8.1.1. Value of Takaful Operator’s assets to match its Takaful Liabilities

(1) A Takaful Operator must hold supporting assets of a value at least equal to the amount of its Takaful liabilities.

(2) Such asset must be of a sufficient amount, and of an appropriate currency and term, to ensure that the cash inflows from the assets meet the expected cash outflows from the Takaful Operator’s Takaful liabilities as they fall due.

8.1.2. Projecting cash flows - treatment of options

In determining the expected cash outflows from its Takaful liabilities for the purposes of TRR 8.1.1, a Takaful Operator must take into account any options that exist in the Takaful Operator’s Takaful Contracts including:

• (a) any unilateral option available to the policyholder to extend a Takaful Contract; and
• (b) any unilateral right available to the Takaful Operator to either cancel or renew a Takaful Contract.

8.1.3 Projecting cash flows - Family Takaful Business

In projecting cash flows in relation to Family Takaful Business for the purposes of TRR 8.1.1, a Takaful Operator carrying on Family Takaful Business must take into account the nature of the projections and the factors relevant to its Family Takaful Business, including:

• (a) expected investment earnings;
• (b) expected reinsurance recoveries;
• (c) mortality and morbidity;
• (d) expenses;
• (e) options and guarantees; and
• (f) persistency.

8.2.1. General provisions

(1) A Takaful Operator may:

(a) measure the value of an asset at less than the value determined in accordance with this Chapter; and

(b) measure the value of a liability at more than the value determined in accordance with this Chapter.

(2) However, if the AFSA directs a Takaful Operator to measure an asset or a liability in accordance with principles that differ from those specified in this Chapter, the Takaful Operator must measure such assets or liability in accordance with those principles as directed.

8.2.2. Basis of accounting

Save where directed otherwise by the AFSA or where inconsistent with the Rules in this Chapter, a Takaful Operator must recognise its assets and liabilities and measure their value in accordance with the IFRS basis of accounting.

8.2.3. Methods and assumptions that may be used

In measuring assets and liabilities, a Takaful Operator must use methods and prudent assumptions that:

(a) are appropriate to the nature, scale and complexity of the Takaful Operator’s business;

(b) are made using professional judgement, training and experience;

(c) are made having regard to reasonably available statistics and other information;

(d) are consistent from year to year and without arbitrary changes;

(e) include appropriate margins for adverse deviation of relevant factors;

(f) recognise the distribution of profits or emerging surplus in an appropriate way over the duration of each Takaful Contract;

(g) are in accordance with generally accepted actuarial practice; and

(h) do not reflect the Takaful Operator’s own credit rating.

8.2.4. Changes in methods and assumptions on which valuations depend

(1) Where the valuation of an asset or liability is dependent upon the adoption of assumptions or the adoption of a calculation method, a Takaful Operator must ensure that any change in the assumptions or methods adopted is reflected immediately in the value attributed to the asset or liability concerned.

(2) The recognition of the effects of changes in assumptions or methods may not be deferred to future reporting periods.

8.2.5. Actuarial principles

The AFSA may specify actuarial principles to be used by a Takaful Operator in measuring assets and liabilities.

8.2.6. Derecognising liabilities

(1) A Takaful Operator must not derecognise a Takaful Liability (or a part of a Takaful Liability) until the obligation giving rise to the liability expires or is discharged or cancelled.

(2) To avoid doubt, if Retakaful / reinsurance covering the liability (or part of the liability) is purchased, the liability must not be derecognised unless the purchase results in the discharge or cancellation of the obligation giving rise to the liability.

8.2.7. Discount rate

In calculating the present value of a Takaful liability, the discount rate must be a prudent estimate of the yield expected to be earned by assets of the Takaful Operator that are sufficient in value and appropriate in nature to cover the provisions for the liability being discounted.

8.2.8. Valuation of expected future payments

Where this Chapter requires a Takaful Operator to recognise as a liability the value of expected future payments, that liability must be measured as the net present value of those expected future payments.

8.2.9. Valuation of expected future receipts

Where this Chapter requires a Takaful Operator carrying on General Takaful Business to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.

8.3.1. Treatment of premium liability

A Takaful Operator carrying on General Takaful Business must recognise as a liability for the relevant Takaful Fund, the value of future claims payments and associated direct and indirect settlement costs, arising from future events insured under policies that are in force as at the Solvency Reference Date (premium liability).

8.3.2. Treatment of value of future claims payments

A Takaful Operator carrying on General Takaful Business must recognise as a liability for the relevant Takaful Fund, the value of future claims payments and associated direct and indirect settlement costs, arising from insured events that have occurred as at the Solvency Reference Date.

8.3.3. Treatment of expected recoveries

A Takaful Operator carrying on General Takaful Business must recognise as an asset for the relevant Takaful Fund, the value of Retakaful / reinsurance and other recoveries expected to be received in respect of claims referred to in TRR 8.3.1 (Treatment of premium liability) and TRR 8.3.2 (Treatment of value of future claims payments).

8.4.1. Treatment of policy benefits due before Solvency Reference Date

A Takaful Operator carrying on Family Takaful Business must recognise as a liability the amount of policy benefits that are due for payment on or before the Solvency Reference Date.

8.4.2. Treatment of net value of future policy benefits

A Takaful Operator carrying on Family Takaful Business must recognise as a liability the net value of future policy benefits under policies that are in force as at the Solvency Reference Date, taking into account all prospective liabilities as determined by the policy conditions for each existing contract, and taking credit for premiums payable after the Solvency Reference Date.

8.4.3. Measuring net value of policy benefits as liability

In measuring the liability associated with future policy benefits, a Takaful Operator carrying on Family Takaful Business must:

(a) use actuarial principles;

(b) provide for all liabilities based on assumptions that meet the general requirements for prudent assumptions in TRR 8.2.3 (Methods and assumptions that may be used) including appropriate margins for adverse deviation of relevant factors that are sufficient to ensure that there is no significant foreseeable risk that liabilities to policyholders for Family Takaful contracts will not be met as they fall due; and

(c) take into account:

1. (i) all guaranteed policy benefits, including guaranteed surrender values;
2. (ii) vested, declared or allotted bonuses to which policyholders are already either collectively or individually contractually entitled;
3. (iii) all options available to the policyholder under the terms of the contract;
4. (iv) discretionary charges and deductions from policy benefits, in so far as they do not exceed the reasonable expectations of policyholders;
5. (v) expenses, including commissions; and
6. (vi) any rights under contracts of Retakaful / reinsurance in respect of Family Takaful Business.

8.4.4. Negative values for reserves—Family Takaful

A Takaful Operator carrying on Family Takaful Business must not value its mathematical reserves for a for a Family Takaful Contract at less than zero unless:

• (a) the calculation is based on assumptions that meet the general requirements for prudent assumptions in TRR 8.2.3 (Methods and assumptions that may be used);
• (b) the contract does not have a guaranteed surrender value at the actuarial valuation date; and
• (c) the total mathematical reserves established by the Takaful Operator have a value of at least:
• (i) if the Takaful Operator’s Family Takaful Contracts include linked Family Takaful contracts—the sum of the surrender values of all its linked Family Takaful contracts at the actuarial valuation date; and
• (ii) in any other case—zero.