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RULES, 2012

TAKAFUL RULES, 2012

[Gazette of Pakistan, Extraordinary, Part-II, 16th July, 2012]

S.R.O. 877 (I)/2012.—In exercise of the powers conferred by sub-Section (1) of Section 167 of the Insurance Ordinance, 2000 (XXXIX of 2000) read with clause (Ixiv) of Section 2 and the second proviso to Section 120 thereof and S.R.O 708(I)/2009 dated 27 July 2009 having been previously published in the official Gazette for eliciting public comments the Securities and Exchange Commission of Pakistan, with the approval of the Securities and Exchange Policy Board, is pleased to make the Takaful Rules, 2012.

CHAPTER I

PRELIMINARY

1.  Short title and commencement.—(1) These Rules shall be called the Takaful Rules, 2012.

(2)  These Rules shall come into force at once. Existing Takaful Operators shall comply with the requirements of these Rules within period of six months from the notification in the Official Gazette.

2.  Definitions.—(1) In these Rules, unless there is anything repugnant in the subject or context,—

(i)      "Commission" means the Securities and Exchange Commission of Pakistan established under Section 3 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);

(ii)     "Contribution" means the amount payable by a Participant to an Operator under a Takaful Contract;

(iii)    "Conventional Insurance" means life or non-life insurance under the Ordinance, including reinsurance, which is not Takaful as defined in clause (lxiv) of Section 2 of the Ordinance and Re-Takaful;

(iv)    "Family Takaful" means Takaful for the benefit of individuals, groups of individuals and their families, as provided under sub-section (2) of Section 3 of the Ordinance;

(v)     "General Takaful" means Takaful other than Family Takaful;

(vi)    "Mudaraba Based Contract" means a Takaful contract based on the principle of Mudaraba;

(vii)   "Ordinance" means the Insurance Ordinance, 2000 (XXXIX of 2000);

(viii)  "Operator" means a Takaful Operator or a Window Takaful Operator, authorized under these Rules;

(ix)    "Operator Fund" means a fund set up by a General Takaful Operator which shall undertake all transactions which the Operator undertakes other than those which pertain to Participant Takaful Funds set up by the Operator;

(x)     "Operator sub-fund" means a sub-fund of a statutory fund set up by a Family Takaful Operator in which all takaful operator fees shall be credited and from which all expenses relating to the Statutory Fund which are not charged to any Participant Takaful Fund or Participant Investment Fund shall be debited;

(xi)    "Participant" means a person who participates in a Takaful scheme and to whom a Takaful Contract is issued;

(xii)   "Participant Investment Fund" means a separate group of assets forming a sub-fund of a statutory fund of a Family Takaful Operator which is to be used as a basis for determination of the benefits payable under a Family Takaful contract;

(xiii)  "Participant Takaful Fund" means,—

          (a)      in the case of a Family Takaful Operator a sub-fund of a statutory fund into which the participant's risk related contributions are paid and from which risk related benefits are-paid out; and

          (b)     in the case of a General Takaful Operator a separate fund set up into which the participant's risk related contributions are paid and from which risk related benefits are paid Out;

(xiv)  "Participants' Membership Documents" means the documents detailing the benefits and obligations of a Participant under a Takaful Contract;

(xv)   "Principal Officer" means a person, by whatever designation called, appointed by a Takaful Operator and charged with the responsibility of managing the affairs of the Takaful Operator;

(xvi)  "Registered Insurer" means an insurer registered with the Commission under Section 7 of the Ordinance to transact life or non-life insurance business;

(xvii) "Re-Takaful" means an arrangement for re-Takaful of liabilities in respect of risks accepted by the Operator in the course of carrying on Takaful business and includes ceding risks from Participant Takaful Funds to Re-Takaful Operator(s);

(xviii)          "Shariah Advisor" means a person appointed by an Operator under rule 26;

(xix)  "Shariah Advisory Board" means the Shariah Advisory Board constituted by, the Commission;

(xx)   "Takaful Benefit" includes any benefit, whether pecuniary or otherwise, which is secured by a Takaful Contract;

(xxi)  "Takaful Contract" means any contract of Family Takaful or General Takaful;

(xxii) "Takaful Operator" means a Registered Insurer who is authorized by the Commission to carry on Takaful business and not Conventional Insurance business;

(xxiii)          "Wakala based contract" means a Takaful contract based on the principle of Wakala (agency); and

(xxiv)          "Window Takaful Operator" means a Registered Insurer authorized under these Rules to carry on Takaful business as window operations in addition to Conventional Insurance business.

