The Philippine Insurance Commission (IC) has set out guidelines stating that existing regulations, as well as other issuances by the IC, for conventional insurance and mutual benefit associations (MBAs), shall also apply to all entities with takaful window operations.
The guidelines stipulate measures, including:
The capital/fund of the Participants' Fund shall be completely segregated from takaful window operators' shareholders. Further, the capital/fund of the Participants' Fund shall not be invested in/or co-mingled with other funds held by conventional insurance and MBAs.
The books and records of a takaful window shall contain full information relative to its takaful and financing transactions and activities, and shall be kept separate and distinct from the books and records of transactions performed by other departments/units of the conventional insurance and MBAs.
Likewise, adequate internal controls and systems must be implemented and maintained to ensure compliance with the required segregation.
Furthermore, the regulated entity shall implement a transparent, fair, and Shariah-compliant methodology to allocate shared expenses between the takaful operator and the conventional insurance business, using measurable drivers. This allocation shall be subject to review by the Shariah Committee and approval by management.
Insurers and MBAs undertaking takaful window operations shall prepare a separate AS specifically for their respective takaful operations using a prescribed template and submit it t o the Commission.
All AS and supporting schedules for takaful window operations must be accompanied by a Shariah Compliance Statement/Report issued by the Shariah Committee attesting to their compliance with relevant Shariah principles and rulings.
Regulated entities authorised to operate takaful windows shall present the financial position and performance of the takaful window in the AS of the regulated entity to reflect takaful window operations.
Integration of takaful window operations in composite companies' operator's books
Composite companies authorised to offer takaful products shall present the takaful window operations within the same unit as its corresponding conventional insurance operation in the AS. This means composite entities engaging in family takaful operations shall incorporate the family takaful accounts in the AS of life insurance operations, while composite entities engaging in general takaful operations shall incorporate the general takaful accounts in the AS of non-life insurance operations.
Presentation of takaful window operations in the participants' fund (separate takaful window operations)
The presentation of financial information in the separate takaful window operations AS shall be in accordance with the standard chart of accounts.
Risk-based capital framework
The following assets recognised in the operator's books (conventional operations) shall be subject to the corresponding risk charges, consistent with the principle that only assets bearing risk to the operator shall be included in the risk-based capital computation:
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Account Title
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Transitory Risk Charge
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Due from Participants’ Fund
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For less than 6 months
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0%
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For more than 6 but less than 12 months
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8.80%
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For more than 12 months
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19.80%
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Qard Hasan Receivable from Participant Fund
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0%*
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Total Assets of Takaful Window Operation
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0%*
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Source: Insurance Commission
Qard Hasan for insurance is recognised as Tier 2 capital. To avoid overstating Tier 1 capital, the amount of Qard Hasan recognised as Tier 2 is deducted from retained earnings.
The assets of takaful window operation are owned by, and attributable to, the participants. The operator does not bear the market, credit, underwriting, or operational risk associated with these assets; therefore, no risk charge shall be applied.
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Actuarial valuation report
All regulated entities with takaful window operations shall submit an actuarial valuation report in accordance with applicable actuarial standards and IC's issuances. The actuarial valuation report for takaful window operations shall be prepared separately and shall be clearly segregated.