9.1.1 Application

TRR 9.1.2 to 9.1.5 apply to a Takaful Operator that is required to have an Approved Actuary. Note: For the Takaful Operators that are required to have an Approved Actuary, see TRR 2.2.2 (Obligation to appoint Approved Individuals to certain roles).

9.1.2. Financial Condition Reports

(1) The Approved Actuary for the Takaful Operator must annually carry out an actuarial investigation to enable him or her to prepare a report about the Takaful Operator’s financial condition (a Financial Condition Report).

(2) The Takaful Operator must ensure that the Approved Actuary is given appropriate access (that is, such access as the actuary reasonably believes to be necessary to prepare the report) to:

• (a) all relevant data, information, reports and staff of the Takaful Operator; and
• (b) so far as possible, any contractor of the Takaful Operator.

(3) The Approved Actuary must prepare, sign and date the report.

(4) The Approved Actuary must give the report to the Takaful Operator sufficiently in advance of the Takaful Operator’s next annual return date to allow the Takaful Operator’s Governing Body a reasonable opportunity to consider and use it in preparing the Takaful Operator’s next annual prudential return.

(5) The Takaful Operator’s Governing Body must give a copy of the report to the AFSA on or before the Takaful Operator’s next annual return date.

(6) In this rule, the next annual return date for a Takaful Operator means the date on which it must give its next annual prudential return to the AFSA under TRR 13.1.1 (Obligation to prepare prudential returns).

9.1.3. Requirements for Financial Condition Report

(1) A Financial Condition Report must set out an objective assessment of the overall financial condition of the Takaful Operator concerned.

(2) For a Takaful Operator conducting Family Takaful Business, such a report must include an objective assessment of the financial condition of each Family Takaful Fund established by the Takaful Operator.

(3) In preparing a Financial Condition Report, an Approved Actuary must act in accordance with the relevant professional actuarial standards, and must use appropriate actuarial valuation principles, techniques and methodologies.

(4) The Approved Actuary must ensure that the report covers at least the following matters (so far as relevant):

(a) an overview of the Takaful Operator’s business;

(b) an assessment of the Takaful Operator’s recent experience and profitability, including the experience during the year ending on the valuation date;

(c) an assessment of the value of the Takaful Operator’s Takaful Liabilities that fall within TRR 8.4.1 (Treatment of policy benefits due before Solvency Reference Date) and TRR 8.4.2 (Treatment of net value of future policy benefits);

(d) for a Takaful Operator to which sub-rule (5) applies, an assessment of the value of the Takaful Operator’s Takaful Liabilities that fall within TRR 8.3.1 (Treatment of premium liability) and TRR 8.3.2 (Treatment of value of future claims payments), using the relevant professional actuarial standards and appropriate actuarial valuation principles, techniques and methodologies;

(e) an assessment of whether the Takaful Operator’s past estimates of the liabilities referred to in paragraphs (c) and (d) were adequate, especially if there has been a change in the assumptions or the valuation method from that adopted at the previous valuation;

(f) an explanation, in relation to the valuation of those liabilities, of:

1. (i) the assumptions used in the valuation process;
2. (ii) the adequacy and appropriateness of data made available to the Approved Actuary by the Takaful Operator;
3. (iii) how the Approved Actuary assessed the reliability of the data;
4. (iv) the model or models used by the Approved Actuary;
5. (v) the approach taken to estimate the variability of the estimate; and
6. (vi)the sensitivity analyses undertaken;

(g) a determination of the value of any surplus or deficit in each Takaful Fund operated by the Takaful Operator for conducting Family Takaful Business;

(h) an assessment of asset and liability management, including the Takaful Operator’s investment strategy;

(i) an assessment of the Takaful Operator’s current and future capital adequacy and a discussion of its approach to capital management;

(j) an assessment of the Takaful Operator’s pricing, including the adequacy of its premiums;

(k) an assessment of the suitability and adequacy of the Takaful Operator’s Retakaful / reinsurance arrangements, including the documentation of those arrangements and the existence and impact of any limited risk transfer arrangements;

(l) an assessment of the suitability and adequacy of the Takaful Operator’s Risk Management Policy.

(5) This sub-rule applies to a Takaful Operator if it engages in General Takaful Business and:

(a) more than 15% of its gross outstanding liabilities are attributable to Takaful Contracts for General Takaful Business in General Takaful Categories 1 (Accident) or 2 (Sickness); or

(b) more than 20% of its gross outstanding liabilities are attributable to Takaful Contracts for General Takaful Business in General Takaful Categories 10 (Motor vehicle liability), 11 (Aircraft liability), 12 (Liability of ships), 13 (General liability), 14 (Credit)

or 15 (Suretyship).

(6) The Approved Actuary:

(a) must consider the implications and outlook for the Takaful Operator of each matter mentioned in sub-rule (4); and

(b) if the implications for the Takaful Operator are adverse, must make recommendationsto address the problem.

(7) A Financial Condition Report for a Branch must be prepared in relation to the Takaful Operator’s AIFC operations but must take into account the financial position of the head office.

