Accounting Alerts

Consolidated Guidelines for Takaful Window Operation

This Accounting Alert is issued to circulate Insurance Commission (IC) Circular Letter (CL) 2024-13 dated May 28, 2024.

Takaful - a mutual guarantee in return for the commitment to donate an amount in the form of a specified contribution to the participant's risk fund, whereby a group of participants agrees among themselves to support one another jointly for the losses arising from specified risks.

Shariah - the practical divine law deduced from its legitimate sources: the Quran, Sunnah, consensus (ijma), analogy (qiyas) and other approved sources of the Shariah.

Scope

These Guidelines shall apply to all existing and licensed insurance companies and mutual benefit associations that will set up a Takaful window as the IC recognized the need to provide broader insurance coverage and options for all Filipinos, especially our Muslim community. In order to properly implement, regulate, and supervise Takaful operation, a detailed regulatory framework must be in place to guide regulated entities in their operation.

Governance Policy

The Takaful Operator shall ensure that it is Shariah-compliant at all times. For this purpose, the Takaful Operator shall establish a Shariah Committee that shall act as the advisory board on Shariah principles relating to Takaful operations. The Committee shall consist of at least 3 members - 2 who are scholars in Shariah principles (Shariah qualified person), and 1 must be with adequate expertise in financial services.

Authority to Operate Takaful Window Operation

An insurance company intending to operate as a Takaful window Operator must amend its Articles of Incorporation to reflect such purpose. No company shall carry on Takaful business unless it is authorized to carry on Takaful business as a Takaful window Operator. All authorizations issued under this Circular shall be valid from the date of the issuance and its expiration date shall coincide with the expiration of the license as conventional insurance company unless sooner suspended or revoked for valid cause/s, subject to renewal.

Takaful Contracts

All certificates (i.e. contracts) issued by insurance companies are required to be approved by the IC in accordance with Section 232 of the Amended Insurance Code. The Circular provides documentary requirements for the requests for approval of Takaful products and forms.

Solvency and Capital Adequacy Requirements

Any IC-regulated entity authorized to transact business in the Philippines as a Takaful operator must show to the satisfaction of the IC that it has satisfied and complied with the minimum capitalization and net worth requirements as provided for under Sections 194, 197, 200, and 289 of the Amended Insurance Code, and CL Nos. 2015-02-A, 2017-14, and 2021-61.
This CL shall be effective immediately.

Reporting Standards

The Takaful operator shall ensure that the reporting of their financial and non-financial information meets the local requirements as well as internationally recognized financial reporting standards as recognized by the Financial and Sustainability Reporting Standards Council (FSRSC). The Shariah Committee shall be responsible for ensuring that reporting of financial and non-financial transactions are in accordance with Shariah principles.

Audited Financial Statements

As a general rule, the face of the audited financial statements, reports, and all the note disclosures required for conventional insurance shall also be applicable to entities with Takaful undertaking unless otherwise expressly specified.

The audited financial statements shall at a minimum, consist of the following:

  1. Statement of Financial Position;
  2. Statement of Comprehensive Income;
  3. Statement of Changes in Equity;
  4. Statement of Changes in Participant's Fund;
  5. Statement of Cash Flows; and
  6. The Shariah Compliance Statement/Report.

A regulated entity with Takaful undertakings shall make disclosures in the financial statements in accordance with the requirements of the PFRS. This shall be presented along with any other information that may be required by the IC. The Circular also enumerates the explanatory notes to be disclosed in the annual financial statements of Takaful operator.

Reserve Liabilities

The Takaful operator shall establish adequate reserves to meet its obligations towards Takaful participants and their beneficiaries. All reserve valuations shall be made according to the standard adopted by the entity, as may be prescribed by the IC, in accordance with internationally accepted actuarial standards.

Guidelines on Investments

The Circular provided guidelines to provide a framework for allowable investments and asset management activities in line with Shariah principles, ensuring the protection of participants' interests and the overall stability of the Takaful industry. Takaful operators/windows are required to submit to the IC its Investment Policy Framework (IPF) duly approved by the Board of Directors (BOD) and its Shariah Committee. The Takaful operator/window shall ensure that all investment activities outlined in its IPF are in accordance with Shariah rules and principles and all regulatory requirements.

Transparency in Financial and Non-financial Reporting

The Takaful operator shall make adequate and timely disclosure of material and relevant financial and non-financial information on the products and investment accounts that they manage, to Takaful participants and the public.

This CL shall take effect immediately.

 

Please see the attached circular for further information.