Withdrawal: Islamic insurers agree to out-of-court settlement

Longstanding dispute over controversial Takaful Rules 2012 to come to an end.

KARACHI:

After waging a legal battle with the regulator as well as conventional insurers for almost two years, Islamic insurance companies have finally agreed to an out-of-court settlement of the longstanding dispute over controversial Takaful Rules 2012.

Following the promulgation of Takaful Rules 2012 two years back, general and family Takaful companies challenged the new set of regulations in court, saying the Securities and Exchange Commission of Pakistan’s (SECP) move would ‘distort’ the Islamic insurance industry.

However, sources confirmed to The Express Tribune on Wednesday that general and family Takaful companies will withdraw their constitutional petition against the SECP, 23 insurance companies and the federation of Pakistan within this week, thus allowing conventional insurers to run Shariah-compliant insurance business through parallel window operations.

“Although conventional insurance players will be able to set up window operations after the out-of-court settlement materialises, both sides have ceded some ground to reach the final agreement,” a source in the Takaful industry told The Express Tribune while requesting that he not be named.

The only hiccup in the finalisation of the agreement is the lack of a formal consent to the deal from two conventional insurance companies, including State Life Insurance Corporation (SLIC). An official of SLIC conformed to The Express Tribune that the largest player in the conventional life insurance segment is currently in talks with the SECP over the final shape of the out-of-court settlement.

Some of the biggest players, including State Life, Jubilee Life and Adamjee Life, are reported to be eager to launch their Islamic window operations. In fact, some of these companies have vowed publicly to launch window operations within three months of the resolution of the legal dispute.

The long-awaited deal

Takaful companies had put many major demands that they claimed would make Takaful Rules 2012 acceptable to the Islamic insurance industry.

The first and foremost demand of Takaful companies was about the paid-up capital requirement for the conventional insurance companies interested in setting up Islamic window operations.

Takaful Rules 2012 did not envisage separate paid-up capital for Takaful operations of a conventional insurance company. Takaful companies believed that not ensuring the separation of paid-up capital for the two kinds of businesses would result in the ‘mingling of funds,’ thus making the entire exercise un-Islamic.

Currently, the minimum paid-up capital requirement for general and life Takaful/insurance companies is Rs300 million and Rs500 million, respectively.

However, Takaful companies have decided to withdraw this demand. “They are now willing to compromise on their position with regard to the need for a separate subsidiary with its own paid-up capital in case a conventional insurance company wants to establish Islamic window operations,” the source said, adding that this was the most critical aspect of their opposition to Takaful Rules 2012.

However, the SECP is said to have agreed to the Takaful players’ suggestion that conventional insurance companies should be required to maintain separate capital accounts for the two lines of business.

Takaful companies have also backed off from their demand that conventional insurance companies launching Islamic windows must maintain a distinct separation in their Islamic and conventional operations through stand-alone, dedicated offices and staff for each line of business.

The third objection of Takaful companies was related to the status of the Shariah board in the Islamic window operations of conventional insurance companies. They had demanded that the constitution of a Shariah ‘supervisory’ – instead of advisory – board be made mandatory under the new regulations for Islamic windows.

While sources in the Takaful industry said the agreement envisages the role of the Shariah board to be ‘supervisory,’ officials in the conventional insurance industry claimed its role is going to be ‘advisory’ in nature.

Published in The Express Tribune, April 17^th, 2014.

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