9.1.4. AFSA may direct more frequent Financial Condition Reports

(1) The AFSA may direct a Takaful Operator to ask require its Approved Actuary to prepare a Financial Condition Report at a higher frequency than that specified in TRR 9.1.2 (Financial Condition Reports), if the AFSA considers it necessary or desirable for the prudential supervision of the Takaful Operator.

(2) A Takaful Operator must comply with a direction under subrule (1).

9.1.5. AFSA may direct special review

(1) The AFSA may direct a Takaful Operator that the Takaful Operator’s Approved Actuary:

(a) is to carry out a review of matters specified by the AFSA relating to the Takaful Operator’s operations, risk management or financial affairs; and

(b) is to prepare a report on the basis of that review.

(2) The Takaful Operator must bear the cost of the review.

(3) A Takaful Operator must comply with a direction under sub-rule (1).

(4) The Takaful Operator’s Approved Actuary must give the report simultaneously to the AFSA and the Takaful Operator within 3 months of the date of the direction, unless the AFSA grants an extension of time in writing.

9.2.1. Application

TRR 9.2.2 to 9.2.5 apply to a Takaful Operator that is not required to have an Approved Actuary. Note: For the Takaful Operators that are required to have an Approved Actuary, see TRR 2.4.2 (Mandatory appointments).

9.2.2. Actuarial reporting requirements for general Takaful business

The Governing Body of a Takaful Operator to which this Rule applies:

(a) must consider annually whether to commission an independent actuary to report on its business; but

(b) must commission such a report at least once every 3 years.

9.2.3. Qualifications of independent actuary

(1) If a Takaful Operator decides to commission an actuarial report, it must appoint, to prepare the report, an individual who:

(a) has the qualifications set out in sub-rule (2); and

(b) satisfies the criteria set out in sub-rule (3).

(2) The qualifications are:

(a) that he or she has appropriate formal qualifications and is a member of a recognised professional body;

(b) that he or she has at least 5 years’ relevant experience in providing actuarial services to Takaful Operators, either in the AIFC or in other jurisdictions; and

(c) that the experience is sufficiently recent to ensure that he or she is familiar with current issues in the provision of such services to Takaful Operators.

(3) The criteria are the following:

(a) that he or she does not exercise any Controlled Function or Designated Function for the Takaful Operator or a related body corporate (except a related body corporate that is a subsidiary of the Takaful Operator);

(b) that he or she is not:

1. (i) an auditor (under section 136(1) of the Companies Regulations for the Takaful Operator;
2. (ii) an Employee or Director of an entity of which that auditor is an Employee or Director; nor
3. (iii) a partner of that auditor.

9.2.4. Actuarial reports

(1) The actuary who prepares an actuarial report for the purposes of TRR 9.2.2 must sign it.

(2) The Takaful Operator concerned must ensure that the actuary is given appropriate access (that is, such access as the actuary reasonably believes to be necessary to prepare the report) to:

(a) all relevant data, information, reports and staff of the Takaful Operator; and

(b) so far as possible, any contractor of the Takaful Operator.

(3) The report must give details, for each category of General Takaful Business that the Takaful Operator conducts, of the following matters:

(a) recent trends in the business;

(b) the actuary’s estimate of the value of the Takaful Liabilities and assets arising in respect of those liabilities, determined in accordance with TRR 8 (Valuation);

(c) if the assumptions or the valuation method used for that estimate differ from those adopted for the previous valuation of those assets and liabilities, the effect, as at the date on which the actuary signs the report, of those changes on the value of those liabilities and assets;

(d) the adequacy and appropriateness of the data that the Takaful Operator made available to the actuary;

(e) the procedures that the actuary used to assess the reliability of that data;

(f) the model or models that the actuary used;

(g) the assumptions that the actuary used in the valuation process (including, without limitation, assumptions made as to inflation and discount rates, future expense rates and, if relevant, future investment income);

(h) how the actuary estimated the variability of the estimate;

(i) the nature and findings of sensitivity analyses that the actuary undertook.

(4) The Takaful Operator’s Governing Body must give a copy of the signed report to the AFSA on or before the date on which the Takaful Operator must give its next annual prudential return to the AFSA under TRR 13.1.1 (Obligation to prepare prudential returns).

9.2.5. Additional powers of the AFSA

(1) If at any time the AFSA believes it is necessary that a Takaful Operator to which this Rule applies should obtain an actuarial report relating to the Takaful Operator’s operations, risk management or financial affairs, it may direct the Takaful Operator to do so at the Takaful Operator’s expense.

(2) The Takaful Operator:

(a) must appoint an actuary who satisfies the criteria in TRR 9.2.3 (Qualifications of independent actuary) to prepare the report; and

(b) must notify the AFSA of the name and credentials of the actuary appointed.

(3) If the AFSA is of the opinion that the actuary appointed by the Takaful Operator fails to satisfy the relevant criteria, the AFSA may direct the Takaful Operator to appoint an actuary chosen by the AFSA to prepare the report.

(4) The Takaful Operator must submit the report to the AFSA within 3 months of the direction, unless the AFSA allows an extension of time in writing.