7.1.1. Family Takaful Funds to be established

A Takaful Operator conducting Family Takaful Business must either:

• (a) establish and maintain one or more Family Takaful Funds; or
• (b) notify the AFSA that the Takaful Operator is deemed to constitute a single Family Takaful Fund.

7.1.2. Family Takaful Fund

(1) Unless (2) applies, all the Family Takaful Assets of a Takaful Operator constitute its Family Takaful Fund.

(2) Where a Takaful Operator identifies particular Family Takaful Assets in connection with different parts of its Family Takaful Business, the assets identified in relation to each such part constitute separate Family Takaful Funds of the Takaful Operator.

7.1.3. Family Takaful Assets

(1) A Takaful Operator’s Family Takaful Assets are the items in (2), adjusted to take account of:

(a) liabilities in respect of the Takaful Operator’s Family Takaful Business; and

(b) any transfers made out of the Family Takaful Fund in accordance with TRR 7.5.2

(Transfers of assets out of Family Takaful Funds).

(2) The items are:

(a) admissible assets identified by the Takaful Operator as being available to cover liabilities arising under or in connection with Family Takaful Business with due regard to generally accepted actuarial practice (including assets into which those assets have been converted) but excluding any assets identified as being held to cover liabilities in respect of subordinated debt;

(b) any other assets identified by the Takaful Operator as being available to cover its liabilities arising from Family Takaful Business (including assets into which those assets have been converted) including, if the Takaful Operator so elects, assets which are excluded under (a);

(c) premiums and other receivables in respect of Family Takaful Business;

(d) other receipts of the Family Takaful Business; and

(e) all income and capital receipts in respect of the items set out in (2).

7.1.4. Takaful Operator deemed to constitute Family Takaful Fund to be treated as though it had established such fund

A Takaful Operator that is deemed, in accordance with TRR 7.1.1(b), to constitute a single Family Takaful Fund shall be treated for all purposes relating to these Rules as though the Takaful Operator had established a Family Takaful Fund to which all of the assets and liabilities of the Takaful Operator are attributed.

7.1.5. Treatment of Branches

A Takaful Operator that is a Branch and that is subject to a regulatory requirement in another jurisdiction to arrange its affairs in a manner that is equivalent or substantially equivalent to the requirements of TRR 7.1.1 may make an application to the AFSA for that arrangement of its affairs to be deemed to constitute a Family Takaful Fund.

Guidance

If the AFSA approves an application under TRR 7.1.5(1), it will give a written notice to the Branch stating the manner in which the arrangement will be deemed to constitute a Family Takaful Fund.

7.2.1. Business to be attributed to Family Takaful Funds

A Takaful Operator must attribute all Family Takaful Business that it conducts to a Family Takaful Fund.

7.2.2. Attribution of General Takaful Contracts

(1) Except as allowed for in (2), a Takaful Operator may not attribute General Takaful Contracts to a Family Takaful Fund.

(2) A Takaful Operator may attribute Takaful Contracts in General Insurance Category 1 (Accident) and General Insurance Category 2 (Sickness) to a Family Takaful Fund.

7.3.1. Separate identification of assets, liabilities, revenues and expenses

A Takaful Operator that is required under TRR 7.1.1 (Family Takaful Funds to be established) to establish and maintain one or more Family Takaful Funds, or has attributed Takaful Contracts in General Insurance Category 1 (Accident) or General Insurance Category 2 (Sickness) to a Family Takaful Fund under TRR 7.2.2(2) (Attribution of General Insurance Contracts), must:

(a) identify separately in its books and records the assets, liabilities, revenues and expenses attributable to that business; and

(b) ensure those assets, liabilities, revenues and expenses are recorded separately and accounted for as Family Takaful Fund.

7.3.2. Recording of assets, liabilities, revenues and expenses

A Takaful Operator must record all assets, liabilities, revenues and expenses in respect of a Family Takaful Contract that is attributed to a Family Takaful Fund as assets, liabilities, revenues and expenses of that Family Takaful Fund.

7.3.3. Attribution of assets not already attributed

A Takaful Operator may at any time attribute any of its assets to a Family Takaful Fund that were not previously attributed to such a Family Takaful Fund.

7.3.4. Recording of revenues and expenses

All revenues and expenses arising by way of earnings, revaluation or other change to the assets and liabilities of a Family Takaful Fund must be recorded as revenues and expenses, or movements in capital, of that Family Takaful Fund.

7.4.1. Accounting and other records to be maintained

A Takaful Operator must maintain adequate accounting and other records to identify

(1) the Takaful Contracts attributed to a Family Takaful Fund in accordance with TRR 7.2 (Attribution of contracts to a Family Takaful Fund); and

(2) the assets, liabilities, revenues and expenses attributed to a Family Takaful Fund in accordance with TRR 7.3 (Segregation of assets and liabilities).

7.5.1. Application of assets

A Takaful Operator must ensure that, except as provided in TRR 7.5.2 to 7.5.6, assets that are attributable to a Family Takaful Fund are applied only for the purposes of the business attributed to the Family Takaful Fund.