(2)  Words and expressions used but not defined in these Rules shall, unless there is anything repugnant in the subject or context, have the same meaning as are assigned to them in the Ordinance.

CHAPTER II

AUTHORIZATION AND CONDITIONS TO TRANSACT 

TAKAFUL BUSINESS

3.       Prohibition to engage in Takaful Business without authorization.—(1) No person shall begin or continue to carry on Takaful business in Pakistan or use the word "Takaful" or undertake any activity in the nature of Takaful business, unless such person has obtained from the Commission a certificate of authorization to carry on Takaful business as Takaful Operator or as Window Takaful Operator, as the case may be, under these Rules:

Provided that the Takaful Operators registered under the Ordinance prior to the issuance of these Rules shall continue to carry on Takaful business and shall deemed to be authorized under these Rules.

(2)  The issue of investment linked policies by life insurers transacting Conventional Insurance business where the underlying assets to which the value of such policies are linked are Shariah compliant shall not be deemed to constitute carrying on Takaful business.

4.       Persons eligible to transact Takaful Business.—(1) No person other than a Registered Insurer and authorized in this behalf under these Rules shall be eligible to transact Takaful business.

(2)     A Registered Insurer registered to transact life insurance business shall be eligible to transact Family Takaful and a Registered Insurer registered to transact non life insurance business shall be eligible to transact General Takaful.

(3)     All provisions of the Ordinance and insurance rules pertaining to life insurance business shall be deemed to apply to Family Takaful business and all provisions of the Ordinance and insurance rules pertaining to non-life insurance business shall be deemed to apply to General Takaful business.

5.       Application for Authorization as Takaful Operator.—(1) An application for authorization as a Takaful Operator shall be made to the Commission in such form along with such documents and information as may be specified from time to time.

(2)     The Commission, while considering the application for authorization, may require the applicant to furnish such further information or clarification as it deems necessary.

(3)     Any subsequent change in the information provided to the Commission at the time of filing of application under sub-rule (1) shall be intimated to the Commission within fourteen days of the occurrence of change.

(4)     The applicant shall, if so required, appear before the Commission for a representation through an officer duly authorized for this purpose in writing by the board of directors of the applicant.

6.       Application for Authorization as Window Takaful Operator.—(1) An application for authorization as a Window Takaful Operator shall be made to the Commission in such form along with such documents and information as may be specified from time to time.

(2)     The Commission, while considering the application for authorization, may require the applicant to furnish such further information or clarification as it deems necessary.

(3)     Any subsequent change in the information provided to the Commission at the time of filing of application under sub-rule (1) shall be intimated to the Commission within fourteen days of the occurrence of change.

(4)     The applicant shall, if so required, appear before the Commission for a representation through an officer duly authorized for this purpose in writing by the board of directors of the applicant.

7.       Transformation of a non-life insurer into a Takaful Operator.—(1) If in case a conventional non-life insurer wishes to transform its conventional business into Takaful business, it shall inform the Commission in writing about its intention for such transformation. The Commission shall on fulfillment of certain requirements, as may be specified from time to time, authorize the Registered Insurer as a Takaful Operator under Rule 9.

(2)     The registered insurer after being authorized as Takaful Operator, shall cease to underwrite Conventional Insurance products immediately and shall be responsible to cover all liabilities incidental to its conventional business.

(3)     Till such time the liabilities related to the Conventional Insurance business of such a transformed Takaful Operator are fully paid off, it shall be reported in the Operator Fund of the Takaful Operator.

