FRA Issues New Takaful Insurance Ru

The Financial Regulatory Authority (“FRA”) recently published on its website decision No. 23 of 2019 on Takaful insurance (the “Decision”).[1] Takaful insurance is a form of Islamic cooperative insurance where a group of participants cooperate in obtaining insurance to cover group members against a certain risk (property or life). Each participant makes a contribution (described as a donation) and an operator, called a takaful insurance company, administers insuring against the risk, and investing the pool of money provided by the participants (who are also policyholders in the collective pool of funds) in exchange for a fee. Takaful insurance companies must obtain a license from FRA and must be Shari’a compliant in their operations, as well as insurance and investment activities. Each company must thus have a Shari’a committee to oversee its operations and documentation. Takaful insurance companies have been active in Egypt for over a decade, with the percentage of takaful insurance representing around 9% of the insurance market in Egypt in 2017, according to FRA statements.[2] This has been so despite there being no clear stipulation for this type of activity in the current Insurance Law No. 10 of 1981, which provides for cooperative insurance, but does not specifically regulate Shari’a compliant takaful. There has therefore been news of incorporating takaful regulation in the draft of a new insurance law that is in the works.[3] In this light and given that there are takaful insurance companies already operating in the market, FRA issued its most recent decision on the matter under Decision No. 23 of 2019. The newest Decision states that it replaces former rules on the matter that were issued in 2004. However, the Decision does not specify the number for these rules, nor could such rules be found to have been issued by FRA, or its predecessor the Insurance Supervisory Authority, which was in charge of insurance activities at the time.

The New Decision

The recent Decision starts out by defining a number of terms including takaful insurance, the company, the Shari’a committee, and policyholders. Importantly it also defines the policyholders’ fund which is the pool containing the policyholders’ contributions, and ‘surplus’ being the remainder of the pool of contributions plus investment returns after subtracting any damages that were reimbursed to a participant(s), reserves, operation and investment fees and other fund expenses. The use of the surplus constitutes another distinction between takaful and regular insurance, as in takaful the surplus is distributed among the participants in accordance to the company’s bylaws. Takaful insurance companies are prohibited from undertaking regular insurance activities. They undertake the administration of insurance operations as agents for the policyholders, on a profit-sharing basis. The takaful company is in exchange paid a fee constituting a percentage of contributions which may not exceed 30% of property insurance operations, and 25% of life insurance operations. In addition, under the profit-sharing scheme, the company receives a percentage of the surplus in exchange for administering insurance operations and investment activities. The percentage is defined in the company’s bylaws and in the policies. The Decision contains several rules for the formation of the company’s Shari’a committee, and the data that must be contained in the policies. Shari’a committee members must not be shareholders or employees in the company and may not be members in more than two such committees at once. Committee members are nominated by the company’s board to its general assembly, and they must be from among a register that is held at FRA for this purpose. As for the policies, their data must be clear and informative, specifying that payment by the participant is in the form of a contribution/subscription, and stipulating the company’s fee and its commission from surplus. In addition, the company’s investment policies must be set out, and so must the manner of distributing surplus. Furthermore, the company must respect the separation of its accounts and investment funds, follow disclosure requirements as provided in the Decision, and abide by Egyptian Accounting Standards in all of its operations. It must also adhere to the rules of Shari’a including at the conclusion of the insurance contract, in re-insurance operations, and the relinquishing of revenue realized in contradiction to Shari’a. Finally, the Decision provides that existing takaful companies have six months to comply with the new rules (which could be renewed for a similar period). The Decision comes into effect one day following its publication in the Egyptian Gazette, which is yet to take place.   [1] FRA Board of Directors Decision No. 23/2019 on the rules regulating Takaful insurance in the insurance market in Egypt, available through this link (in Arabic). [2] Financial Regulatory Authority, “The share of Takaful Insurance Companies is 9.4% of the Total Insurance Market in Egypt”, 8 March 2017, available through this link. [3] General Authority for Investment and Free Zones, “Chairman of the Financial Regulatory Authority presents to the Minister of Investment the legislative agenda of the non-bank financial services”, 20 August 2016, available through this link (in Arabic).