of the Company’s objectives;

                                d) Evaluating the reliability and integrity of information and the means used to identify, measure, classify and report such information;

                                e) Evaluating the information security and probabilities of exposure to its related risks.

                                f) Evaluates regulatory compliance program with consultation from legal counsel;

                                g) Evaluates the Company’s readiness in case of business interruption; and

                                h) Teams with other internal and external resources as appropriate.
                                 
                              2. The Company shall have an annual audit plan and a risk assessment performed annually and aligned to the annual audit master plan.

                    • 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

                    • Appendix (1) Financial Statement Forms

                      Takaful Insurance Company Financial Statement Forms (with Disclosures)

                      Consolidated Financial Position for Takaful Insurance Company as of Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Assets
                      Takaful Operations Assets
                      Property, machinery and equipment
                      Financial assets designated at fair value through income

                      Financial assets carried at fair value through other comprehensive income
                      Financial assets at Amortized Cost
                      Deferred policy acquisition costs
                      Reinsurers' share of unearned premiums
                      Prepaid expenses and other assets
                      Due from shareholders
                      Reinsurers' share of outstanding claims
                      Premiums and Re-Takaful balances receivables
                      Cash and cash equivalents
                      Total Takaful Operations’ Assets
                      Shareholders’ Assets
                      Property and equipment
                      Investments in associates
                      Intangible assets
                      Investments at amortized cost
                      Investments carried at fair value through other comprehensive
                      income
                      Derivative finance instruments
                      Investments valued at fair value through income
                      Investments in properties
                      Statutory deposits
                      Dues from Takaful operations
                      Other receivables and prepayments
                      Deposits
                      Cash and cash equivalents
                      Total Shareholders’ Assets
                      Total Assets
                       

                      Liabilities, Participants' Claims’ Fund, and Shareholders’ Equity
                       

                      Liabilities

                      Takaful Operations’ Liabilities and related surplus (deficit):

                      Takaful payables
                      Takaful contract liabilities
                      Total outstanding claims
                      Reinsurance payables balances
                      Accrued expenses and other liabilities
                      Unearned Re-Takaful commission income
                      Total unearned premiums
                      Total technical provisions
                      End of service Indemnity
                      Surplus distribution payable
                      Total Takaful Operations’ Liabilities and related surplus (deficit)


                      Participants’ account

                      Family Takaful Fund

                      Property and Liability Takaful Fund

                      Surplus/ Deficit in Family Participants' Takaful Fund
                      Surplus/ Deficit in Property and Liability Participants' Takaful
                      Fund

                      Proposed Profit Distribution to Family Takaful Fund Participants
                      Proposed Profit Distribution to Property and Liability Takaful
                      Fund Participants
                      Investments Revaluation Reserve Attributable to Family Takaful
                      Fund
                      Investments Revaluation Reserve Attributable to Property and
                      Liability Takaful Fund

                      Total surplus/deficit in Participants' Account
                       

                      Shareholders’ Liabilities
                      Accrued expenses and other liabilities
                      End of Service Benefits
                      Other payables
                      Total Shareholders’ Liabilities

                      Shareholders’ Equity

                      Share Capital

                      Retained Earnings/Loss

                      Employee Share Options Reserve

                      Statutory Reserves

                      Cumulative change in fair value
                      Total Shareholders’ Equity attributable to Shareholders of the Company

                      Minority Interest

                      Foreign Currency Translation Adjustments

                      Total Shareholders’ Equity
                      Total Liabilities, Participants' Claims’ Fund, and Shareholders’ Equity

                      Consolidated refers to a group of companies running both Takaful insurance of persons and Property and Liability Takaful insurance.The cash flow and change in shareholders’ equity format under consolidated financial statements is applicable to individual financial statements to be prepared for Takaful insurance of persons and Property and Liability Takaful insurance.

                       

                       

                       

                      Consolidated Income Statement for Takaful Insurance Company for the period ended Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Takaful Income

                      Gross Takaful Contributions

                      Re-Takaful Share of accepted business

                      Re-Takaful Share of ceded business

                      Net Takaful contributions

                      Net Transfer to Unearned Contribution Reserve

                      Net Takaful contributions Earned

                      Commissions Earned

                       

                      Gross Takaful Contributions

                      Takaful Expenses

                      Gross Claims Incurred

                      Re-Takaful Share of Accepted Business Claims

                      Re-Takaful Share of Ceded Business Claims

                      Net claims incurred

                      Provision for Takaful contract liabilities (outstanding claims)

                      Re-Takaful Share of Outstanding Claims
                      Increase/ (Decrease) in Incurred but Not Reported Claims
                      Reserves
                      Increase/ (Decrease) in the provision for unearned
                      subscriptions
                      Increase/ (Decrease) in Unallocated Loss Adjustment Expense
                      Reserve

