Egypt: New rules for takaful providers seeking to convert operations to conventional insurance
Source: Middle East Insurance Review | Mar 2023
Financial Regulatory Authority (FRA) chairman Dr Mohamed Farid Saleh has issued a decision (No. 194 of 2022) regarding rules and procedures for revising the licensing of takaful providers to allow them to operate in the traditional conventional insurance system in the Egyptian market. The decision was published in the Official Gazette on 29 January 2023.
Takaful operators wishing to amend their licence to operate under the conventional insurance system shall submit an application to the FRA, including the following:
- The approval of the company’s board of directors and the shariah supervisory committee, provided that this is approved by the company’s general assembly.
- The company’s plan for revising the licensing to work with the conventional insurance system, the reasons and justifications for the change, the transitional period, the method of handling takaful policies in force at the date of conversion, the rights and obligations of policyholders, the company’s capital, shareholders’ rights, and the business expansion plan.
- A due diligence report (financial, technical, legal and tax) to determine the rights and obligations on the date of conversion for takaful policyholders (participants) and shareholders, approved by an auditor registered with the FRA other than the company’s auditor, and approved by an actuary registered with the FRA other than the company’s actuary.
- Evidence that the company has published in at least two local daily newspapers an advertisement showing its intention to convert the company’s activity to be under the conventional insurance system.
- Evidence that the company has fully discharged its obligations relating to all existing takaful policies up to the date of the conversion, or that it has transferred the policies to another takaful operator practising the same branch of takaful. Otherwise, the company’s decision to continue the takaful policies in effect with an undertaking to liquidate the portfolio under the takaful system during a transitional period of up to one year from the date of amending the licence. In that case, the operators should maintain separate accounts for the takaful policies from conventional business, in terms of revenues, expenses, assets and liabilities during the transitional period.
- A business plan for the first five years from the date of the conversion under the conventional insurance system, with an explanation of the estimates of premiums, expenses and production costs.
The takaful provider is obligated to close the entire balance of Qard Hasan (if any) as well as any carry forward losses on the date of the amendment, while adhering to regulations with regard to the minimum capital specified by the law and the adequacy of risk capital.
The FRA also stipulated that the takaful operator should form a committee to conduct a technical and economic feasibility study on the proposed change to the company’s licence to the conventional insurance system. The company is also to present details of its corporate governance system and reinsurance arrangements under the conventional insurance system.
Meanwhile, the FRA has given its approval to Kaf Life Insurance Company to convert its business from takaful to conventional insurance. Kaf Life is formerly Tokio Marine Egypt Family Takaful. It was rebranded as Kaf Life in 2020 following the acquisition of a 75% stake in it by EFG Hermes Holding and GB Capital. M