Executive Summary

Legal Basis

ES-A.2.1

This Module was first issued in April 2005 by the BMA together with the rest of Volume 3 (Insurance). Any material changes to that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made; Chapter UG-3 provides further details on Rulebook maintenance and version control.

ES-A.2.2

When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 3 was updated in January 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

ES-A.2.3

A list of recent changes made to this Module is provided below:

ES-1.1.1

Volume 3 (Insurance) of the Rulebook covers insurance activities, i.e. the provision of regulated insurance services by insurance licensees. It also includes requirements regarding approved persons; and the registration requirements for actuaries, loss adjusters and appointed representatives.

ES-1.1.2

Volume 3 excludes representative offices of insurance firms, and ancillary services providers. These Regulations will later be incorporated into Volume 5 (Specialised Activities) of the CBB Rulebook, to be released at a later date.

ES-1.1.3

Volume 3 (Insurance) is made up of two volumes: Part A is the main Volume containing detailed Modules containing the Rules and Guidance and Part B is an appendix Volume containing a glossary of defined terms, CBB authorisation forms, CBB reporting forms and any supplementary information.

ES-1.1.4

Part A of Volume 3 (Insurance) is organized under the following headings:

ES-1.1.5

Including this Executive Summary Module, there are 20 Modules that make up Part A of Volume 3 (Insurance). The requirements for the various insurance license categories are embedded throughout Part A. In addition, for some specialised licenses (captive insurers, insurance intermediaries and takaful/retakaful) there are sector guides summarizing the key requirements, specifically applicable to these categories.

ES-1.1.6

Part B of Volume 3 is organized under the following headings:

ES-1.1.7

Defined terms used in the Rulebook are underlined; their definition can be found in the Glossary. Each volume has its own Glossary, as definitions of terms used apply only to the Volume in question. It is possible for the same term to be used in a different volume with a different meaning.

ES-1.1.8

There are four authorisation forms, comprising (i) Form 1 (application for a license); (ii) Form 2 (application for the authorisation of a controller); (iii) Form 3 (application for approved person status); and (iv) Form 4 (application for registration).

ES-1.1.9

A summary of the Modules, their application and implementation is given in the table below:

ES-1.2.1

Module AU covers the licensing requirements for insurance licensees; registration requirements for actuaries, loss adjusters and appointed representatives; and authorisation requirements for approved persons. The Module defines what is included as part of regulated services, specifically providing definitions for:

ES-1.2.2

With the exception of captive insurersand pure reinsurers, an insurance firm cannot undertake both long-term insurance business and general insurance business. Insurance firms (including captive insurers), must operate on either conventional insurance principles or on takaful principles: they cannot combine the two. Grandfathering provisions apply for those companies whose past license granted them the right to undertake both long-term insurance business and general business.

ES-1.2.3

Module AU deals with the requirements and conditions for approved persons, i.e. those wishing to undertake a controlled function in an insurance licensee. Controlled functions are those of:

ES-1.2.4

The licensing conditions that must be abided by all insurance licensees are outlined as part of Chapter AU-2 of the Module.

ES-1.2.5

The Module outlines the information requirements and procedures that must be followed as part of the process for:

ES-1.3.1

The 10 Principles of Business covered in Module PB are a general statement of the fundamental obligations of all CBB insurance licensees and approved persons. They have the status of Rules and provide a basis for other more detailed Rules elsewhere in Volume 3.

ES-1.3.2

All Principles of Business apply to activities carried out by the licensees, including activities carried out through overseas branches. Principles 1 to 8 also apply to approved persons, in respect of controlled functions for which they have been approved. Principles 9 (Adequate Resources) and Principles 10 (Management, Systems and Controls) also take into account any activities of other members of the group of which the licensee is a member.

ES-1.3.3

The Principles of Business are:

Principle 1 — Integrity

Principle 2 — Conflicts of Interest

Principle 3 — Due Skill, Care and Diligence

Principle 4 — Confidentiality

Principle 5 — Market Conduct

Principle 6 — Customer Assets

Principle 7 — Customer Interests

Principle 8 — Relations with Regulators/Supervisors

Principle 9 — Adequate Resources

Principle 10 — Management, Systems and Controls

ES-1.4.1

Module HC outlines the requirements that must be met by insurance licensees with respect to:

ES-1.4.1A

The Principles referred to in this Module are in line with the Principles relating to the Corporate Governance Code issued by the Ministry of Industry and Commerce.