                      Increase/ (Decrease) in Mathematical Reserves

                      Net Takaful Claims Incurred

                      Net Takaful Income

                      (Wakala/Mudaraba Fees)

                      Income from Investments

                      Income from Real Estate

                      Foreign Currency Exchange Fluctuation (Gain/Loss)

                      Other Income

                      Net Income/ (loss) from Takaful operations

                       

                      Other Revenues

                      Investment Income/(loss) (Shareholders fund)

                      Wakala/ Mudaraba fees from Participants

                      Other Operating Income

                      Impairment /(Write-Off) of Loan to Participants' Fund

                      Other Expenses
                      Commissions Paid

                      Other Operating Expenses

                      General and Administrative Expenses

                       

                      Net Profit/(loss) for the year

                      Net loss on revaluation of available for sale investments

                      Reclassification adjustment of investments available for sale
                      impaired during the year

                      Transfer to P/L on sale of investments available for sale

                      Provision/Impairment loss on financial assets carried at
                      amortized cost

                      Board of Directors’ remuneration
                       

                      Total Comprehensive Profit/Loss for the Year

                       

                      Earnings per share:

                      Basic

                      Diluted

                       

                       

                       

                      Consolidated Comprehensive Income Statement for Takaful Insurance Company for the period ended Day,
                                                                                                     Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Net Profit for the year

                      Other Comprehensive Income (OCI)
                      Other comprehensive income reclassified to net earnings or
                      loss in subsequent periods:

                      Share of other comprehensive income of associates

                      Net unrealized gain/(loss) from investments at fair value from
                      other comprehensive income

                      Net realized (gain)/loss transferred to income from the sale of
                      investments at fair value from other comprehensive income

                      Impairment of Investments at fair value through transferred to
                      income

                      Foreign currency adjustments from translation of foreign
                      operations

                      Other Comprehensive Income for the Year

                      Total Comprehensive Income for the Year

                      Attributable to:

                      Shareholders of the parent company

                      Non-controlling interests

                       

                       

                       

                      Consolidated Cash Flow for Takaful Insurance Company for the period ended Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Income (Loss) for the year

                      Adjustments:

                      Depreciation

                      Unrealized Gain/Loss on Investment in properties

                      Unrealized Gain/Loss on Investment

                      Unrealized Gain /Loss Foreign Currency Exchange Fluctuation

                      Other Gain/ Loss

                       

                      Cash flows from operating activities

                      Decrease/(Increase) in Takaful Receivable

                      (Increase)/Decrease in Other Receivables and Prepayments

                      (Decrease)/Increase in Takaful Payables (Decrease)/Increase in Takaful Contract Liabilities

                      End of Service Indemnity Paid

                      Net Cash from Operating Activities
                       

                      Cash flows from investing activities

                      Purchase of Property and Equipment

                      Proceeds from Sale of Property and Equipment

                      Investments

                      Net Cash from Investing Activities

                      Cash Flows from Financing Activities

                      Ijara Payables

                      Decrease/(Increase) in Family Takaful Participants’
                      Fund Decrease/(Increase) in Property and Liability Takaful Participants’
                      Fund

                      Loan Payments for Family Takaful Fund Participants
                      Loan Payments for Property and Liability Takaful Fund
                      Participants

                      Profit Distribution to Family Takaful Fund Participants
                      Profit Distribution to Property and Liability Takaful Fund
                      Participants

                      Zakat Paid

                      Net Cash from Financing Activities

                      (Decrease)/Increase in Cash and Cash Equivalents

                      Cash and Cash Equivalent at the End of the Year

                       

                       

                       

                      Consolidated Statement of Change in Equity for Takaful Insurance Company for the period ended Day, Month, 20XX

                      Attributable to Equity Holders of the Parent Company

                      NotesShare CapitalRetained EarningsReservesCumulative Change in Investments Through other Comprehensive IncomeTotal Equity Attributable to Shareholders of the CompanyMinority InterestForeign currency translation adjustmentsTotal equity
                       XXXAEDXXXAEDXXXAEDXXXAEDXXXAEDXXXAEDXXXAED XXXAED

                       

                       

                       

                       

                       

                       

                       

                      As at XX Month 20XX     

                      Profit/(Loss) for the year

                      Other comprehensive income

                      Total comprehensive income

                      Transfer to statutory reserve

                      Transfer to general reserve

                      Zakat

                      Dividends distributed

                      As at XX Month 20XX

                       

                       

                       

                      Financial Position for Takaful Insurance Company for Persons as of Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Assets
                      Takaful Insurance of Persons’ Assets

                      Property, machinery and Equipment

                      Investments at fair value through the income statement
                      Investments carried at Fair Value through other comprehensive
                      income

