Islamic Financial Services Board (IFSB) Mutual Insurance and Takāful in a Changing World 12-13 November 2012 27-28 Zulhijjah 1433 Ceylan Intercontinental Hotel Istanbul, Turkey www.ifsb.org
AGENDA About the IFSB Takāful IFSB Initiatives on Takāful 2
About the IFSB 3
About the IFSB Introduction Based in Malaysia, officially inaugurated on 3 November 2002, and started operations on 10 March 2003 Serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and Takāful To this end, the work of the IFSB complements BCBS, IOSCO and IAIS BCBS (Banking) IOSCO (Capital Markets) SPECIFICITIES OF ISLAMIC FINANCE IAIS (Insurance) 4
Members of the IFSB 52 8 127 Membership as at 29 March 2012 5
IFSB Initiatives IFSB Initiatives Development of Prudential Standards Awareness Programmes Annual Events Standard Development Seminars Conferences IFSB Summit Facilitating Implementation of the Standards (FIS) Roundtable Discussions Islamic Financial Stability Forum Public Lecture
IFSB Central Focus Banking Takāful (Islamic Insurance) Capital Market 7
Takāful 8
About Takāful Takāful Core Principles Tabarru Commitment (Maisir, Gharar) Ta awun (Mutual Cooperation) Prohibition of Riba (Usury) 9
Takāful vs Conventional Insurance Takāful Conventional Insurer Participants Risk Fund Risk Premium Sale and purchase agreement Risk transfer from policyholder to insurer Participant Donation Tabarru / Donation agreement Risk sharing among participants Policyholder No restrictions on investment activities Claims Shariah-compliant investment activities Claims Insurer is liable to pay claims from underwriting fund / Shareholders fund Fund is owned by shareholders Takāful Operator Manage Fee Claims is paid from the Participants Risk Fund Fund is owned by participants 10
Takāful vs Conventional Issues arising from the differences Fund Ownership - Issues on Solvency - Issues on Qard - Issues on Surplus Sharing Accounting Treatment - Consolidation versus combination of financial statements Investment - Restricted investment activities Fiduciary Duties - Duties towards respective stakeholders Operator s Fee - The extent of allowable deduction from contribution Shariah Compliance - Various resolutions on similar issue (eg Retakāful) 11
IFSB Initiatives on Takāful 12
Regulations for Takāful Joint Paper August 2006 Issues in Regulation and Supervision of Takāful (Islamic Insurance) Prudential Regulations for Takāful (Islamic Insurance) Corporate Governance Financial and Prudential Regulation Transparency, Reporting and Market Conduct Supervisory Review Process 13
Regulations for Takāful IFSB-8: Prudential Regulations for Takāful (Islamic Insurance) Guiding Principles on Governance for Takāful (Islamic Insurance) Undertakings IFSB-11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings GN-5: ED-14: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings Standard on Risk Management for Takāful (Islamic Insurance) Undertakings (Exposure Period: 1 Nov 12 31 Mar 13) 14
Regulations for Takāful IFSB-8: Guiding Principles on Governance for Takāful (Islamic Insurance) Undertakings Principle 1.1 Governance Framework Principle 1.2 Code of Ethics and Conduct Principle 2.1 Governance Structure for Participants Principle 2.2 Procedures of Proper Disclosure Principle 3.1 Mechanism to Sustain Solvency Principle 3.2 Sound Investment Strategy 15
Regulations for Takāful IFSB-11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings 7 Key Features 1. Total Balance Sheet Approach 2. Adequate Solvency Resources 3. Establish Solvency Control Levels 4. Quality and Suitability of Solvency Resources 5. Comprehensive RM Framework 6. Supervisory Review of RM Framework 7. Public Disclosure of Solvency Information 16
Regulations for Takāful GN-5: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings Criteria for Recognition 1. Explain Meaning and Methods 2. Produce Accurate Ratings 3. Produce Analytic Clarity and Competence 4. Ratings should be Robust & Independent 5. Sound Resources & Financial Condition 17
Takāful - Looking Forward Our way forward: Tentative areas to be covered: Issues on Retakāful Capital Adequacy Stress Testing 18
THANK YOU Kartina Md Ariffin kartina@ifsb.org Member of the Secretariat Technical and Research 19