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  • CA-8.2 Basis of Operating a Takaful Business

    Amended: October 2008

    • CA-8.2.1

      All Takaful firms licensed in Bahrain must organise and operate their business according to the al Wakala model. Specifically, in exchange for the provision of management services to participants' fund(s), the shareholders of the Takaful firm must receive a specific consideration (Wakala fee). For the insurance assets invested on behalf of participants' funds, the Takaful operator must use the al Mudaraba model, and must receive a set percentage of the profits generated from the investment portfolio. No performance/incentive fees are allowed to be paid to the shareholders/Takaful operator of the Takaful firm; the only fees that can be paid are the Wakala fees and the set percentage of the profits generated from the investment portfolio.

      Amended: April 2014
      Amended: October 2008
      Amended: January 2007

    • CA-8.2.2

      The Wakala fee charged in respect of a Takaful contract must be directly proportional to the costs associated with establishing and maintaining that contract. Both the Wakala and Mudaraba fees must be clearly disclosed to the participants of the Takaful fund(s).

      Amended: April 2014
      Amended: October 2008
      Amended: January 2007

    • Wakala Fee

      • CA-8.2.2A

        The Wakala fee must be a fixed upfront fee, which may be expressed as a percentage of contributions. The Wakala fee, once fixed, must not be adjusted during the reporting period, and must be clearly stated in the Takaful contract and agreed to by the participant.

        Added: April 2014

      • CA-8.2.2B

        The Wakala fee must cover the total sum of the following components:

        (a) The management expenses;
        (b) The distribution expenses including intermediaries' remuneration, agents' commission and other expenses involved in making Takaful products available to the public; and
        (c) A reasonable and appropriate margin of operational profit.
        Added: April 2014

      • CA-8.2.2C

        The Takaful operator must ensure that the management and distribution expenses referred to under Paragraph CA-8.2.2B are paid from the shareholders' fund and not from the participants' fund(s).

        Added: April 2014

      • CA-8.2.2D

        The Wakala fee must be certified by the Takaful firm's actuary (see Paragraph AA-4.3A.2) and must be considered and subsequently approved by the Shari'a Supervisory Board.

        Added: April 2014

      • CA-8.2.3

        The Takaful operators must establish an equitable basis for determining the consideration charged for managing Takaful business.

        Amended: April 2014
        Amended: October 2008
        Amended: January 2007

      • CA-8.2.3A

        In the case of general Takaful contracts, it would normally be expected that the fee would be the same for all contracts of a particular duration, risk and type. In the case of family Takaful, contracts that may be in force for several years, it would normally be the case that the consideration in the initial years would be relatively high due to the costs of establishing the contract but be substantially lower in later years reflecting only the costs of maintaining the contract.

        Added: April 2014

    • Mudaraba Fee

      • CA-8.2.4

        For the insurance assets invested on behalf of the participants' fund(s), the Takaful operator collects a Mudaraba fee based on a fixed percentage of the net investment income from the fund and approved by the Shari'a Supervisory Board.

        Amended: April 2014
        Amended: October 2008
        Amended: January 2007

      • CA-8.2.4A

        Net investment income noted in Paragraph CA-8.2.4 refers to gross investment income less any investment expenses, but excluding any Mudaraba fee paid to the Takaful operator.

        Added: April 2014

    • Managing Operating Costs

      • CA-8.2.5

        The Takaful operator must establish effective policies and procedures to manage the costs of the Takaful operations. In addition, the board of directors must ensure that effective controls are in place in order that the actual management and distributions expenses are in line with the Wakala fee and do not affect the viability of the Takaful operator.

        Amended: April 2014
        Amended: October 2008
        Amended: January 2007

      • CA-8.2.6

        Only direct expenses related to claims or investments can be paid out of participants' fund(s). The direct expenses related to claims and investments, charged to the participants' fund(s) must be approved by the Shari'a Supervisory Board and must be limited to the amount of expenses incurred.

        Amended: April 2014
        Amended: October 2008
        Amended: January 2007

      • CA-8.2.7

        The Shari'a Supervisory Board (SSB) is not expected to approve each and every claims related and/or investment related expenses. However, the policy established dealing with the direct expenses related to claims and investments, charged to the participants' fund(s), should be approved by the SSB.

        Amended: April 2014
        Amended: October 2008
        Amended: January 2007

      • CA-8.2.8

        Paragraphs CA-8.2.5 to CA-8.2.7 are transitional provisions to enable existing Takaful firms to discharge their obligations under pre-existing contracts according to the basis of operating the Takaful funds at the time participants entered into those contracts. Whilst it would be simpler to require all pre-existing contracts to be maintained in separate Takaful funds to those established for contracts written after these Rules come into effect, the CBB considers this may not be in the best interests of participants. It is for this reason that the transitional rules enable Takaful firms to either establish subfunds for pre-existing contracts or offer participants the option of switching their policies to the al Wakala model. Whilst ultimately it would be at the discretion of the Courts to decide, the CBB would generally be prepared to support Court applications as outlined in Paragraph CA-8.2.6 where more than 75% of participants (by number and value) had indicated their preparedness to switch to the al Wakala model.

        Amended: January 2007
        Amended: October 2008

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