1. Islamic Financial Services Board (IFSB) www.ifsb.org Mutual Insurance and Takāful in a Changing World 12-13 November 2012 | 27-28 Zulhijjah 1433 Ceylan Intercontinental Hotel Istanbul, Turkey

2. 2 AGENDA About the IFSB Takāful IFSB Initiatives on Takāful

3. 3 About the IFSB

4. 4 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 SPECIFICITIES OF ISLAMIC FINANCE BCBS (Banking) IOSCO (Capital Markets) IAIS (Insurance) About the IFSB

5. 5 Membership as at 29 March 2012 Members of the IFSB 52 127 8

6. IFSBInitiatives Development of Prudential Standards Standard Development Facilitating Implementation of the Standards (FIS) AwarenessProgrammes Seminars Roundtable Discussions Conferences AnnualEvents IFSB Summit Islamic Financial Stability Forum Public Lecture IFSB Initiatives

7. 7 IFSB Central Focus Banking Capital Market Takāful (Islamic Insurance)

8. 8 Takāful

9. 9 About Takāful Takāful Core Principles Tabarru’ Commitment (Maisir, Gharar) Ta’awun (Mutual Cooperation) Prohibition of Riba’ (Usury)

10. 10 InsuranceTakāful Policyholder Risk Premium Claims Participant Donation Claims Takāful Operator Participants’ Risk Fund Risk sharing among participants Shariah-compliant investment activities Claims is paid from the Participants’ Risk Fund Tabarru’ / Donation agreement Fund is owned by participants Conventional Insurer Risk transfer from policyholder to insurer No restrictions on investment activities Insurer is liable to pay claims from underwriting fund / Shareholders’ fund Sale and purchase agreement Fund is owned by shareholders Manage Fee Takāful vs Conventional

11. 11 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 Shariah Compliance - Various resolutions on similar issue (eg Retakāful) Operator’s Fee - The extent of allowable deduction from contribution

12. 12 IFSB Initiatives on Takāful

13. 13 Prudential Regulations for Takāful (Islamic Insurance) Corporate Governance Financial and Prudential Regulation Transparency, Reporting and Market Conduct Supervisory Review Process “Issues in Regulation and Supervision of Takāful (Islamic Insurance)” Regulations for Takāful Joint Paper August 2006

14. 14 Regulations for Takāful Prudential Regulations for Takāful (Islamic Insurance) IFSB-8: Guiding Principles on Governance for Takāful (Islamic Insurance) Undertakings IFSB-11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings GN-5: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings ED-14: Standard on Risk Management for Takāful (Islamic Insurance) Undertakings (Exposure Period: 1 Nov ‘12 – 31 Mar ’13)

15. 15 IFSB-8: Guiding Principles on Governance for Takāful (Islamic Insurance) Undertakings Principle 1.1 Principle 2.1 Principle 3.1 Principle 1.2 Principle 2.2 Principle 3.2 Governance Framework Code of Ethics and Conduct Governance Structure for Participants Procedures of Proper Disclosure Mechanism to Sustain SolvencySound Investment Strategy Regulations for Takāful

16. 16 IFSB-11: Standard on Solvency Requirements for Takāful (Islamic Insurance) Undertakings Regulations for Takāful 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 7 Key Features

17. 17 GN-5: Guidance Note on the Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takāful and Retakāful Undertakings Regulations for Takāful 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 Criteria for Recognition

18. 18 Takāful - Looking Forward Our way forward:  Tentative areas to be covered:  Issues on Retakāful  Capital Adequacy  Stress Testing

19. 19 THANK YOU Kartina Md Ariffin kartina@ifsb.org Member of the Secretariat Technical and Research