UAE central bank overhauls takaful insurance framework

The new regulation, which governs Islamic insurance arrangements structured to comply with sharia principles, took effect on 14 September and replaces the previous takaful regulations introduced in 2022.

The regulation applies to takaful insurers, re-takaful companies, branches of foreign takaful companies, and conventional insurers and reinsurers that operate takaful ‘windows’ – a dedicated Islamic insurance business operated within a conventional insurance company – in relation to their takaful activities.

Marie Chowdhry, a financial regulation expert at Pinsent Masons in the UAE, said: “The new regulation represents is a significant step in modernising the UAE's takaful framework and forms part of the CBUAE’s broader overhaul of the insurance regulatory landscape.”

“One of the most important changes to the framework is the requirement for every licensed takaful operator to establish a dedicated takaful insurance fund with its own legal personality and separate financial liability. Rather than operating as a ring-fenced account within the company, the fund must exist independently, with its assets and liabilities fully segregated from those of the company. The change is intended to strengthen the segregation of policyholder funds,” she said.

Although policy obligations are met from the assets of the fund, claims remain enforceable against the company, which remains responsible for their proper and timely settlement.

Jessa White, a financial regulation expert at Pinsent Masons in the UAE, said: “The regulation also requires takaful operators to operate a wakala-based model at all times.”

“The previous regulation allowed wakala combined with mudaraba, or another model approved by the CBUAE and the Higher Shari'ah Authority. Firms using a mudaraba element may therefore need to restructure those arrangements,” she added.

Insurers offering takaful products through a window must now obtain CBUAE approval, establish a dedicated sharia governance framework, appoint an internal sharia supervision committee, and designate a dedicated head for the business. They must also maintain separate accounts for takaful window, including the fund, distinct from those of the insurance company.