CA-8.1.1

This Chapter of CA applies only to those firms licensed to conduct the regulated activity of Takaful and Retakaful.

CA-8.1.2

The specific Rules and Guidance in this Chapter are additional to Chapters CA-B to CA-7. The Rules and Guidance in Chapters CA-B to CA-7 apply to Takaful firms unless those Rules have been specifically modified or waived by this Chapter.

CA-8.1.3

The CBB acknowledges that Takaful/Retakaful insurance is different in some respects from conventional insurance. The specific Rules and Guidance set out in this Chapter aim to allow Takaful firms to operate in Bahrain within the CBB's insurance regulatory regime on a basis consistent with that imposed on conventional insurers. That is, the CBB's regulatory regime does not favour one form of insurance over another, allowing for both types of structures, Takaful and conventional, to operate in a competitive environment.

CA-8.1.4

For the purposes of applying the rules in Chapters CA-B to CA-7 to Takaful firms, references to 'long-term insurance business' should be read as 'family Takaful business' and 'general insurance business' should be read as 'general Takaful business'.

CA-8.2.1

All Takaful firms licensed in Bahrain must organise and operate their business according to the al Wakala model. Specifically, in exchange for the provision of management services to participants' fund(s), the shareholders of the Takaful firm must receive a specific consideration (Wakala fee). For the insurance assets invested on behalf of participants' funds, the Takaful operator must use the al Mudaraba model, and must receive a set percentage of the profits generated from the investment portfolio. No performance/incentive fees are allowed to be paid to the shareholders/Takaful operator of the Takaful firm; the only fees that can be paid are the Wakala fees and the set percentage of the profits generated from the investment portfolio.

CA-8.2.2

The Wakala fee charged in respect of a Takaful contract must be directly proportional to the costs associated with establishing and maintaining that contract. Both the Wakala and Mudaraba fees must be clearly disclosed to the participants of the Takaful fund(s).

Wakala Fee

Mudaraba Fee

Managing Operating Costs

CA-8.3.1

Where an insurer carries out Takaful business:

CA-8.3.2

A Takaful firm must maintain such accounting and other records as are necessary for:

CA-8.3.3

Other than the explicit exceptions included in Paragraphs CA-8.3.4 and CA-8.3.5, a Takaful firm's assets allocated to the participants' fund(s) must only be applied for the purposes of the fund to which it is attributed as required by Paragraph CA-8.3.2 and must not be made available for any other purpose of the Takaful firm. This does not however prevent the reimbursement of expenditures borne by the shareholders (in the same or the preceding financial year) in discharging liabilities wholly or partly attributable to a fund or funds.

CA-8.3.4

Paragraph CA-8.3.3 does not apply to the payment of management fees by the fund or funds to the Takaful manager even where the manager is the shareholder provided that the Shari'a Supervisory Board has approved those fees.

CA-8.3.5

Paragraph CA-8.3.3 does not prevent a Takaful firm from exchanging, at fair market value, insurance business assets of any fund for other assets of the insurer including assets held by another fund or the shareholder.

CA-8.3.6

A Takaful firm which carries on insurance business in Bahrain must have adequate arrangements for securing that transactions involving assets of the Takaful firm (other than transactions outside its control) do not operate unfairly between any of the participants' fund(s) and the shareholder assets of the Takaful firm or, in a case where the Takaful firm has more than one 'identified fund', between those funds.

CA-8.3.7

Where the CBB imposes a financial penalty on a Takaful firm or requires a Takaful firm to compensate participants for any wrongful act of the firm (including any wrongful act committed by an appointed representative of the firm), it must not pay that compensation or financial penalty from any participants' fund(s) and it must not seek to have that compensation or financial penalty reimbursed as part of its management fees.

CA-8.3.8

The Rules in this Chapter in respect of the segregation of funds by a Takaful firm are similar to the Rules set out in Chapter CA-3 relating to long-term insurance business. In the case of a family participants' fund(s) this similarity is most pronounced. However, the Rules set out in Chapter CA-3 still apply even if the participants' fund(s) is a family participants' fund(s), in particular the requirement to separate linked family Takaful business into a separate fund.

CA-8.4.1

All Takaful firms are subject to capital available and solvency requirements.

Determination of Available Capital

CA-8.4.6A

In cases where Paragraph CA-8.4.5 applies, any income generated from the assets forming part of the free loan, will be solely for the benefit of the Takaful fund, and should be recorded as investment income of the Takaful fund. The total investment income being generated by the Takaful fund will however be subject to a mudaraba fee as approved by the Shari'a Board.