                      Investments carried at amortized cost

                      Family Takaful fund

                      Deferred policy acquisition cost

                      Reinsurers' share of unearned premiums

                      Prepaid expenses and other assets

                      Amounts due from shareholders

                      Other receivables and prepayments

                      Reinsurers' share of claims under the Takaful settlement

                      Premiums and Re-Takaful balances receivables

                      Cash and bank balances

                      Total Takaful Insurance of Persons’ Assets
                       

                      Shareholders’ Assets

                      Property, machinery and Equipment

                      Investment in Associates

                      Intangible Assets

                      Investments at amortized cost
                      Investments carried at Fair Value through other comprehensive
                      income

                      Derivative Financial Instruments
                      Investments valued at fair market value through the income
                      statement

                      Investments in properties

                      Statutory Deposits

                      Receivables from participants
                      Other Receivables and Prepayments
                      Deposits

                      Cash and cash equivalent

                      Total Shareholders’ Assets

                      Total Assets
                      Liabilities, Participants' Claims’ Fund, and Shareholders’ Equity

                      Liabilities

                      Takaful Liabilities:

                      Takaful Contracts Liabilities

                      Total Technical Provisions

                      Takaful Payables

                      Total Takaful Liabilities

                      Ijara Payables

                      Shareholders’ Liabilities:

                      End of Service Indemnity

                      Other Payables

                      Total Takaful Insurance of Persons’ Liabilities
                       

                      Participants' Claims’ Fund

                      Takaful Insurance of persons’ Fund

                      Surplus/ Deficit in Participants' Fund

                      Loans from Shareholders

                      Proposed Profit Distribution to Participants

                      Investments Revaluation Reserve

                      Total Surplus/Deficit in Participants' Fund
                       

                      Shareholders’ Equity

                      Share Capital

                      Retained Profit/Loss

                      Reserves
                      Total Shareholders’ Equity attributable to Shareholders of the Company

                      Minority Interest

                      Foreign currency translation reserve

                      Total Shareholders’ Equity
                       

                      Total Liabilities, Participants' Claims’ Fund, and Shareholders’ Equity

                       

                       

                       

                       

                      Income Statement for Takaful Insurance of Persons Company for the period ended Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Takaful Income

                      Gross Takaful Contributions

                      Re-Takaful Share of accepted business

                      Re-Takaful Share of ceded business

                      Net Takaful contributions

                      Net Transfer to Unearned Contribution Reserve

                      Net Takaful contributions Earned

                      Commissions Earned

                      Gross Takaful Contributions

                      Takaful expenses

                      Gross Claims Incurred

                      Re-Takaful Share of Accepted Business Claims

                      Re-Takaful Share of Ceded Business Claims

                      Net claims incurred

                      provision for Takaful contract liabilities (outstanding claims)

                      Re-Takaful Share of Outstanding Claims
                      Increase/ (Decrease) in the provision for unearned
                      subscriptions
                      Increase/ (Decrease) in Incurred but Not Reported Claims
                      Reserves
                      Increase/ (Decrease) in Unallocated Loss Adjustment Expense
                      Reserve

                      Increase/ (Decrease) in Mathematical Reserves

                      Net Takaful Claims Incurred

                      Net Takaful income

                      (Wakala/ Mudaraba Fees)

                      Income from Investments

                      Income from Investment in Properties

                      Foreign Currency Exchange Fluctuation (Gain/Loss)

                      Other Income

                      Net Income/ (loss) from Takaful operations
                       

                      Other Revenues

                      investment Income/(loss) (shareholders fund)

                      Wakala/ Mudaraba fees from Participants

                      Other Operating Income

                      Impairment/(Write-Off) of Loan to Participants' Fund
                       

                      Other Expenses
                      Commissions Paid

                      Other Operating Expenses

                      General and Administrative Expenses
                       

                      Net Profit/(loss) for the year

                      Net loss on revaluation of investments through other

                      comprehensive income

                      Reclassification adjustment relating to investments through
                      other comprehensive income impaired during the year
                      Transfer to P/L on sale of investments through other
                      comprehensive income

                      Board of Directors’ remuneration

                       

                      Total Comprehensive Profit/Loss for the Year

                       

                      Earnings per share:

                      Basic

                      Diluted

                       

                       

                       

                      Financial Position for Property and Liability Takaful Operator as of Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Assets
                      Takaful Operations Assets

                      Property, machinery, and Equipment

                      Investments at fair value through the income statement
                      Investments carried at Fair Value through other comprehensive
                      income

                      Investments carried at amortized cost

                      Deferred policy acquisition cost

                      Reinsurers' share of unearned premiums

                      Prepaid expenses and other assets

                      Amounts due from shareholders

                      Reinsurers' share of claims under settlement

                      Premiums and insurance balances receivables

                      Cash and bank balances

                      Total Takaful Assets
                       

                      Shareholders’ Assets

                      Property and Equipment

                      Investment in Associates

                      Intangible Assets

                      Investments at amortized cost held to maturity
                      Investments carried at Fair Value through other comprehensive
                      income

