Monday, June 28, 2010
H.E. Eng. Sultan bin Saeed Al
Mansouri, Minister of Economy and Chairman of the Insurance Authority, issued the
Resolution No. 4 of 2010 concerning the Takaful Insurance Regulations with the
objective of setting the legal frameworks to establish cooperative Islamic
system in this type of insurance, making the UAE the first Arab country to set regulatory
legislation for the Takaful insurance industry.
The Resolution states that an
insurance company may not practice the Takaful insurance activity through what
is known as 'Islamic Window' and the founders of the insurance company must
decide from the beginning whether they want to incorporate a traditional or
Takaful insurance company.صورة الالتفاف
The IA emphasized that the Takaful insurance
companies must fully observe the rules of Islamic Shariah in all of their
transactions and insurance and investment operations. The organizational Resolution
issued by the IA introduced the position of Shariah Controller in each Takaful
insurance company in addition to the Shariah Control Committee which is formed
within each Takaful insurance company. The IA granted the insurance companies a
period of one year to regularize their status.
The Takaful insurance market in the UAE
recorded the highest compound annual rate during the past five years amounting
to 135% as per the third annual international report issued by Ernest &
The IA prohibited combining the practice of
family Takaful insurance (life insurance) and Takaful insurance of property and
liability (general insurance) in one company and it granted the Takaful
insurance companies that practice both types the same period granted to the
other insurance companies to regularize their status in accordance with the
provisions of law number 6 of 2007.
The IA’s Resolution stated that the companies
that practice both types of the aforesaid insurance must fully separate them
whether in terms of the participants' accounts, technical provisions, or
investment aspects, and even at the level of personnel until the grace period
granted for prohibition of combination expires.
The IA’s Resolution determined the authorities
of the Shariah Control Committee in the Takaful insurance companies clearly and
accurately as well as its relationship with the Board of the company, the
General Assembly, and the IA. The Resolution covered the organization of the
books and accounting records as well as the closing accounts of such companies
in consistency with the structure of the company and the nature of its business.
The Resolution of the IA’s Chairman organized
the process of sharing the surplus made by the accounts of participants (the
insured) and it includes some of the legislations that establish the concept of
Islamic Takaful insurance.
The IA’s Resolution stated separation between
the Participation Membership
Document in Takaful insurance and the Takaful Insurance Policy whereas the
former indicates the key aspects of the cooperative relationship implied in the
Takaful insurance process while the latter (insurance policy) states the
conditions related to the bilateral relationship between the company and the participant
(the insured) which represents an advantage for the UAE regulations.
The Resolution allowed the incorporation of a
Takaful insurance company upon the approval of the Ministry of Economy and the
Securities & Commodities Authority by setting a bylaw that includes
inviting the participants (the insured) to attend the ordinary or extraordinary
General Assembly meetings of the Takaful insurance company so that they have
the right of discussion and expression of opinions without the right of voting.
In case the assets of participants’ account are
not enough to pay up the liabilities of such account to the participants, the Qardh Hasan which the shareholders’
account is obliged to present to the participants’ accounts shall be the total
of shareholders’ rights. Further, the regulations addressed the issue of
introducing Zakat Fund in the company.
The regulations indicated that the Takaful
insurance company may deal with the Takaful reinsurance companies and reinsurance
companies. The regulations also granted the existing Takaful insurance
companies a period of one year effective from the date of effectiveness thereof
to regularize their status with the provisions of the new regulations.
The number of insurance companies operating in
the State amounts to 57, including nine Takaful insurance companies; namely Islamic
Arab Insurance Co. (Salama), Dubai Islamic Insurance and Reinsurance Co.
