Internal Capital Adequacy Assessment Process for Takaful Operators

A licensed person is expected to actively manage its capital adequacy by taking into account the potential impact of its business strategies on its risk profile and overall financial resilience. This expectation is outlined in the BNM/RH/GL 004-23 Risk-Based Capital Framework for Takaful Operators (RBCT).

The Internal Capital Adequacy Assessment Process (ICAAP) is the overall process to be undertaken by a licensed person to ensure that it has adequate capital to meet its capital requirements on an ongoing basis. The ICAAP is an integral part of the Bank’s Risk-Based Supervisory Framework, aimed at ensuring a licensed person’s capital adequacy. The Bank will review and evaluate a licensed person’s ICAAP and, where necessary, take appropriate supervisory action to address any areas of concern.

This policy document sets out the requirements for the conduct of an ICAAP by a licensed person and outlines the supervisory review and evaluation of the ICAAP. For active management of capital adequacy, a licensed person is required to have in place the following:
(a) an individual target capital level (ITCL) that reflects its own risk profile and risk management practices, set by conducting the appropriate stress and scenario tests;
(b) a capital management plan that takes into account its strategic business direction and the changing business environment; and
(c) processes for monitoring and ensuring the maintenance of adequate capital above the ITCL at all times, commensurate with its risk profile.

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