                      Derivative Financial Instruments

                      Investments valued at fair market value through income statement

                      Investments in properties

                      Statutory Deposits

                      Receivables from participants

                      Other Receivables and Prepayments

                      Deposits

                      Cash and cash equivalent

                      Total Shareholders’ Assets

                      Total Assets

                      Liabilities, Participants' Claims’ Fund and Shareholders’ Equity

                      Liabilities

                      Takaful Liabilities:

                      Takaful Contracts Liabilities

                      Total Technical Provisions

                      Takaful Payables

                      Total Takaful Liabilities

                      Ijara Payables

                      Shareholders’ Liabilities:

                      End of Service Indemnity

                      Other Payables

                      Total Liabilities

                       

                      Participants' Claims’ Fund

                      Property and Liability Takaful Fund

                      Surplus/Deficit in Participants' Fund

                      Loans from Shareholders

                      Proposed Profit Distribution to Participants

                      Investments Revaluation Reserve

                      Total Surplus/Deficit in Participants' Fund

                       

                      Shareholders’ Equity

                      Share Capital

                      Retained Earnings/Loss

                      Reserves

                      Total Equity Attributable to Shareholders of the Company

                      Minority Interest

                      Foreign Currency Translation Adjustments

                      Total Equity

                       

                      Total Liabilities, Participants' Claims’ Fund, and Shareholders’ Equity

                       

                       

                       

                       

                      Income Statement for Property and Liability Takaful Operator for the period ended Day, Month, 20XX
                       Notes20XX20YY
                        AEDAED
                          

                      Takaful Income

                      Gross Takaful Contributions

                      Re-Takaful Share of accepted business

                      Re-Takaful Share of ceded business
                       

                      Net Takaful Contributions

                      Net Transfer to Unearned Contribution Reserve

                      Net Takaful contributions Earned

                      Commissions Earned

                      Gross Takaful Contributions

                      Takaful expenses

                      Gross Claims Incurred

                      Re-Takaful Share of Accepted Business Claims

                      Re-Takaful Share of Ceded Business Claims

                      Net claims incurred

                      Provision for Takaful contract liabilities (outstanding claims)

                      Re-Takaful Share of Outstanding Claims
                      Increase/ (Decrease) in the provision for unearned
                      subscriptions
                      Increase/ (Decrease) in Incurred but Not Reported Claims
                      Reserves
                      Increase/ (Decrease) in Unallocated Loss Adjustment Expense
                      Reserve

                      Increase/ (Decrease) in Mathematical Reserves

                      Net Takaful Claims Incurred

                      Net Takaful income

                      (Wakala/ Mudaraba Fees)

                      Income from Investments

                      Income from Real Estate

                      Foreign Currency Exchange Fluctuation (Gain/Loss)

                      Other Income

                      Net Income/ (loss) from Takaful operations

                       

                      Other Revenues

                      Investment Income/(loss) (shareholders fund)

                      Wakala/ Mudaraba from Participants

                      Other Operating Income

                      Impairment /(Write-Off) of Loan to Participants' Fund
                       

                      Other Expenses
                      Commissions Paid

                      Other Operating Expenses

                      General and Administrative Expenses
                       

                      Net Profit/(loss) for the year

                      Net loss on revaluation of investments at fair value through
                      other comprehensive income
                      Reclassification adjustment relating to investment through other
                      comprehensive income impaired during the year
                      Transfer to P/L on sale of investments through other
                      comprehensive income

                      Board of Directors’ remuneration

                       

                      Total Comprehensive Profit/Loss for the Year

                       

                      Earnings per share:

                      Basic

                      Diluted

                       

                      Notes to the Financial Statements

                      1. Disclosure over the financial statements is made in compliance with the AAOIFI (Accounting and Auditing Of Islamic Financial Institutions) Board in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and its interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), and according to the templates identified by the Authority.
                         
                      2. Notes to financial statements include the following:

                        2.1 General information.

                        2.2 Adoption of new and revised International Financial Reporting Standards (IFRSs).

                        2.3 Summary of significant Accounting Policies which include:

                        1. a. Statement of compliance.

                        2. b. Basis of preparation.

                        3. c. Basis of consolidation.

                        4. d. Business combinations.

                        5. e. Goodwill.

                        6. f. Takaful contracts.

                        7. g. Revenue recognition.

                        8. h. General and administrative expenses.

                        9. i. Foreign currencies.

                        10. j. Property, machinery and equipment.

                        11. k. Investment properties.

                        12. l. Impairment of non-financial assets.

                        13. m. Provisions.

                        14. n. Financial instruments.

                        15. o. Financial assets.

                        16. p. Financial liabilities.

                        17. q. Dividend distribution.

