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Islamic insurance aligns with global rules

Tuesday 21 December 2010 - by Nicola York

The Islamic Financial Services Board has released a standard on solvency requirements for Islamic insurance undertakings to bring it into line with global insurance standards.

There are key differences between Takāful (Islamic insurance) and conventional insurance and the IFSB and the International Association of Insurance Supervisors have been working together to resolve this.

One of the key features in the standards published this week is that solvency requirements for Takāful undertakings must adopt a total balance sheet approach.

Also, the solvency requirements should be established at a level such that the respective amounts of solvency resources in the Takāful and shareholders' funds are adequate to meet their respective financial obligations as they fall due.

Another requirement is that the solvency requirements should establish solvency control levels at the respective Takāful and shareholders' funds, that trigger proper interventions by Islamic insurance operators and the supervisory authority when the available solvency is less than the solvency control level.

The solvency requirements should establish criteria for assessing the quality and suitability of solvency resources in the Takāful and shareholders' funds to absorb losses in different financial stages of the respective funds.

The IFSB and IAIS produced a paper in 2006 recommending that issues of corporate governance, financial and prudential regulation, transparency and market conduct among others, should be addressed.

It concluded that these issues must be tackled in an integrated manner and identified corporate governance for Takāful as a key area.

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