CBUAE enhances protection of takaful fund participants’ assets

Central Bank of the UAE building

The Central Bank of the UAE (CBUAE) has required takaful insurance companies and takaful windows at other insurance firms to fully segregate participants’ funds from company assets, and to allocate takaful fund assets solely for settling claims and benefits due to policyholders and beneficiaries under a new system implemented in September 2026.

The central bank explained in a circular—reported by Emarat Al Youm—that the new system prohibits transferring the takaful fund or participants’ investment accounts to another company unless that company is licensed for the same type and class of takaful insurance, and only after obtaining prior central bank approval.

The system grants the central bank authority to require an independent solvency assessment of a takaful fund in the event of repeated deficits or ongoing reliance on interest-free loans from shareholders to ensure the fund’s ability to meet claims and obligations towards participants and beneficiaries.

Under the new rules, the takaful fund is recognized as a separate legal entity with its own independent assets and liabilities, distinct from those of the founding company. Contributions from participants, investment returns, and re-takaful income are placed in the fund, whose assets are only used to settle claims and benefits.

For individual takaful and savings business, the rules mandate segregation between the portion allocated to risk coverage and the portion set aside for investment, through a dedicated participants’ investment account alongside the takaful fund. Fund income, expenses, the investment account, and the shareholders’ account must all be maintained separately to prevent participants from bearing costs or losses unrelated to their assets.

The system also requires technical, financial, and administrative separation between individual life and savings takaful activities on one hand, and property and liability insurance on the other, with a separate fund for each segment. This prevents the use of funds from one participant group to cover claims or liabilities of another.

Takaful operators must disclose the fund’s financial position separately from the shareholders’ account in their annual reports, making information available to the public clearly and regularly so policyholders can review the fund’s assets, liabilities, and its ability to settle claims.

The framework allows for the establishment of a board of trustees for the takaful fund to represent and protect its interests in line with governance principles set by the central bank and the Higher Sharia Authority. The central bank may also require companies to form such a board to enhance oversight and protect participants’ funds.

Insurance companies may establish takaful windows after securing central bank approval, provided they operate under an independent sharia governance framework, set up an internal sharia supervisory committee, and appoint a head whose role is limited to managing the window’s activities.

Companies are also required to segregate takaful window accounts, including the fund, from accounts of the parent company to ensure participants’ contributions are not used to finance conventional insurance activities or cover the parent’s other obligations.

Takaful companies, foreign branches, and takaful windows are subject to central bank supervision, which has the authority to impose measures in case of violations, including restricting or replacing management, appointing interim administrators, or barring certain officials from working in the insurance sector.

Takaful funds operate on a cooperative basis among participants. Contributions, or the risk coverage portion, are held in a separate fund, and the insurance company manages this fund as an agent, collecting a defined fee for its services.

If the fund's revenue exceeds its commitments and expenditures by year-end, an insurance surplus is created, subject to review by the actuarial expert and approval from the CBUAE before distribution in accordance with the approved policy.

If the fund's assets are insufficient to meet its commitments, the company provides a non-interest-bearing loan from the shareholders' account, to be repaid later from future surpluses.