                        18. r. Others.

                         2.4 Accounting assumptions and key sources of estimation of uncertainty.

                        2.5 Property, machinery and equipment.

                        2.6 Investment properties.

                        2.7 Financial investments.

                        2.8 Statutory deposits.

                        2.9 Takaful contract liabilities and Re-Takaful contract assets.

                        2.10 Takaful receivables.

                        2.11 Bank balances and cash.

                        2.12 Share Capital.

                        2.13 Reserves.

                        2.14 Bank borrowings.

                        2.15 Takaful payables and others.

                        2.16 Net investment income / loss.

                        2.17 Related party transactions.

                        2.18 Segment information.

                        2.19 Contingent liabilities.

                        2.20 Commitments.

                        2.21 Takaful risk.

                        2.22 Capital risk management.

                        2.23 Financial instruments.

                        2.24 Dividends.

                        2.25 Approval of financial statements.

                        2.26 Others.

                      3. In addition to the above, the Company should disclose the following:

                        3.1 Wakala model or Wakala and Mudaraba model used by the company.

                        3.2 Deficit in participants’ fund

                        Any deficit in the participants’ fund, except for deficits arising from a decline in the fair value of securities, is financed by the shareholders through a Qard Hasan (a finance cost free loan with no repayment terms). The Company maintains a full provision against the Qard Hasan. The company maintains full power in the management of the loan.

                        3.3 The amounts and expenses that have been debited to the subscribers accounts and the mechanism pursued by the company to record these amounts and expenses.

                        3.4 Gross Contributions

                        This item is to comprise all amounts due during the financial year in respect of Takaful contracts entered into regardless of the fact that such amounts may relate in whole or in part to a later financial year, and must include the following:

                        a. Contributions yet to be determined, where the contribution calculation can be done only at the end of the year;

                        b. Individual contributions, including annuity contributions, and, in long-term business, individual contributions resulting from bonus and rebate provisions in so far as they must be considered as contributions under the terms of the contract;

                        c. Additional contributions in the case of half-yearly, quarterly or monthly payments and additional payments from participants for expenses borne by the Company;

                        d. In the case of co-Takaful, the Company’s portion of total contributions;

                        e. Re-Takaful contributions due from ceding and retroceding Takaful undertakings, including portfolio entries, after deduction of cancellations and portfolio withdrawals credited to ceding and retroceding Takaful undertakings.

                        3.5 Zakat

                        Zakat is calculated on the basis of the rates prescribed according to the Islamic Supervisory Committee and prevailing laws, regulations, and instructions in state.

                        3.6 Statutory Deposit

                        In accordance with Federal Law No. (6) of 2007, the Company shall place a deposit at a Bank in the State as guarantee of fulfilling its liabilities and amounting to AED 4 million for Takaful of Persons and Fund Accumulation Operations, and AED 2 million per line of business for Property and Liability Insurance, not to exceed AED 6 million.

                        3.7 Takaful Receivables

                       

                      This item consists of the following:

                                                                                                                                                                December 31,

                                                                                                                                                    20XX                          20YY
                                                                                                                                                  AED000                      AED000

                      Due from Participants Less:

                      Allowance for Doubtful Debts
                       

                      Due from Takaful/ re-Takaful operators

                      Due from brokers/ agents Less:

                      Allowance for Doubtful Debts
                       

                      Insurance Receivable – Net

                      Inside UAE:

                       

                                                                                                                                                                 December 31,

                                                                                                                                                    20XX                            20YY
                                                                                                                                                  AED000                        AED000

                      Due from Participants

                      Less: Allowance for Doubtful Debts
                       

                      Due from Takaful/ re-Takaful operators Due

                      from brokers/ agents Less: Allowance for

                      Doubtful Debts
                       

                      Insurance Receivable - Net

                      Outside UAE:

                       

                                                                                                                                                              December 31,

                                                                                                                                                    20XX                        20YY
                                                                                                                                                 AED000                     AED000

                      Due from Participants

                      Less: Allowance for Doubtful Debts


                      Due from Takaful/ re-Takaful operators Due

                      from brokers/ agents Less: Allowance for

                      Doubtful Debts
                       

                      Insurance Receivable - Net

                      Note: The receivables ageing details to be disclosed separately for participants, Takaful companies, re-Takaful companies, brokers and agents in the below format:

                      Inside UAE:

                       

                                                                                                                                                        December 31,

                                                                                                                                              20XX                         20YY
                                                                                                                                           AED 000                     AED000

                      Less than 30 days 30 – 90
                      days 91 – 180 days 181 –
                      270 days 271 – 360 days
                      More than 360 days
                      Total

                      Outside UAE:

                       

                                                                                                                                                      December 31,

                                                                                                                                             20XX                        20YY
                                                                                                                                           AED000                  AED 000