ES-1.4.1B

The requirements distinguish between different types of insurance licensees. For insurance brokers, Sections HC-3.2 Audit Committee and HC-3.3 Audit Committee Charter are to be considered as Guidance and the Comply or Explain Principle (see Paragraph HC-A.1.8) applies. In addition references to the Nominating and Remuneration Committees do not apply for insurance brokers. Because of their limited business activities, and consequent lesser risk to customers, insurance consultants, insurance managers and captive insurance firms are subject to applicable Guidance Paragraphs included in Chapter HC-10.

ES-1.4.2

The high-level controls covered by this Module deal with:

ES-1.4.3

Module HC also includes requirements for an annual Board review and certification, on the implementation of internal governance processes and their effectiveness in achieving the Board's objectives, and whether the Board can attest that it has fulfilled its responsibilities for directing and monitoring the overall conduct of the licensee's affairs.

ES-1.5.1

Module AA deals with requirements on the appointment and functions of auditors and actuaries of insurance licensees. Requirements dealing with actuaries only apply to insurance firms and are not applicable to insurance intermediaries and insurance managers.

ES-1.5.2

The auditor requirements deal with:

ES-1.5.3

The Module covers the CBB's requirements regarding access to auditors and actuaries as well as the auditors' access to outsourcing providers. In addition, the Module outlines the requirement for insurance licensees to arrange for their auditors to review the licensee's annual return submitted to the CBB.

ES-1.5.4

Module AA provides requirements for both Registered Actuaries and Signing Actuaries.

ES-1.6.1

Module GR covers requirements dealing with areas not covered in other Modules. The areas covered are:

ES-1.6.2

Item (i) applies only to insurance firms; item (g) applies to insurance firms and insurance brokers, whereas item (j) only applies to insurance brokers and insurance consultants.

ES-1.7.1

Module CA covers requirements governing the minimum capital and solvency requirements as well as the valuation of assets and liabilities.

ES-1.7.2

Considering the nature of their business, the requirements regarding capital and solvency for insurance firms are far more detailed than for insurance intermediaries and insurance managers.

ES-1.7.3

Similarly the rules dealing with the valuation of assets and valuation of liabilities are only applicable to insurance firms.

ES-1.7.4

For insurance firms, Module CA outlines various currency matching and localisation requirements as well as whole firm and group solvency requirements.

ES-1.7.5

The Module provides detailed rules for requirements dealing with takaful and retakaful specifically addressing:

ES-1.8.1

This Module presents under the form of an Insurance Code of Practice the minimum standards of good practice for market conduct in relation to direct insurance activities. This Module applies to domestic business. Reinsurance business is exempted from the requirements of this Module.

ES-1.8.2

The Insurance Code of Practice is made up of overarching principles applied throughout the customer relationship. These principles cover:

ES-1.8.3

Module BC has additional requirements dealing specifically with requirements unique to takaful and retakaful, including the requirement to clearly disclose to participants the calculation of wakala and mudaraba fees paid by the takaful fund(s) to the takaful operator.

ES-1.8A.1

This Module provides detailed Rules and Guidance with respect to the holding of client money by insurance brokers and appointed representatives. They are aimed at ensuring proper protection of client money to minimise the risk of client money being used by insurance brokers and appointed representatives and to prevent the commingling of client money with the insurance brokers' and appointed representatives' assets.

ES-1.8A.2

As a general rule, client monies are required to be segregated from a firm's own assets, and client money must be held in a client money account. Various other restrictions and protections apply to client money, whilst the rules also apply certain reconciliation and reporting requirements.

ES-1.8A.3

Rules applying to appointed representatives are applicable based on the type of appointed representatives. The Module deals with:

ES-1.9.1

This Module provides detailed Rules and Guidance on risk management systems and controls required for insurance firms and insurance brokers. The Module imposes on these licensees the obligation to identify the range of risks that they face and to effectively manage these through the implementation of risk management systems that monitor and control all material risks.

ES-1.9.2

Module RM specifically addresses certain risk categories. However, insurance firms and insurance brokers must determine any additional risk categories relevant to their business and how these are addressed.

ES-1.9.3

The risk management standards addressed in Module RM are:

ES-1.10.1

Module FC implements the Financial Action Task Force (FATF) recommendations on money laundering and special recommendations on terrorism financing that are relevant to the insurance sector in Bahrain.

ES-1.10.2

The Module covers the detailed procedures required for:

ES-1.10.3

Item FC (iv) in Part B of Volume 3 (Insurance) provides further examples of transactions that may be suspicious or unusual.

