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Protection
& Savings
Q) Article (36):
The company and the insurance broker shall pay to SAMA the annual
supervisory and inspection fees as follows:
·
The company shall pay (0.5%) of
the total premiums underwritten during the fiscal year after deducting
the share of the reinsurance of the local market.
·
The insurance and/or the
reinsurance broker shall pay (1%) of the total commissions and fees
generated during the fiscal year.
Life insurance premiums
normally consist of two elements: (a) risk protection (b)
investment/savings. For example, in an “Endowment Plan” a greater
proportion of the gross premiums go for investment/savings element (A)
rather than for risk protection element (B).
What
is the exact definition of “Total Premiums underwritten”:
(A)
Risk premium only
or
(A)
+ (B) risk plus
investment component?
A)
Risk premium plus investment component (A&B).
Q)
(Article 3) Can you confirm that yearly renewable Group Credit Insurance
(or any group insurance business without a savings element) is
classified in the category “Life Insurance and Savings” business and
then in the sub-category “Life Insurance”?
A) Term
Insurance or group protection insurance policies without saving elements
that are annually renewable should be classified as Protection and
Savings.
Q)
Article (69-H) defines the technical allocations to be calculated.
However, it is unclear which of these provisions relate to life
insurance (without savings). Can SAMA please clarify this point?
A) Article (69-H) indicates
minimum technical reserve requirements. We do suggest companies to
consult with their Fellow actuary for specific technical reserve that
apply to protection and Saving business.
Q)
Article (52) refers to the information on an insurance policy that
should be provided to the public. How is this intended to operate with
group policies where the policyholder is not the same as the person(S)
insured? Can SAMA confirm that once the general policy information has
been provided to the policyholder, the specifics of the cover
provided-including details of the lives insured – could be provided in a
less formal manner that is acceptable to policyholder (for example, by
providing a schedule of lives insured rather than a separate form for
each life insured)?
A)
Requirements of article (52) have to be applied to all policyholders.
Information and handouts outlining coverage could be acceptable for
group policies with the permission of SAMA.
Takaful
Q)
Article (70) – C: At the end of each year, the total surplus is
determined representing the difference between the remiums and
compensations after deducting the marketing, administrative and
operational expenses and the necessary technical provisions. The
Article assumes that Operating Cost will be borne by Life fund or
General Insurance fund. In the case of Takaful model which runs on
wakala basis, Operator shall bear 100% of operating costs from
shareholder’s fund. Under the new Insurance Act, how will the Operator
get reimbursed of such expenditure from life or general insurance fund?
Do you allow Takaful Operator to operate on wakala basis where fees are
chargeable to participants?
A) The cooperative distribution
formulae identified in Article (70) of the implementing regulations
shall be applied at a minimum. Companies that wish to utilize different
cooperative distribution approach shall do so with the approval of SAMA.
Q)
Article (70): The following point shall be considered on development of
the insurance transactions statement by the company: e) The net surplus
shall be distributed with a ratio of 10% to the insured wither directly
or by reducing of their premiums for the next year , and 90% to be
carried forward to the shareholders earnings list. In traditional life
insurance, there are two types of products: participating and non
participating plans. Examples of participating plans are “Endowment
Plans” and “whole Life with Profit”. Examples under non-participating
plans are “Term Insurance” and “Non-par whole Life”. Under the former,
policyholders are entitled to receive surplus generated by insurance
fund with greater proportion of the amount accruing to policyholder than
to insurer/shareholder. Under the latter, all surpluses belong to
insurer/shareholder.
In
takaful industry which operates on cooperative basis, surplus would
either be equally distributed between participants (policyholders) and
Operator (Insurer) or participants will normal enjoy larger share of
this surplus amount. The Article assumes that Operating Cost will be
borne by Life fund or General Insurance fund.
Question #1): Is the rule in Article (70) applicable to participating
plans as well as non-participating plans?
Answer #1) YES.
Question #2): Is the ratio of 10:90 rigid ie insurer is not allowed to
distribute more than 10% of surplus to policyholder?
Answer #2) It’s a minimum in
terms of policyholders’ distribution.
Question #3): What about the case of takaful products where surpluses
may belong 100% to participants under some takaful models?
Answer #3) The 10% is a minimum
distribution to the policyholders.
Q) The
Implementing Rules (“Rules”) defined three categories of insurance:
General Insurance, Health Insurance and Life Insurance and Savings. Is
it intended that the life insurance and savings category will apply also
to Family takaful business and the general Insurance category will also
apply to general takaful, or will supplementary legislation be drafted
to cover this special class of business?
A) Family takaful and general
takaful business are covered in the implementing regulations "the same
as conventional protection and saving products".
Q) If
the rules do cover Takaful business is it intended to modify the
definitions contained within the rules to accommodate their application
to Takaful? For example, the definition of “Insurance” refers to a
transfer of risk whereas under Takaful there is a sharing of risk.
A) The sharing of risk is an
insurance function that relates to the transfer of risk from the
individual to a large group of participants.
Q) For
Takaful business, providers already pay a Sharia fee. Would the
supervisory fee be payable in addition to or instead of the Sharia fee,
or does the supervisory fee only apply to non-Takaful business?
A) The supervisory fees
apply to all insurance and reinsurance companies regardless of the type
of insurance business.
Q)
Given the specialist nature of Takaful business and the limited number
of Takaful Reinsurers, will SAMA consider that the most appropriate
reinsurer for this business may be foreign and consent to reinsurance
arrangements assuming these foreign re-insurers meet SAMA requirements?
A) There
is no differentiation between Takaful and non-Takaful operations as it
relates to the qualification of the re-insurer in accordance to Article
(42).
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