                      Less than 30 days
                      30 – 90 days 91 – 180
                      days 181 – 270 days 271
                      – 360 days More than
                      360 days
                      Total

                      Movement on the provision for doubtful debts during the year was as follows:

                       

                                                                                                                                                       December 31

                                                                                                                                            20XX                        20YY
                                                                                                                                             AED                         AED

                      Balance at the beginning of the year
                      Additions
                      Balance at year end

                       

                      3.8 Other Receivables and Prepayments

                                                                                                                                                      December 31,

                                                                                                                                            20XX                       20YY
                                                                                                                                          AED000                   AED000

                      Receivable from Employees
                      Refundable Deposits
                      Prepayments
                      Others
                      Other Receivables and Prepayments

                       

                      3.9 Takaful Payables

                      This item consists of the following:

                                                                                                                                                      December 31,

                                                                                                                                            20XX                        20YY
                                                                                                                                          AED000                    AED 000

                      Payables – Inside UAE Payables
                      – Outside UAE
                      Total



                      Inside UAE:

                                                                                                                                                     December 31,

                                                                                                                                           20XX                        20YY
                                                                                                                                         AED 000                   AED 000

                      Payables
                      Payables from insurance companies
                      Payables from re-insurance companies
                      Payables from Insurance agents Payables
                      from Insurance Brokers Payables from staff
                      Other payables
                      Total

                       

                      Outside UAE:

                                                                                                                                                    December 31,

                                                                                                                                           20XX                      20YY
                                                                                                                                            AED                       AED

                      Payables
                      Payables from insurance companies
                      Payables from re-insurance companies
                      Payables from Insurance agents
                      Payables from Insurance Brokers
                      Payables from staff
                      Other payables

                      Total

                       

                      3.10 Share Capital

                      Subscribed and paid – up capital amounted to AED XX distributed over XX shares, the par value of each is AED 1 as of December 31, 20XX (against AED XX million shares of AED 1 each as of December 31, 20YY).

                       

                      3.11 Technical Provisions

                      This item consists of the following:

                                                                                                                                               December 31,

                                                                                                                                     20XX                        20YY
                                                                                                                                      AED                         AED

                      Insurance of Persons and Fund Accumulation:
                      Unearned Contribution Reserve
                      Incurred but Not Reported Reserve (Short-term life and Fund
                      Accumulation products of one year)
                      Mathematical Reserve
                      Unallocated Loss Adjustment Expense Reserve
                      Total Insurance of Person and Fund Accumulation Operations
                      Technical Provisions

                      Note: Technical provisions details in the above format to be provided for each class of insurance as defined by the Authority.

                      Adequate explanation for the method adopted should be given and the method should be consistent from year to year for technical provisions. In case the Actuary decides to change the method being used from previous years, sufficient explanation to the same needs to be provided.

                       

                      3.12 Takaful net Contribution

                              a) Gross contributions

                                                                                                                                    20XX                      20YY
                                                                                                                                     AED                       AED

                      Takaful Insurance of Persons

                       

                      Total Gross Contributions Takaful Insurance of persons
                      Property and Liability Takaful
                       

                      Total Gross Contributions for Property and Liability Takaful
                      Change in unearned contributions reserves
                      Total Gross Contributions

                      Note: Gross Contribution details in the above format to be provided for each class of insurance as defined by the Authority.
                      b) Contributions ceded to re-Takaful

                                                                                                                                                                  20XX         20YY
                                                                                                                                                                AED000     AED 000

                      Takaful Insurance of Persons

                       

                      Total Takaful Insurance of Persons Ceded to Re-insurers
                      Property and Liability Takaful Total

                       

                      Property and Liability Takaful Contributions Ceded to Re-Takaful
                      Change in unearned contributions reserves
                      Total Contributions Ceded to Re-Takaful
                      Note: Contributions ceded to re-Takaful details in the above format to be provided for each class of insurance as defined by the Authority.
                      c) Re-Takaful share of accepted business contributions

                           20XX            20YY  AED 000           AED 000 Takaful Insurance of persons

                       

                      Total Takaful Insurance of persons for accepted share of re-Takaful business Property and Liability Takaful

                       

                      Total Property and Liability Takaful Contributions for accepted share of re-Takaful
                      business
                      Change in unearned contributions reserves
                      Total Contributions for accepted share of re-Takaful business
                      Note: Re-Takaful share of accepted business contributions details in the above format to be provided for each class of insurance as defined by the Authority.

