The Financial Regulatory Authority (FRA) has issued a decision regarding the rules, standards and controls for companies licensed to practice takaful business, in a step aimed at stimulating the Egyptian market and improving operational efficiency.
The decision establishes a new regulatory framework for takaful in Egypt, which, for the first time, includes an integrated model combining the agency (wakala) and Mudarabah (profit-sharing)systems in managing the takaful account and investment activities, thus giving companies greater flexibility in managing operations and achieving a balance between the interests of shareholders and subscribers.
FRA Chairman Dr Islam Azzam said that the decision aims to modernise the regulatory framework, expand the takaful market and boost the performance of companies through new controls that encourage growth. He said that the new regulations form part of the FRA’s broader strategy to stimulate the takaful insurance market and strengthen its ability to attract new investors and clients.
He explained that the decision applies to takaful insurance companies defined as entities licensed to manage insurance operations and invest participants’ funds in return for management fees, a share of investment returns, or a combination of both, while maintaining the financial solvency of participants’ funds.
Models
He added that the decision specifies three models for managing the takaful account, including the agency model, the Mudarabah model, and the mixed model that combines the first two systems. This would support the sustainability of the market and achieve a balance between operational development and compliance with Shariah controls.
The decision sets out:
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a detailed framework for regulating takaful policies, including defining the nature of the contractual relationship between the parties involved, mechanisms for distributing the insurance surplus, and investment policies that comply with Shariah principles.
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a stipulation to form several technical reserves to support the financial stability of takaful companies, including a deficit coverage reserve and a claims fluctuation reserve. The move enhances the ability of the subscribers' fund to cope with emergency situations, while setting clear controls for the distribution of the insurance surplus.
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several mechanisms for distributing the surplus at the end of the financial year, including distributing it in proportion to the contributions made by all subscribers, or limiting it to customers for whom no claims were made during the year, or distributing it after deducting the compensations paid, while emphasising that it is not permissible to distribute the insurance surplus to shareholders.
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the means of addressing the deficit in the subscribers' fund, which include using reserves, providing a soft loan from shareholders, or charging the subscribers with the deficit, while holding the company responsible for any deficit resulting from negligence.
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the obligation of takaful companies to form an independent Shariah supervisory committee comprising at least three members, with conditions set to ensure the committee’s independence, and to define its competencies in reviewing contracts and activities, issuing binding fatwas, and monitoring companies’ compliance with Shariah provisions.
The new regulations include strengthening disclosure and transparency requirements through the complete separation of shareholders’ and subscribers’ accounts, disclosure of accounting policies and the basis for distributing surpluses or addressing deficits, regulating the handling of non-Shariah-compliant revenues, and enabling the establishment of a zakat fund. The decision also mandates the appointment of a Shariah auditor.
The decision obliges companies to assign reinsurance operations to retakaful companies, while allowing them to deal with traditional reinsurance companies in the event of insufficient capacity or a lack of coverage for a risk, after approval by the Authority.
The new rules will replace the 2019 regulatory framework.