8.       Refusal to grant authorization.—(1) No application for authorization made under rule 5 or rule 6 shall be refused without giving the applicant a reasonable opportunity of being heard.

(2)     In case the Commission refuses to grant authorization to an applicant, the decision shall be communicated to the applicant in writing stating therein the reasons for such refusal.

(3)     The applicant, being aggrieved by the decision of the Commission under sub-rule (2), may apply, within a period of thirty days from the date of receipt of such communication, to the Commission for review of its decision.

(4)     On receipt of the application made under sub-rule (3), the Commission shall review its decision and communicate its findings, in writing, to the applicant within thirty days and the decision of the Commission in this regard shall be final.

9.       Grant of authorization.—(1) The Commission on being satisfied, that the applicant under rule 5 (1) or rule 6 (1), as the case may be, is eligible for authorization and has complied with the requirements of the Ordinance and these Rules, may grant a certificate of authorization to the applicant in Form A or Form B respectively annexed to the rules.

(2)  The Commission may, while authorizing an applicant as a Takaful Operator or Window Takaful Operator, specify conditions for such authorization to be complied with by the Takaful Operator or Window Takaful Operator in such manner, as it may deems fit.

(3)     The certificate of authorization shall remain valid unless it is revoked or suspended by the Commission.

(4)     Nothing in this rule shall prevent the Commission from exercising the powers available to it under Section 63 of the Ordinance to direct an Operator to cease entering into new Takaful Contracts.

10.  Conditions applicable to Operator.–(1) An Operator,—

(a)     shall appoint a Shariah Advisor in accordance with the provisions of these Rules;

(b)     shall appoint a Shariah compliance auditor in accordance with the provisions of these Rules;

(c)     shall appoint a Shariah compliance officer in accordance with the provisions of these Rules;

(d)     carrying on Family Takaful business shall set up one or more statutory funds exclusively for Takaful business;

(e)     carrying on Family Takaful business shall divide each statutory fund set up for Takaful business into a number of sub-funds namely Participant Takaful Funds, an Operator sub-fund and in case of investment contracts a Participant Investment Funds;

(f)      carrying on General Takaful business shall set up one or more Participant Takaful Funds and an Operator Fund;

(g)     shall ensure that all investments made for the purposes of Takaful business are made in accordance with the investment policy approved by its Shariah Advisor;

(h)     shall ensure that assets and liabilities of each Participant Takaful Fund and each Participant Investment Fund are segregated from its other assets and liabilities;

(i)      shall ensure that receipts to and payments from each Participant Takaful Fund are made in accordance with the provisions of these Rules;

(j)      shall ensure that the Participant Takaful Fund, at all times, carry reserves as may be specified by the Commission;

(k)     shall ensure that in case of General Takaful each Participant Takaful. Fund, at all times, has admissible assets in excess of its liabilities:

                    Explanation: For this purpose any amount receivable from the Operator shall be deemed to be inadmissible.

(l)      shall ensure that in case of Family Takaful each Statutory Fund is in compliance with the solvency requirements under the Ordinance:

                    Explanation: For this purpose any amount receivable from the Shareholders Fund or any Operator sub-fund shall be deemed to be inadmissible.

(m)    shall ensure that the benefits and obligations of each Participant under a Takaful Contract are documented in a Participant Membership Document;

(n)     shall manage each Participant Takaful Fund in accordance with the provisions of these Rules;

(o)     shall formulate detailed policies for each Participant Takaful Fund with the approval of its Shariah Advisor;

(p)     shall provide funds by way of qard-e-hasna to the Participant Takaful Fund in accordance with the provisions of these Rules;

(q)     shall determine surplus or deficit in each Participant Takaful Fund in accordance with the provisions of these rules;

(r)      shall set the fee structure and the profit sharing ratio for investment management in accordance with the provisions of these Rules on the advice of the Shariah Advisor and in case of Family Takaful with the approval of the appointed actuary also; and

(s)      shall accept risk under, re-takaful or participate on co-takaful basis, only where the policy is issued by an Operator as Takaful Contract under these Rules:

                    Provided that the Operator may, with the approval of its Shariah Advisor, be allowed to participate on co-insurance basis with conventional insurers up till December 31, 2013.

