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.
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.
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.
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.
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.
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.