                      Total Net Contribution (a-b+c)

                       

                      3.13 Net Claims Paid

                      a) Gross claims paid

                                                                                                                                               20XX          20YY
                                                                                                                                            AED 000       AED 000

                      Takaful Insurance of persons

                      Total Gross Claims Takaful Insurance of persons

                      Property and Liability Takaful

                       

                      Total Gross Claims for Property and Liability Takaful Total

                      Gross Claims

                      Note: Gross Claims Paid details in the above format to be provided for each class of insurance as defined by the Authority.

                      b) Re-Takaful share of claims

                                                                                                                                              20XX                                 20YY
                                                                                                                                            AED000                            AED000

                      Takaful Insurance of persons

                       

                      Total Takaful Insurance of persons’ Claims Ceded to Re-Takaful
                      Property and Liability Takaful

                       

                      Total Property and Liability Takaful Claims Ceded to Re-Takaful Total
                      Claims Ceded to Re-Takaful
                      Note: Claims ceded to Re-Takaful details in the above format to be provided for each class of insurance as defined by the Authority.
                      c) Re-Takaful share of accepted business claims

                      20XX                       20YY AED                    AED Takaful Insurance of persons

                      Total Takaful Insurance of persons’ Claims for accepted share of Re-Takaful
                      business
                      Property and Liability Takaful

                      Total Takaful Property and Liability Takaful Claims for accepted share of Re-Takaful
                      business
                      Total Claims for accepted share of Re-Takaful business
                      Note: Re-Takaful share of accepted business claims details in the above format to be provided for each class of insurance as defined by the Authority.

                      Total Net Claims (a-b+c)

                       

                      3.14 Capital risk management

                      The solvency regulations identify the required Solvency Margin to be held in addition to insurance liabilities. The Solvency Margin (presented in the table below) must be maintained at all times throughout the year. The Company is subject to solvency regulations which it has complied with during the year. The Company has incorporated in its policies and procedures the necessary tests to ensure continuous and full compliance with such regulations.

                      The table below summarizes the Minimum Capital Requirement, Minimum Guarantee Fund and Solvency Capital Requirement of the Company and the total capital held to meet these required Solvency Margins.

                                                                                                                                                            December 31,
                                                                                                                                              20XX                                 20YY
                                                                                                                                               AED                                  AED

                      Minimum Capital Requirement (MCR)
                      Solvency Capital Requirement (SCR)
                      Minimum Guarantee Fund (MGF)
                      Own Funds
                      Basic Own Funds
                      Ancillary Own Funds
                      MCR Solvency Margin (Surplus/Deficit)
                      SCR Solvency Margin (Surplus/Deficit)
                      MGF Solvency Margin (Surplus/Deficit)


                      3.15 Risk management

                      The listed risks should be disclosed in detailed, as a minimum:

                      a) Underwriting Risk.

                      b) Market and Liquidity (Investment) Risk.

                      c) Credit Risk.

                      d) Operational Risk.

                      3.16 Claims development schedule

              • Part Two: General Provisions

                • Asset Distribution and Allocation Limits

                  • Fifth Article – Penalties

                    The Company not abiding with the instructions in this regulation will be penalized as per the penalties stipulated in the laws and as the case requires.

                    • Article (3)

                      For the purpose of implementing the Asset distribution and allocation limits in accordance with the provisions of Article (3) of the Financial Regulations, the Company shall comply with the following:

                      1. If the Company has investments exceeding the investment limits or sub-limits without a deficit in the Minimum Capital, Solvency Capital or Minimum Guarantee Fund requirements, it shall include the annual and quarterly investment portfolio analysis reports stipulated in Article (10) of Chapter 1 of the Financial Regulations sequel to the Asset distribution and allocation limits on the Company and any plans the Company intends to take as part of the investment risk management process.

                      2. If the Company has investments that exceed the Asset distribution and allocation limits and result in a deficit in the Minimum Capital, Solvency Capital or Minimum Guarantee Fund requirements, the Company shall submit a detailed realistic correction plan including outdistance the deficit in accordance with Article 8 of Chapter II of the Financial Regulations.

                      3. If the Company desires to enter into new investments outside the asset distribution and allocation limits and has no deficit in any of the Minimum Capital, Solvency Capital or Minimum Guarantee Fund requirements, it may:

                      A. Purchase, improve or increase any of the assets if the investment limit or sub-limit of that asset category has been exceeded.

                      B. Purchase, improve or increase any assets if this would lead to exceeding the investment limit or sub-limit.

                      Provided that the procurement, improvement or increases referred to in paragraphs (A) and (B) of this clause do not result in a default in meeting any of the Minimum Capital, Solvency Capital or Minimum Guarantee Fund requirements.

                      4. If the Company has a deficit in any of Minimum Capital, Solvency Capital or Minimum Guarantee Fund requirements, or if this results from a purchase, improvement or if a deficit in meeting any of the Minimum Capital, Solvency Capital or Minimum Guarantee Fund requirements resulted from a purchase, improvement or increase, the company shall comply with the following:

                      A. No purchases, improvements or increases in any assets if the investment limit or sub-limit of that asset category has been exceeded.

