1.1 Introduction

1.1.1 Name of rules

These rules are the AIFC Takaful and Retakaful Rules 2018 (or TRR).

1.1.2 Purpose

The purpose of this TRR Rules is to establish the regulatory framework for Authorised Firms carrying out Takaful Business which involve pooling of the risks faced by its participants in a Shari’ah-compliant manner. These rules are based on:

(a) the standards and guidelines issued by the Islamic Financial Services Board on governance, risk management and solvency of Takaful businesses

(b) the standards and guidelines issued by the Islamic Financial Services Board on Retakaful businesses;

(c) the standards and guidelines issued by the IAIS in regard to governance, risk management and solvency of insurance businesses which also apply to Takaful /Retakaful businesses.

1.1.3 Application of TRR

(1) These rules apply to every Takaful Operator except where otherwise provided.

(2) These rules are also applicable to every Retakaful Operator. Except as stated otherwise, all references to a Takaful Operator in the TRR rules must be read as referring also to a Retakaful Operator. Consequently, all the regulatory requirements imposed by these TRR Rules apply to all entities licensed to carry out Takaful Business as defined in Rule 1.1.6

(1) including Retakaful Operators, except for specific sections or rules wherein their applicability is defined in a particular manner. For clarity, all the regulatory requirements imposed by the TRR Rules apply to Retakaful Operators, unless otherwise specified in the TRR.

1.1.4 Commencement

These rules commence on 1 January 2019.

1.1.5 Effect of definitions, notes, examples and references

A definition in the glossary to these rules also applies to any instructions or document made under these rules.

(a) A note in or to these rules is explanatory and is not part of these rules. However, examples and guidance are part of these rules.

(b) An example is not exhaustive, and may extend, but does not limit, the meaning of these rules or the particular provision of these rules to which it relates.

(c) Unless the contrary intention appears, a reference in these rules to an accord, principle, standard or other similar instrument is a reference to that instrument as amended from time to time.

1.1.6 Key Definitions

(1) Takaful Business is the part of Insurance Business conducted by a Takaful Operator that is Islamic Financial Business as defined in AIFC IFR rule 1.5.

(2) A Takaful Operator is

(a) an Islamic Financial Institution that conducts Takaful Business; or

(b) an AIFC-Incorporated Insurer operating an Islamic Window (within the meaning of AIFC IFR rule 1.8).

(3) A Takaful Fund is a fund established and maintained by a Takaful Operator under Rule , for its Takaful business.

Guidance: Branches

Note that certain of the obligations set out in this rulebook do not apply to Takaful Operators that are Branches of entities established and regulated outside the AIFC. The term AIFC-Incorporated Takaful Operator is used to refer to a Takaful Operator that is incorporated as a legal entity under the laws of the AIFC and thus excludes Branches of legal entities incorporated outside the AIFC.

1.1.7 Principles underlying TRR rules

The TRR rules are based on the following principles:

(a) Ensure compliance with Shari’ah;

(b) Enable better alignment of risk-return objectives of a Takaful Operator consistent with its fiduciary duty to manage its Takaful Business in a sound manner;

(c) Provide incentives for Takaful Operators to manage business in a risk- based manner and adopt prudent practices;

(d) Provide an early warning signal on any deterioration in capital adequacy or solvency levels to enable prompt and pre-emptive actions to be taken by Takaful Operator and the AFSA;

(e) Promote transparency as a means to protect the interests of participants of the Takaful fund; and

(f) Reduce opportunities for regulatory arbitrage with the conventional insurance business and with the rest of the financial sector.

1.2 Takaful Business

1.2.1 Types of Takaful Business

(1) General Takaful Business is Takaful Business in relation to General Insurance Contracts.

(2) Family Takaful Business is Takaful Business in relation to Long Term Insurance Contracts.

1.2.2 Types of Takaful Contracts

(1) A General Takaful Contract is a Shari’ah-Compliant Contract of Insurance that falls within one of the categories set out in Schedule 1.

(2) A Family Takaful Contract is a Shari’ah-Compliant Contract of Insurance that falls within one of the categories set out in Schedule 2.

1.3 Classification of Takaful Contracts

1.3.1 Classification of contracts

A Takaful Operator must, in its own records, classify all Takaful Contracts carried out by it, including all Contracts of Reinsurance entered into by it as cedant, according to the category to which the Takaful Contracts relate.