(2)  An Operator shall not,—

(a)     distribute any material to any person on the extent to which the products of other Operators are compliant with Shariah; and

(b)     make payment out of Participant Takaful Fund for marketing or sales expenses (including commissions), administrative and management expenses.

11.     Further Conditions applicable to Window Takaful Operator.—(1) In addition to the conditions under Rule 10, a Window Takaful Operator,—

(a)     shall ensure that all its documents pertaining to the takaful operations shall carry the words "Window Takaful Operations" prominently below the company's name;

(b)     shall report its assets, liabilities, revenues and expenses separately for each segment of its Conventional business and Takaful business;

(c)     shall comply with the provisions of these Rules or such other conditions as may be imposed by the Commission from time to time;

(d)     shall appoint a whole time head of window takaful operations who shall possess relevant experience and knowledge as may be specified by the Commission and shall not be associated with the conventional insurance operations, in any manner.

12.     Revocation of Authorization.—(1) The Commission may by order suspend or revoke the authorization of an Operator either wholly or in respect of a class of business, as the case may be, if it is satisfied that,—

(a)     the Operator is carrying on its operations in a manner which is not approved by its Shariah Advisor;

(b)     the Operator has not commenced business within twelve months after being authorized;

(c)     the Operator has ceased to carry on Takaful business;

(d)     the Operator has failed to maintain a surplus of admissible assets over liabilities in each Participant Takaful Fund, in case of General Takaful business in accordance with the provisions of these Rules;

(e)     the Operator has failed to comply with solvency requirements in case of Family Takaful;

(f)      the Operator is carrying on its Takaful business in a manner likely to be detrimental to the interests of its Participants;

(g)     the Operator has failed to effect adequate Re-Takaful arrangements;

(h)     the Operator is contravening or has contravened the provisions of the Ordinance, rules, regulations made thereunder;

(i)      the Operator has furnished false, misleading or inaccurate information or has concealed or failed to disclose material facts in its application for authorization;

(j)      it is in the public interest to cancel the authorization.

(2)     No orders shall be made under sub-rule (1) except after giving the Operator, a reasonable opportunity of being heard.

CHAPTER III

CONDUCT OF TAKAFUL BUSINESS

13.  Establishment of Participant Takaful Fund.—(1) An Operator shall, for each Participant Takaful Fund, formulate Participant Takaful Fund Policies defining:—

(a)     risks being covered, specifically with reference to classes of business defined in Section 4 of the Ordinance (relating each such risk with classes of business as defined in Section 4 of the Ordinance);

(b)     the events upon which amounts would be payable from the Participant Takaful Fund to a participant and the method of determination of the amount payable;

(c)     expenses which may be charged to the Participant Takaful Fund;

(d)     the method and frequency of determining surpluses or deficits of the Participant Takaful Fund, including a definition of how any reserves being set aside in determining such surpluses or deficits are to be arrived at;

(e)     the method of disposing of any surplus;

(f)      the method of extinguishing any deficit; and

(g)     the procedure of dissolution of Participant Takaful Fund.

(2)     The Participant Takaful Fund Policies shall be approved, by the Shariah Advisor of the Operator. A copy of the Participant Takaful Fund policy relevant to, each Takaful Contract shall be made available to any Participant who requests a copy and shall also be available on the Takaful Operator's web-site.

(3)     Copies of the Participant Takaful Fund Policies shall be provided to the Commission at least fifteen days before any risk is accepted in any new Participant Takaful Fund and for all existing Participant Takaful Funds, the Participant Takaful Fund policy documents shall be submitted to the Commission within ninety days of coming into effect of these Rules.

14.     Establishment of Participant Investment Funds.—An Operator carrying on Family Takaful business and issuing contracts which have an investment component shall establish one or more Participant Investment Funds which will be sub-funds of a statutory fund set up for conducting Takaful business.

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