                      B. No purchases, improvements or increases in any assets if this would lead to exceeding the investment limit or sub-limit.

                      5. If the Asset distribution and allocation limits are exceeded by the Company for easons beyond its control such as changes in the value of the assets or a change in the classification, the Company shall comply with the following:

                      A. If this does not result in incapability to meet any of the solvency requirements, the investment portfolio analysis report stipulated in Article 10 of Chapter 1 of the Financial Regulations shall include an analysis of the excesses in the Asset distribution and allocation limits.

                      B. If this results in a deficiency in any of the financial solvency requirements, the Company shall submit a detailed realistic correction plan including the outdistance of the deficit in accordance with Article 8 of Chapter II of the Financial Regulations.

                    • Sixth Article – Issuing Decrees

                      The Director General of the Authority issues the required decrees and forms to enforce the instructions of these regulations.

                      • Article (4)

                        A. The Company shall process investments in the listed and not listed Associate Companies in the financial markets within the State in a separate category with a limit of (20%) of the invested assets therein with no sub-limit.

                        A. The Company shall process investments in the listed and not listed Associate Companies in the financial markets outside the State in a separate category with a limit of (10%) of the invested assets therein with no sub-limit.

                      • Seventh Article – Aligning Operations

                        A. The Company shall align their operations to the covenants of the regulations herein according to the timeframes below:

                        1. With regards to Section (1) Regulations Pertinent to the Basis of Investing the Rights of the Participants - Takaful, the alignment period will be as follows:

                          a) Any Company that exceeds the concentration and asset allocation limits mentioned in paragraph (1) of Article (3) are to regularize their positions within a period not exceeding three (3) years as of the next day subsequent to the issuance of these regulations in the Official Gazette.

                          b) The regularization period is two (2) years for any Company that exceeds the concentration and allocation limits other than real estate mentioned in paragraph (1) of Article (3), as of the next day subsequent to the issuance of these regulations in the Official Gazette.

                          c) The regularization period is two (2) years for provisions of this regulation other than the asset limits and allocations identified in paragraph (1) of Article (3), as of the next day subsequent to the issuance of these regulations in the Official Gazette.
                           
                        2. With regards to Section (2) Regulations Pertinent to the Solvency Margin and Minimum Guarantee Fund - Takaful, the alignment period will be three (3) years as of the next day subsequent to the issuance of these regulations in the Official Gazette.
                           
                        3. With regards to Section (3) Regulations Pertinent to the Basis of Calculating the Technical Provisions - Takaful, the alignment period will be two (2) years as of the next day subsequent to the issuance of these regulations in the Official Gazette.
                           
                        4. With regards to Section (4) Regulations Pertinent to Determining the Takaful Operator’s Assets that Meet the Accrued Insurance Liabilities, the alignment period will be three (3) years as of the next day subsequent to the issuance of these regulations in the Official Gazette.
                           
                        5. With regards to Section (5) Regulations Pertinent the Records which the Takaful Operator shall be obligated to Organize and Maintain as well as the Data and Documents that shall be made Available to the Authority, the alignment period will be one (1) year as of the next day subsequent to the issuance of these regulations in the Official Gazette.
                           
                        6. With regards to Section (6) Regulations Pertinent the Principles of Organizing Accounting Books and Records of Each of the Takaful Operators, Agents and Brokers and Determine Data to be maintained in these Books and Records, the alignment period will be one (1) year as of the next day subsequent to the issuance of these regulations in the Official Gazette.
                           
                        7. Except that subparagraph (c) of paragraph (3) of Article (3) must be considered separately, with regards to Section (7) Regulations Pertinent to Accounting policies to be adopted and the necessary forms needed to prepare and present reports and financial statements - Takaful, the alignment period will be one (1) year as of the next day subsequent to the issuance of these regulations in the Official Gazette.

                        B. During the alignment periods of this regulation the Company shall provide the Authority with the financial reports, solvency templates and reports as required by the Authority that demonstrate progress in aligning its operations according to the requirements and regulations herein. These reports shall be provided within the same period as the interim and annual audited financial statements.

                      • Eighth Article – Publishing the Regulations and Acting on Them

                        These regulations shall be published in the Official Gazette and are acted upon the next day from the publishing date.

                • General Provisions

                  • Article (5)

                    1. All assets invested outside the Asset distribution and allocation limits determined in the Financial Regulations are considered not acceptable for the purpose of calculating the financial solvency and pursuant to the provisions of Article (11) of Chapter II of the Financial Regulations.

                    2. In cases not stipulated in this decision, the provisions of the Financial Regulations prevail; including the provisions stipulated in Part II (General Provisions).

                  • Article (6)

                    The Director General shall issue the decisions and circulars necessary to implement the provisions of this Decision.

                  • Article (7)

                    This decision shall be published in the Official Gazette and shall come into effect from the date of its issuance.