4.1.1. Obligation to conduct an Own Risk and Solvency Assessment

(1) An AIFC-Incorporated Takaful Operator must:

• (a) conduct an Own Risk and Solvency Assessment (ORSA) in accordance with TRR 4.1.2 (ORSA – requirements) at least annually; and
• (b) submit a report to the AFSA on its ORSA (an ORSA Report) in accordance with TRR 4.2.1 (ORSA Report - requirements).

(2) An AIFC-Incorporated Takaful Operator must conduct a fresh ORSA and submit a revised ORSA report to the AFSA if there is a change to its Risk Management Strategy, strategic plan or business plan and the change results, or there are reasonable grounds to believe that the change will result, in a material change in the capital adequacy or solvency of the AIFCIncorporated Takaful Operator.

4.1.2. ORSA – requirements

(1) In conducting an ORSA, an AIFC-Incorporated Takaful Operator must assess:

(a) its overall solvency needs, including its own view of the adequacy of its capital resources to meet the regulatory capital requirements;

(b) the risk exposures of each Takaful Fund managed by it, independents of every other Takaful Fund it manages to ensure that the risks or potential losses are not masked by the countervailing impact of the availability of capital in other Takaful Funds.

(c) the actions it has taken to manage the risks to which it is exposed;

(d) the financial resources needed:

1. (i) to manage its business prudently; and
2. (ii) to meet the capital adequacy requirements in TRR 5 (Capital adequacy requirements);

(e) the nature, adequacy and quality of the capital resources needed, having regard to their loss-absorbing capacity and liquidity;

(f) the adequacy and quality of the capital resources in each Takaful Fund to meet the regulatory capital requirement of that Takaful Fund, as well as its economic capital needs;

(g) the probability and extent of any need for Qard support for the Takaful Fund;

(h) the effect on the Takaful Operator’s solvency position of all reasonably foreseeable and relevant changes in its risk profile (including group-specific risks); and

1. (i) its ability to meet itsTakaful Operator and Prescribed Capital Requirement and continue in business, and the financial resources needed, over periods longer than those typically used for calculating its capital adequacy requirements under TRR 5 (Capital adequacy requirements).

(2) An AIFC-Incorporated Takaful Operator must include as part of any quantitative evaluation in its ORSA:

(a) stress tests;

(b) the occurrence of extreme events to which the Takaful Operator is exposed; and

(c) other unlikely but possible adverse scenarios that would render the Takaful Operator’s business model unviable.

(3) The ORSA must be appropriate to the nature, scale and complexity of the AIFC-Incorporated Takaful Operator’s business.

(4) The ORSA must cover all Takaful Funds managed by the Takaful Operator, as it is the responsibility of the Takaful Operator to ensure that those funds are managed prudently.

(5) The ORSA must consider the potential impact of transactions between different Takaful Funds, and in particular the impact of any Qard provided by the shareholders’ fund of the Takaful Operator to any Takaful Fund. In this respect, the ORSA must involve a forwardlooking assessment of the need for provision of Qard and how it will be repaid, and the impact of various stakeholders involved in the process.

(6) The ORSA also needs to consider whether the Takaful Operator will be able and/or willing to provide Qard, in a scenario wherein the ability of a Takaful Fund to continue to meet its obligations would be contingent on receipt of Qard support.

4.2.1. ORSA Report - requirements

An AIFC-Incorporated Takaful Operator’s ORSA Report must present all of the following:

(a) the qualitative and quantitative results of the ORSA and the conclusions drawn by the AIFC-Incorporated Takaful Operator from those results;

(b) the methods and main assumptions used in the ORSA;

(c) information on the AIFC-Incorporated Takaful Operator's overall solvency needs and a comparison of those solvency needs with its capital adequacy requirements under TRR 5 (Capital adequacy requirements) and its Eligible Capital;

(d) qualitative and (if relevant) quantitative information on the extent to which quantifiable risks to which the AIFC-Incorporated Takaful Operator is exposed are not reflected in the calculation of the Prescribed Capital Requirement.

4.2.2. ORSA Report – approval by the Governing Body

An ORSA Report must include a statement that the Governing Body of the AIFC-Incorporated Takaful Operator participated in the ORSA and approved the ORSA Report.