Guidelines on Valuation Basis for Liabilities of Family Takaful Business

The contract underlying takaful operations defines a unique relationship between the takaful operator and participants of a takaful scheme. While the takaful fund is responsible for meeting contractual benefits accorded to participants on the basis of mutual assistance, takaful operators are expected to observe fundamental obligations towards participants. This includes adhering to Shariah principles and undertaking fiduciary duties to prudently manage the takaful funds, as well as covering the costs involved in managing the takaful business.

In carrying out their fiduciary duty, takaful operators must put in place sufficient measures to ensure sustainability of family takaful funds to meet takaful benefits and shareholders’ fund to support the takaful contracts for the full term. These measures include setting up of appropriate provisions for liabilities in shareholders’ fund and on behalf of participants in family takaful funds, to ensure that adequate funds would be available to meet all contractual obligations and commitments as they fall due, with a reasonable level of certainty.

The Shariah Advisory Council of Bank Negara Malaysia (the Bank) resolved that the setting up of provision for liabilities of takaful business is permissible. Holding provisions to ensure ability of takaful fund to meet its obligation is a prudent approach, as Shariah promotes taking precautionary measures to address future uncertainty.

The ‘Guidelines on Valuation Basis for Liabilities of Family Takaful Business’ (Guidelines) sets out prudential requirements that should be observed by takaful operators in valuing liabilities of their family takaful business, with the aim of providing for those liabilities at a specified level of adequacy with explicit prudential margins. This Guidelines is intended to reflect the takaful operator’s fiduciary duty to manage the takaful funds prudently, treat participants fairly as well as to ensure that the shareholders’ fund can adequately support the takaful business.

This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking