Executive Summary

Legal Basis

AA-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 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.

AA-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.

AA-A.2.3

A list of recent changes made to this Module is detailed in the table below:

AA-A.2.4

Guidance on the implementation and transition to Volume 3 (Insurance) is given in Module ES (Executive Summary).

AA-B.1.1

The contents of this Module — unless otherwise stated — apply to all insurance licensees.

AA-B.1.2

The requirements relating to actuaries (Chapter AA-4), apply only to insurance firms, and differentiate between insurance firms undertaking long-term insurance and those undertaking general insurance.

AA-B.2.1

Certain requirements in this Module extend to auditors and actuaries, by virtue of their appointment by insurance licensees. Auditors and actuaries appointed by insurance licensees must be independent (cf. Sections AA-1.4, AA-1.5and Paragraphs AA-4.2.3 and AA-4.2.4). Auditors and actuaries who resign or are otherwise removed from office are required to inform the CBB in writing of the reasons for the termination of their appointment (cf. Paragraphs AA-1.2.3 and AA-4.2.8). Other requirements are contained in Sections AA-1.3 (Audit partner rotation) and AA-3.1 (Auditor reports).

AA-1.1.1

In accordance with Article 61(a) of the CBB Law, insurance licensees must obtain prior written approval from the CBB before appointing or re-appointing their auditor.

AA-1.1.2

As the appointment of the auditor normally takes place during the course of the firm's annual general meeting, insurance licensees should notify the CBB of the proposed agenda for the annual general meeting in advance of it being circulated to shareholders. The CBB's approval of the proposed auditor does not limit in any way shareholders' rights to subsequently reject the Board's choice.

AA-1.1.3

The CBB, in considering the proposed (re-)appointment of an auditor, takes into account the expertise, resources and reputation of the audit firm, relative to the size and complexity of the licensee. The CBB will also take into account the track record of the audit firm in auditing insurance licensees within Bahrain; the degree to which it has generally demonstrated independence from management in its audits; and the extent to which it has identified and alerted relevant persons of significant matters.

AA-1.1.4

In the case of overseas insurance licensees, the CBB will also take into account who acts as the auditor of the parent firm. As a general rule, the CBB does not favour different parts of an insurance group having different auditors.

AA-1.2.1

Insurance licensees must notify the CBB as soon as they intend to remove their auditor, with an explanation of their decision, or as soon as their auditor resigns.

AA-1.2.2

Insurance licensees must ensure that a replacement auditor is appointed (subject to CBB approval as per Section AA-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

AA-1.2.3

In accordance with the powers granted to the CBB under Article 63 of the CBB Law, auditors of insurance licensees must inform the CBB in writing, should they resign or their appointment as auditor be terminated, within 30 calendar days of the event occurring, setting out the reasons for the resignation or removal.

AA-1.3.1

Unless otherwise exempted by the CBB, insurance licensees must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.

AA-1.3.2

Insurance licensees must notify the CBB of any change in audit partner.

AA-1.3.1A

For purposes of Paragraph AA-1.3.1, the first five-year period referred to is for the period ending 31 December 2010 (Refer to Paragraph ES-2.4.3). 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

AA-1.4.1

Article 61(d) of the CBB Law imposes conditions in order for the auditor to be considered independent. Before an insurance licensee appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of the licensee.

AA-1.4.2

For an auditor to be considered independent, it must, among things, comply with the restrictions in Section AA-1.5.

AA-1.4.3

If an insurance licensee becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact.

AA-1.4.4

If in the opinion of the CBB, independence has not been achieved within a reasonable timeframe, then the CBB may require the appointment of a new auditor.

Financial Transactions with Auditors

Outsourcing to Auditors

Other Relationships

Definition of 'Auditor'

AA-2.1.1

Insurance licensees must waive any duty of confidentiality on the part of their auditor, such that their auditor may report to the CBB any concerns held regarding material failures by the insurance licensee to comply with CBB requirements.

AA-2.1.2

The CBB may, as part of its on-going supervision of insurance licensees, request meetings with a licensee's auditor. If necessary, the CBB may direct that the meeting be held without the presence of the licensee's management or Directors.

AA-2.2.1

Paragraph RM-7.4.12 on outsourcing agreements between insurance licensees and outsourcing providers requires licensees to ensure that their internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.

AA-2.3.1

Insurance licensees that appoint a Registered Actuary or Signing Actuary in compliance with the requirements in Section AA-4.1 must waive any duty of confidentiality on the part of the actuary, such that he may report to the CBB any concerns held regarding material failures by the insurance licensee to comply with CBB requirements.

AA-2.3.2

The CBB may, as part of its on-going supervision of insurance licensees, request meetings with a licensee's Registered Actuary/Signing Actuary. If necessary, the CBB may direct that the meeting be held without the presence of the licensee's management or Directors.

AA-3.1.1

Insurance licensees must arrange for their auditor to review the licensee's annual return to the CBB. The auditor must complete the prescribed form Agreed Upon Procedures (refer to Part B, Supplementary Information Appendices BR(i) and BR(ii)) attesting to his/her review, which must be submitted to the CBB by the insurance licensee within four months of the financial year end of the insurance licensee.