Solvency Requirements

Other Requirements

CA-8.4.13A

Following the Takaful fund's first year of operation, the fund will be expected to meet the solvency margin requirements, but the calculation of its capital available (participants' equity) will still be subject to valuation rules but will not be subject to deductions resulting from inadmissible assets (by category or counterparty) as outlined in Section CA-4.2:

whichever of (a) or (b) occurs first.

CA-8.4.13B

Once a Takaful fund has reached conditions (a) or (b) stated in Paragraph CA-8.4.13A, it will be expected to calculate its capital available as per Paragraph CA-1.2.21, including all deductions related to inadmissible assets due to category or counterparty limits.

CA-8.4.13C

During the transition phase outlined in Paragraph CA-8.4.13A, while category and counterparty limits do not apply, proper diversification of the assets of the Takaful funds should be followed, focusing on low risk and income producing assets.

Qard Hassan Transition Rules

CA-8.4A.1

Where a participants' fund(s) has a cash deficit which results in its inability to meet its day to day expenses and obligations, a Qard Hassan must be extended immediately by the shareholder fund. The cash being sought by the participants' fund must be physically transferred from the shareholder fund to cover the cash deficit of the participants' fund.

CA-8.4A.2

Where a Qard Hassan has been extended for liquidity purposes, the calculation of the earmarked assets allocated to the insurance business amount for the participants' fund(s) as outlined under Paragraph CA-8.4.4, must consider the impact of the reduction in earmarked assets.

CA-8.4A.3

Where the shareholders' fund of Takaful firms provide Qard Hassan (free loan) to the participants' fund as available for the purposes of meeting a participants' fund's liquidity needs and where the earmarked assets are to be reassessed as a result, the Takaful firm must notify the CBB immediately.

CA-8.4A.4

Where a Qard Hassan has been granted for liquidity purposes, the statement of financial position of the shareholders' fund must reflect the reduction in earmarked assets to fund the Qard Hassan as an asset and for the participants' fund(s), the amount of Qard Hassan must be shown as a liability. In addition, the CBB requires, as a minimum, that the Takaful firm include a specific note in the financial statements of the Takaful firm explaining the circumstances of the arrangement (Qard Hassan) and the implications for shareholders and participants.

CA-8.4A.5

Where a Qard Hassan has been extended, it must be repaid from future surpluses from the participants' fund(s).

CA-8.4A.6

The Takaful operator must have a clear written policy on the mechanism to rectify the cash deficit of the participants' fund(s), duly approved by the Board. The policy must address the manner in which Qard Hassan will be repaid and specify Qard impairment testing mechanism. The Qard Hassan must be tested for impairment at least annually. Whenever there is a need for Qard Hassan, the Takaful operator must determine the time period for the repayment of Qard Hassan.

CA-8.5.1

Every Takaful firm must develop a policy for determining the surplus or deficit arising from Takaful operations, the basis of determining and allocating that surplus or deficit to the participants and the shareholders, and the method of transferring any surplus or deficit to the participants. The policy developed must consider all relevant AAOIFI standards including Financial Accounting Standard No. 13 'Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies'. The policy must be approved by the Shari'a Supervisory Board as well as the board of directors of the Takaful firm.

CA-8.5.2

More than one policy may be developed where the Takaful firm offers different types of insurance products. In any event, the company must have separate policies in respect of its general business and its long-term business and any surplus or deficit allocation must be in line with the policy developed under Paragraph CA-8.5.1.

CA-8.5.3

On an annual basis, every Takaful firm must determine any surplus or deficit arising on each separate participants' fund. The surplus distribution or remedial action for deficit reduction must be recommended by the actuary (see Paragraphs AA-4.3A.4 and AA-4.3A.5) and endorsed by the Shari'a Supervisory Board and the board of directors of the Takaful firm.

CA-8.5.4

The policy developed in accordance with Paragraph CA-8.5.1 must not be amended or changed without the approval of the Shari'a Supervisory Board.

CA-8.5.4A

Distribution of surpluses from the Participants' fund(s) is subject to the CBB's prior written approval.

CA-8.5.5

No Takaful firm is permitted to make any distributions to participants if either the participants' fund(s) does not, or through the payment of the distribution, would not meet all the capital available and solvency requirements set out in Chapters 1 and 2 of the Capital Adequacy Module. In addition the surplus distribution must not cause adverse financial implications or a deficit in the participants' fund(s) and the Takaful operator must ensure that the participants' fund(s) is sufficiently liquid to cover any proposed surplus distribution.