Malaysia revises ceding-out rule of takaful risk to insurers amidst hardship cases

A licensed takaful operator is not permitted to distribute risks through a ceding-out arrangement to an insurer.

The Shariah Advisory Council (SAC) of Bank Negara Malaysia, revised a ruling under the "Takaful Semula Dengan Syarikat Insurans Dan Insurans Semula Konvensional" (the Existing Ruling).

In its 226th meeting on October 26, 2022, it revised item (ii) of the SAC ruling dated June 23, 2011, and July 28, 2011. The updated ruling states that a licensed takaful operator, including a licensed professional retakaful operator, is not permitted to distribute takaful risks through a ceding-out arrangement to an insurer, including a licensed professional reinsurer, unless certain conditions are met. 

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These conditions include the inability of existing licensed takaful operators to accept the risk, a lack of capacity or expertise among these operators, or the potential detrimental effect on the takaful funds of licensed takaful operators through a ceding-out arrangement with another licensed takaful operator. 

“In the above circumstances, the need (hajah) to distribute the takaful risks through ceding out an arrangement to an insurer to address any hardship situation faced by a licensed takaful operator must be assessed and affirmed by the Shariah committee of the licensed takaful operator,” the council said.

This ruling takes immediate effect upon its publication on Bank Negara Malaysia's website on 5 January 5, superseding the specified item of the Existing Ruling while leaving the rest applicable.