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.
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.
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.
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.
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.
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.
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.
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.
The Company shall have different strategy for investment of participants' fund (including Qard Hasan funds available from shareholders) and shareholders fund.
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.
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.
Further guidance on the Investment policy in Addendum (2) of the regulations herein shall be applied.