null The IFSB issues Exposure Draft of Revised Standard on Solvency Requirements for Takaful/ Retakaful Undertakings
The IFSB issues Exposure Draft of Revised Standard on Solvency Requirements for Takaful/ Retakaful Undertakings
22 Dec 2021 | Wednesday source: IFSB
The Islamic Financial Services Board (IFSB) has today issued an Exposure Draft of a Revised Standard on Solvency Requirements for Takaful/Retakaful Undertakings (ED - 28) for the Public Consultation period starting from 20 December 2021 until 6 February 2022 and invites comments from regulatory and supervisory authorities, international organisations, institutions offering Islamic financial services (including but not restricted to Takaful), academics and other interested parties.
The Exposure Draft is for the revision of the IFSB’s existing Standard on Solvency Requirements for Takaful Undertakings (IFSB-11) issued in December 2010, taking into consideration subsequent developments in the global regulatory standards needed for solvency supervision in the takaful and conventional insurance sector regarding in particular, the determination of capital resources (including valuation and classification) and setting of capital requirements.
ED-28 is closely aligned to the text of the Insurance Core Principles (ICPs) of the International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICPs) and follows a structure similar to that of the relevant ICPs. However, it is expressed in terms of a typical Takāful (Islamic Insurance) Undertakings’ (TUs) hybrid corporate model to address the specificities of a TU. This approach is intended to ensure consistency in the outcome of solvency framework for TUs with those established for conventional insurance, in line with the following objectives:
- to protect the interests of takaful participants by setting a high probability that a TU would be able to meet all its contractual obligations and commitments;
- to encourage early warning systems permitting proportionate supervisory intervention and corrective action, and avoiding procyclical effects; and
- to foster confidence among the general public – in particular, takāful participants – in the financial stability of the takāful sector.
Furthermore, the approach is expected to provide a practical advantage to those supervisors that are required to supervise both conventional insurance and takaful sector. It is also consistent with the expected approach in a separate IFSB exercise to develop Core Principles for this sector, currently underway and referred to in the proposed standard. However, the proposed standard does not address in detail matters such as Shari’ah governance, corporate governance, risk management and regulatory or public reporting, which although connected to solvency are the topic of other IFSB standards.
The standard applies to both TUs and retakaful undertakings, whether operating under general, family or composite licences. It is applicable also, mutatis mutandis, to takāful “window” operations where such operations exist. Regulatory and supervisory authorities may wish to apply the provisions of this standard in a modified manner to TUs providing microtakāful cover (to facilitate the provision of Shari’ah-compliant cover to facilitate financial inclusion and other related objectives), and other types of business including branches, captives subject always to the aim of protecting financial stability and managing risk to takāful participants.
In line with IFSB due process on the development of Standards and Guidance/Technical Notes, the IFSB will organise one or more public hearing events to invite feedback on the Exposure Draft. Details of these events will be announced in due course.
ED-30 is available on the IFSB website, www.ifsb.org and the IFSB Secretariat invites all interested parties, especially members of the IFSB, to send their comments on ED-28 to the Secretariat by email to firstname.lastname@example.org latest by 10 February 2022.
Date posted: 20 December 2021