7.5.2. Transfers of assets out of Family Takaful Funds

A Takaful Operator must ensure that assets attributable to a Family Takaful Fund are not transferred so as to be available for other purposes of the Takaful Operator except:

• (a) where the transfer constitutes appropriation of a surplus determined in accordance with TRR 9.1.3(4)(g) (Requirements for Financial Condition Report) and the transfer is performed within four months of the reference date of the Financial Condition Report that this determination forms part of;
• (b) where the transfer constitutes a payment of dividend or return of capital, in accordance with TRR 7.5.4 (Payment of dividends by Takaful Operator constituting a single Family Takaful Fund);
• (c) where the transfer is made in exchange for other assets at fair value;
• (d) where the transfer constitutes reimbursement of expenditure borne on behalf of the Family Takaful Fund and in respect of expenses attributable to the Family Takaful Fund; or
• (e) where the transfer constitutes reattribution of assets attributed to the Family Takaful Fund in error.

7.5.3. Assets of Family Takaful Funds not to be distributed

A Takaful Operator must not make any distribution by way of dividend, or return of capital assets attributable to a Family Takaful Fund, if by doing so that would result in a breach of its obligations under TRR 5 (Capital adequacy requirements).

7.5.4. Payment of dividends by Takaful Operator constituting a single Family Takaful Fund

A Takaful Operator that is deemed to constitute a single Family Takaful Fund may only make a dividend or return of capital where:

(a) the dividend or return of capital constitutes appropriation of a surplus determined in accordance with TRR 9.1.3(4)(g) (Requirements for Financial Condition Report), and either

(b) the payment is made within four months of the reference date of the Financial Condition Report determining that surplus and does not cause the total aggregate amount of the dividends or returns of capital made by the Takaful Operator since that reference date to exceed the amount of that surplus; or

(c) the payment is made more than four months after the reference date of Financial Condition Report determining that surplus and does not cause the total aggregate amount of the dividends or returns of capital made by the Takaful Operator since that reference date to exceed 50% of the amount of that surplus.

7.5.5. Assets not to be lent

A Takaful Operator must not lend or otherwise make available for use for any other purposes of the Takaful Operator, or any purposes of any party related to the Takaful Operator, assets attributable to a Family Takaful Fund.

7.5.6. Certain reinsurance-like arrangements prohibited

A Takaful Operator may not enter into any arrangement, whether or not described as a Retakaful Contract or a Contract of Reinsurance, whereby a Family Takaful Fund of the Takaful Operator stands in the same relation to the Takaful Operator as though the Takaful Operator were the Retakaful Operator in a Retakaful Contract or Contract of Reinsurance in which the Family Takaful Fund is the cedant.

7.6.1. Policies about surpluses and deficits

(1) A Takaful Operator must have a written policy, or subject to rule 7.6.2, policies, for determining the surplus or deficit arising from its Takaful Business, the basis of distributing that surplus or deficit between the participants and the shareholders, and the method of transferring any surplus or deficit to the participants.

(2) The policy or policies must comply with all relevant AAOIFI standards including but not limited to, Financial Accounting Standard No. 13 ‘Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies’.

(3) Each policy must be approved by the Takaful Operator’s Shari’ah Supervisory Board, as defined in Islamic Finance Rules IFR rule 5.1.

7.6.2. When 2 or more policies permitted

A Takaful Operator may develop and/or offer more than one policy at any point in time, where the Takaful Operator conducts different categories of Takaful Business.

7.6.3. Copies of policies to be given to the AFSA

(1) A Takaful Operator must provide a copy of the policy referred to in rule 7.6.1 above to the AFSA immediately following its approval by its Shari’ah Supervisory Board, but within one business day following the day such approval was given.

(2) Any amendments to the policy referred in rule 7.6.1 subsequent to its submission to the AFSA, must be approved by the Shari’ah Supervisory Board of the Takaful Operator. The amended version of the policy must be submitted to the AFSA immediately following that approval.

(3) A Takaful Operator must ensure that a copy of the policy approved under rule 7.6.1 or rule 7.6.3 (2), forms part of every Takaful policy sold it.

Guidance

As part of its process to approve any amendments to a policy under rule 7.6.3(2), the AFSA will consider the impact of the proposed amendments on the rights and obligations of existing policyholders of the Takaful Operator who are affected by those proposed amendments.

7.6.4. Surplus or deficit to be determined annually

(1) On an annual basis, every Takaful Operator must determine any surplus or deficit arising on each Takaful Fund it operates, in a distinct manner.

(2) A Takaful Operator must not distribute a surplus or deficit from any one of the Takaful Funds it operates for Family Takaful Business until the value of the surplus or deficit involved, has been determined by an Approved Actuary in accordance with rule 9.1.3(4)(g).

(3) Any distribution must be performed within 4 months of the reference date of the actuarial investigation referred to in (2).

7.6.5. Reports of distributions of surplus or deficit to the AFSA

A Takaful Operator must report to the AFSA all distributions of profit or surplus (however called or described) to policyholders within 15 business days of the date of declaration of the distribution.

7.6.6. Prohibitions on distributions

A Takaful Operator must not make any distributions to participants, regardless of the Rules governing the Takaful Operator, if it fails to, or because of the payment of the distribution would fail to, meet its Minimum Capital Requirement.