(Aman), Takaful Co., Takaful Emarat, Noor Takaful, Al Hilal Takaful Insurance Co., Abu
Dhabi National Takaful Co., and Methaq Takaful Insurance Co., as well as Union Insurance Company which
embarked upon finalizing the necessary procedures to be transformed into
On her part, H.E. Fatima Mohammed Ishaq Al
Awadi, Deputy Director General of the IA, said that during the past years, many
Takaful insurance companies were incorporated in the State as per the insurance
companies and agents law number 9 of 1984 and Federal Law number 6 of 2007
concerning the establishment of the Insurance Authority and organization of
Al Awadi said
that the Takaful insurance companies are different in terms of structure and
working approach from the commercial insurance companies, therefore, it was inevitable
to organize their business in line with the nature thereof. She added that the
draft regulations were presented to the Takaful insurance companies to receive
their suggestions thereon.
She added that the UAE records a legislative
precedence by issuing such regulations at the regional and Arab levels like it
had the precedence of organizing the business of such companies at the Gulf and
She noted that in preparation of such
regulations, the conditions of the UAE insurance market and the legal
environment of the State were observed. Gradual development of the regulations
was also observed to open the opportunity to (amend the legislation) from day
one of its adoption in light of the results of the practical experiment.
Explaining the Regulations
She said the IA plans to hold a series of
seminars with the officials of the Takaful insurance companies as well as the
heads and members of Shariah Control Committees in the Takaful insurance
companies to explain the regulations and mechanism of adoption thereof.
On his part, Said Khalil, General Manager of Union Insurance Company said
that the new regulations will lead to a new wave of incorporation of Takaful
insurance companies following the delivery of Islamic services through
dedicated outlets in the commercial insurance companies.
He said that the new regulations enhance the
concept of Takaful insurance and give the clients more options and insurance
products which accommodate their preferences and tendencies.
He said that a large number of the existing
insurance companies cannot do without the proceeds of Takaful insurance
products and therefore they will seek during the next twelve months and before
expiry of the set period to incorporate new Takaful insurance companies to
maintain their client base.
Khalil considered that the new regulations are
a legislative precedence whereas no other Arab country has adopted similar
regulations that draw borderlines between the Islamic insurance and commercial
Said emphasized the importance of providing new
products by the insurance companies amid the direction of clients to move from
the varied insurance products into the traditional insurance products and rendering
a comprehensive review of the investment policies amid the dropping of proceeds
of various investment forms, especially the stocks.
Minimizing the risk rate
Ernest & Young reported earlier that the
UAE is the second biggest Takaful market in the Gulf recording $542 million
with a prevalence rate of 0.21%, followed by Qatar recording $116 million with
a prevalence rate of 0.12%, versus Kuwait which recorded $101 million with a
prevalence rate of 0.07%, and Bahrain which recorded $72 million with insurance
service prevalence rate of 0.33%.
The report indicated that despite the dropping
proceeds of the capital of the Gulf Takaful companies during the crisis, they
managed to minimize the risk rate to 37% during the past year against 36.6%
during 2008 while the ratio of risks to proceeds amounted to nearly 42.2% in
Contribution of operational profits arising
from the insurance premiums written in the Gulf Takaful companies rose in 2008
recording 84% of the total profits in 2008, against 16% which is the
contribution of investments in the total profits. In 2006 the contribution of
investments in the total profits recorded nearly 97% against a share not
exceeding 3% for the written premiums.
The report indicated that the investment
profits made by the Takaful companies during the past year were arising from
investing in the securities markets with share of 37.1% against 32% for
deposits, 22.3% for Sukuks, and 8.2% for real estate investment.
At the same time, profits arising from
investing in securities in 2008 dominated 66.3% of the total investment
proceeds, followed by investing in Sukuks with a rate of 18.8%, 9.5% for
proceeds, and 5.4% for real estate investment.
At the level of expenses, the indemnities
dominated 58% of the total expenses of the Gulf Takaful companies during the
past year, while the administrative and operational expenses formed 41% against
a rate not exceeding 2% for marketing. In 2008 the claims for indemnities
dominated a rate of 69% while the administrative expensed recorded 27% and
marketing recorded 4%.