ES-1.10.4

In addition, Module FC has a chapter dealing with the area of insurance fraud and steps that must be taken by insurance licensees to address this area.

ES-1.11.1

This Module is to be issued at a later date.

ES-1.11.2

When finalised, the Module will provide detailed Rules and Guidance on training and competency requirements for employees of insurance licensees as well as for actuaries, loss adjusters and appointed representatives.

ES-1.12.1

Module BR outlines the CBB's reporting requirements. The reporting requirements are broken down into three main categories:

ES-1.12.2

Annual financial reporting is required for all insurance licensees. Group and quarterly reporting are required only for insurance firms. The financial reporting Chapter contains various Rules, Directives and Guidance which underpin the reporting forms included in Part B of Volume 3 (Insurance).

ES-1.12.3

The Module outlines instances and procedures to be followed where insurance licensees must submit written notifications to the CBB. These include matters having a serious supervisory impact, breaches of Regulations and Directives and other requirements and the removal or resignation of auditors or Reporting Actuaries.

ES-1.12.4

The Module also outlines where insurance licensees must seek the CBB's prior approval for changes in their operations, such as change in legal status, mergers, acquisitions, disposals and establishment of new subsidiaries. The CBB's prior approval is also required for insurance licensees undertaking business transfers and for related party transactions above a specified threshold.

ES-1.12.5

Finally, the Module outlines the various ways in which the CBB gathers its information from insurance licensees including onsite visits by the CBB, and where deemed necessary the use of Appointed Experts.

ES-1.13.1

Module PD governs the minimum requirements to be followed by insurance firms with respect to corporate and financial transparency through meaningful public disclosures. Public disclosures help protect customers of insurance firms and facilitate market discipline.

ES-1.13.2

The disclosure requirements for insurance firms cover both annual and semi-annual disclosure requirements.

ES-1.13.3

Module PD outlines what information and by what means this information must be disclosed, distinguishing the type of information to be disclosed by the insurance firm subject to these requirements.

ES-1.13.4

To assist those insurance firms subject to this Module wishing to go further than the CBB's minimum requirements, further guidance and best practice are set out in Chapter PD-3.

ES-1.14.1

This Module outlines enforcement powers and processes that may be applied by the CBB to address failures by insurance licensees, approved persons or registered persons. The purpose of such measures is to encourage a high standard of compliance by all those authorised by the CBB, thus reducing risk to policyholders and the financial system.

ES-1.14.2

The enforcement measures contained in the Module are of varying severity and will be used in keeping with the CBB's assessment of the contravention, reserving the most serious enforcement measures for the most serious of contraventions.

ES-1.14.3

The CBB follows a proportionality principle in its enforcement measures, and will usually opt for the least severe of appropriate enforcement measures, consistent with the desired outcome. The CBB's enforcement approach includes:

ES-1.14.4

A reminder of criminal sanctions in the CBB Law and other legislation is set out in Chapter EN-10.

ES-1.15.1

[This Paragraph was deleted in October 2012].

ES-1.15.2

[This Paragraph was deleted in October 2012].

ES-1.16.1

This Module provides space, for possible inclusion at a later date, for a description of a policyholder protection scheme, should such a scheme be developed in cooperation with the industry.

ES-1.17.1

This Module provides a summary of Rules and Guidance applicable to captive insurance firms, that are contained in the main subject Modules of Volume 3 (Insurance). Module CI (Captive Insurers) only contains Guidance material.

ES-1.17.2

While Module CI is primarily focused for captive insurers, it contains the requirements that would need to be fulfilled by captive management firms (insurance managers), in meeting the regulatory obligations of captive insurers.

ES-1.17.3

The Module extracts several of the rules applicable to captive insurers, and tailored to meet the unique nature of captive insurers, including:

ES-1.18.1

This Module provides a summary of Rules and Guidance applicable to insurance intermediaries (insurance brokers and insurance consultants) and insurance managers, that are contained in the main subject Modules of Volume 3 (Insurance). Module IM (Insurance Intermediaries and Managers) only contains Guidance material.

ES-1.18.2

The regulated insurance services of insurance consultants and insurance managers are defined in Section AU-1.4, detailing the type of services that can be offered by these intermediaries.

ES-1.18.3

The category of insurance manager is being introduced in the Rulebook, as the CBB has also introduced a regulatory framework to cater to the unique nature of captive insurers. The CBB recognises that, in most cases, the operations of captive insurers are sub-contracted to insurance managers. To simplify the approval of the management subcontracted by a captive insurer, the licensing of insurance managers will have been considered by the CBB in detail as part of its licensing process.