1.3.2 Classification of contracts falling into two or more categories

Where a Takaful Contract relates to more than one category, the Takaful Operator must record separately the portions of the Takaful Contract that relate to each category, except that immaterial portions need not be separately recorded.

Guidance

A portion of a Takaful Contract insuring a risk of a category other than the principal category to which the contract relates, will not normally be regarded as material if the interest that it insures is both related and subsidiary to the principal interest or interests insured under the contract, and constitutes less than 10% of the gross written premium under the contract.

1.4 Restrictions in respect of Takaful Business

1.4.1 Restriction on combining certain kinds of Takaful Business

A Takaful Operator must not carry on, in or from the AIFC, both Family Takaful Business and General Takaful Business unless the General Takaful Business is restricted to General Takaful Categories 1 (accident) and 2 (sickness).

1.4.2 Restriction on Takaful Operators carrying on non-Insurance Business

(1) A Takaful Operator must not carry on any activity other than Insurance Business unless the activity is directly connected with, or carried on for the purposes of, Insurance Business.

(2) For this rule, managing investments is not an activity directly connected with, or carried on for the purposes of, Insurance Business.

Guidance

1. The following activities will normally be considered to be directly connected with, or carried on for the purposes of, Insurance Business carried on by an Insurer:

a. investing, reinvesting or trading, as investor and for the Insurer’s own account, that of its subsidiary, its holding company or any subsidiary of its holding company but not any other party, in shares, debt instruments, investment accounts, units in collective investment schemes, or other forms of investments that are intended to earn profit or return for the investor;

b. rendering other services related to insurance business operations including actuarial, risk assessment, loss prevention, safety engineering, data processing, accounting, claims handling, loss assessment, appraisal and collection services;

c. acting as agent for another Insurer in relation to Contracts of Insurance in which both Insurers participate;

d. establishing subsidiaries or associates engaged or organised to engage exclusively in 1 or more of the businesses mentioned in a. to c.;

e. insurance mediation.

2. The AFSA may give individual guidance on other business activities that may be taken to be directly connected with, or carried on for the purposes of, Insurance Business carried on by A Takaful Operator.

1.5 Core obligations of Insurers

1.5.1 Obligation to establish and maintain systems and controls

A Takaful Operator must establish and maintain systems and controls in accordance with the requirements of TRR 2 (Governance Framework) and GEN 5 (Systems and Controls).

1.5.2 Obligation to maintain a risk management strategy

A Takaful Operator must establish and implement a Risk Management Strategy in accordance with the requirements of TRR 3 (Risk Management Strategy).

1.5.3 Obligation to conduct Own Risk and Solvency Assessment

An AIFC-Incorporated Takaful Operator must conduct an Own Risk and Solvency Assessment and submit a report thereon to AFSA in accordance with the requirements of TRR 4.

1.5.4 Obligation to maintain Eligible Capital

An AIFC-Incorporated Takaful Operator must at all times maintain Eligible Capital in an amount and of a quality required by TRR 5.

1.5.5 Obligations in respect of Investments

A Takaful Operator must make investments in accordance with the requirements of TRR 6 (Investments).

1.5.6 Obligation to maintain Long Term Takaful Funds

A Takaful Operator carrying on Family Takaful Business must segregate its Family Takaful assets and liabilities in accordance with TRR 7 (Segregation of Family Takaful assets and liabilities)

1.5.7 Obligations in respect of Assets and Liabilities

An AIFC-Incorporated Takaful Operator must value its assets and liabilities in accordance with the requirements of TRR 8 (Valuation).

1.5.8 Obligation to produce actuarial reports

A Takaful Operator must prepare and submit to the AFSA the actuarial reports that it is required to produced pursuant to the requirements of TRR 9 (Actuarial reporting).

1.5.9 Obligations in respect of groups

A Takaful Operator that is a member of a group must comply with the requirements of TRR 10 (Takaful Operators that are members of Groups).

1.5.10 Obligations in respect of Takaful Business Transfers

A Takaful Operator that is party to an Takaful Business Transfer must comply with the requirements of TRR 11 (Transfer of Takaful business).

1.5.11 Obligations in respect of Run-off

A Takaful Operator that is in Run-off must comply with the requirements of TRR 12 (Takaful Operators in run-off).

1.5.12 Obligation to prepare prudential returns

A Takaful Operator must prepare the prudential returns that it is required to produced pursuant to TRR 13 (Prudential returns)