AA-3.1.2

Insurance firms are required to submit an Insurance Firm Return (Form IFR). Insurance intermediaries and insurance managers are required to submit the Insurance Intermediary and Manager Return (Form IMR). Further details on the annual returns and other reporting requirements of the CBB, including the precise scope of the auditor's review and attestation, are contained in Module BR (CBB Reporting).

AA-3.2.1

Insurance licensees must arrange for their external auditor or a consultancy firm approved by the CBB as per Paragraphs FC-3.3.2 and FC-3.3.2A, to report on the insurance licensee's compliance with the requirements contained in Module FC (Financial Crime), at least once a year.

AA-3.2.2

The report specified in Paragraph AA-3.2.1 must be in the form agreed by the CBB, and must be submitted to the CBB within six months of the licensee's financial year-end.

AA-3.2.3

Further information on the above requirement can be found in Section FC-3.3.

AA-3A.1.1

Insurance licensees must comply with International Financial Reporting Standards / International Accounting Standards ('IFRS/IAS') and, to the extent that they undertake Shari'a compliant activities, relevant standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

AA-3A.1.2

Overseas insurance licensees that do not, at the parent company level, apply IFRS/IAS are still required under Paragraph AA-3A.1.1 to produce pro-forma accounts for the Bahrain branch in conformity with these standards.

Obligation to Appoint an Actuary for Long-Term Insurance Business

Obligation to Appoint an Actuary for General Insurance Business

AA-4.2.1

For purposes of Chapter AA-4, the CBB recognises two types of actuaries:

AA-4.2.2

The CBB’s authorisation requirements for Registered Actuaries are contained in Module AU (Authorisation).

AA-4.2.3

A Signing Actuary is a controlled function and is subject to the CBB’s approval, as per Section AU-1.2, as an approved person.

AA-4.2.4

All actuaries authorised or approved by the CBB must hold appropriate professional qualifications from a relevant, recognised professional body.

AA-4.2.5

Fellows (or members of equivalent status) in good standing of the Society of Actuaries (USA), the Institute and Faculty of Actuaries (UK) or the American Academy of Actuaries, or any other similar body with mutually reciprocal licensing arrangements with any of these bodies, will satisfy the requirement in Paragraph AA-4.2.4.

CBB Approval Criteria for Registered Actuaries

Removal or Resignation of a Reporting Actuary

AA-4.3.1

The FCR must provide an objective assessment of the overall financial condition of the insurance firm. The report must also comply with the following conditions:

AA-4.3.1A

The signing actuary or registered actuary may rely on other expert opinions in order to address those matters required in the FCR that are outside of scope of the actuary's qualifications. Where such outside opinions are sought, these should be clearly identified in the report.

AA-4.3.2

The report required under Article 72(a) of the CBB Law must accompany the Insurance Firm Return (Form IFR) submitted to the CBB and cover the period covered by that return, as required under Paragraph BR-1.1.22.

AA-4.3.2A

The CBB may require a FCR on a more frequent basis than the requirement outlined. In addition, the CBB may appoint an actuary as an appointed expert as outlined in Section BR-3.5 to conduct a special purpose review of the insurance firm's operations, risk management, financial affairs or other areas as specified by the CBB.

AA-4.3.3

In accordance with Article 73 of the CBB Law, the evaluation should include:

AA-4.3.4

Where the Registered Actuary's or Signing Actuary's investigation establishes a deficit on any fund or part of any fund, the insurance firm concerned must immediately notify the CBB and ensure that remedial action is taken to make good the deficit.

AA-4.3.5

Possible remedial action to address the deficit noted in Paragraph AA-4.3.4 may include a transfer to be made from shareholders' funds of sufficient assets to make good the deficit or a reduction in non-guaranteed bonuses.

AA-4.3.6

[This Paragraph was deleted in April 2014.]

AA-4.3.7

[This Paragraph was deleted in April 2014.]

Signing Actuary Criteria

General Insurance Business

Qualified FCR

Duties of the Insurance Firm

AA-4.3A.1

In addition to the requirements under Section AA-4.3, all Family Takaful firms must submit to the CBB an annual FCR and all General Takaful firms must submit an FCR once every two years from their actuary which must comply with the requirements outlined in this Section as well as in other parts of this Chapter in carrying out their actuarial duties.

Certification of Wakala Fees

Participants' Fund(s) Underwriting Loss

Distribution of Surplus

Earmarked Assets

AA-4.4.1

An insurance firm must notify the CBB as soon as it intends to remove its actuary, together with an explanation of its decision, or as soon as its actuary resigns.

AA-4.4.2

Insurance firms must ensure that a replacement actuary is appointed (subject to CBB approval as per Paragraph AA-4.1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

AA-4.4.3

If an insurance firm fails to make a fresh appointment of an actuary in accordance with the provisions of Paragraph AA-4.4.2, the insurance firm must not – until such an appointment is made – effect any new contract which constitutes long-term insurance business without the written permission of the CBB.

AA-4.4.4

An actuary who resigns or is otherwise removed from the office of actuary must, within 30 days of his resignation or removal, write to the CBB setting out the reasons for his resignation or removal.