ES-1.18.4

The Module extracts the rules applicable to insurance intermediaries and insurance managers, including:

ES-1.19.1

This Module provides a summary of Rules and Guidance applicable to takaful and retakaful business that are contained in the main subject Modules of Volume 3 (Insurance). Module TA (Takaful/retakaful) only contains Guidance material.

ES-1.19.2

Module TA recognises the unique nature of the takaful/retakaful business and has carved out Rules in instances where conventional Rules could not be applied to a takaful entity.

ES-1.19.3

Included in the Rules tailored to meet the requirements of the takaful industry are:

ES-2.1.1

Insurance licensees who were licensed prior to the publication of Volume 3 (Insurance), do not need to resubmit an application for a license.

ES-2.1.2

Insurance licensees licensed prior to 1 June 2005 will have their license category, and the scope of their authorisation, confirmed in an exchange of letters.

ES-2.1.3

Insurance licensees licensed prior to 1 June 2005, must comply with all other requirements of the Rulebook, when these take effect on 1 June 2005, unless different transition arrangements have been agreed in writing with the CBB beforehand or in accordance with the transition rules incorporated throughout in this Module.

ES-2.2.1

In instances where an insurance licensee carries on a commercial business, at the time where the Insurance Rulebook becomes effective, the insurance licensee must notify the CBB to establish the transitional rules in relation to this prohibited activity (refer to AU-1.1.11).

ES-2.3.1

Insurance brokers who were licensed prior to the introduction of Volume 3 (Insurance), and who were unincorporated entities or natural persons at that time, may continue as such until 31 December 2006.

ES-2.3.2

[This Paragraph was deleted in April 2011].

ES-2.3.3

The updated Module is effective on 1st January 2011. All insurance licensees to which Module HC applies must be in full compliance by the financial year end 2011.

ES-2.4.1

[This Paragraph was deleted in April 2014.]

ES-2.4.2

[This Paragraph was deleted in April 2014.]

ES-2.4.3

The first five year-period where the requirement for the rotation of audit partner referred to in Paragraph AA-1.3.1 takes effect, ends 31 December 2010. Therefore, unless there has been a change in the partner appointed since the Rulebook was issued in May 2005, or if a company has been licensed since the Rulebook has been issued, insurance licensees will need to have a new partner responsible for the audit engagement for the year 2011.

Books and Records (GR-1)

Professional Indemnity Coverage (GR-10)

Appointed Representatives (GR-9)

ES-2.6.1

Except as otherwise noted below, the requirements of Module CA are to be implemented, effective 31 December 2005.

Insurance Firm

Insurance Broker

Takaful Firms

ES-2.6AA1.1

All insurance licensees must have appropriate customer complaints handling procedures and systems for effective handling of complaints made by customers by 31st March 2012.

ES-2.6AA2.1

All insurance brokers and appointed representatives and where applicable, insurance firms, must comply with the requirements of Module CL, effective 1st July 2012 (See Paragraph CL-A.1.5).

ES-2.6A.1

Insurance licensees are required to comply with physical security measures and third party insurance (Paragraphs RM-6.1.13 to RM-6.1.17), by 31 December 2006.

ES-2.6B.1

For the year ending 31 December 2006, insurance licensees must submit the report required as per Paragraph FC-3.3.1 (d), no later than 30 June 2007.

ES-2.7.1

The first Insurance Firm Return (IFR) for both conventional insurance firms and takaful firms, required under Section BR-1.1, must be submitted to the CBB for the financial year ending 31 December 2006.

ES-2.7.2

The first Group Insurance Firm Return (GIFR) for insurance firms, required under Section BR-1.3, must be submitted to the CBB for the financial year ending 31 December 2006.

ES-2.7.3

The first quarterly return (IFRQ) for insurance firms, required under Section BR-1.4, must be submitted to the CBB for the quarter ending 31 March 2007.

ES-2.7.4

The first annual return (IBR) for insurance brokers, required under Section BR-1.2A, must be submitted to the CBB for the semi-annual period ending 31 December 2012.

ES-2.7.5

The first semi-annual return (IBRS) for insurance brokers, required under Section BR-1.4A, must be submitted to the CBB for the semi-annual period ending 30 June 2012.

ES-2.8.1

For purposes of Chapter PD-2, semi-annual disclosure requirements are effective for the period ending 30 June 2008.