Egypt - The Financial Regulatory Authority (FRA), chaired by Islam Azzam, has issued Decision No. 70 of 2026 regulating the rules, standards, and controls governing companies licensed to practise takaful insurance activities in Egypt.

The move is aimed at revitalising the takaful insurance market and stimulating sector growth in line with the provisions of the Unified Insurance Law No. 155 of 2024, through modernising the regulatory framework, improving operational efficiency, and creating new opportunities for expansion.

The decision applies to takaful insurance companies defined as entities licensed to manage insurance operations and invest participants’ funds in return for management fees, a share of investment returns, or a combination of both, while maintaining the financial solvency of participants’ funds.

Islam Azzam said the new regulations introduce an advanced operational framework for managing takaful and investment accounts by combining the wakala (agency) and mudaraba (profit-sharing) models, giving companies greater flexibility while balancing the interests of shareholders and policyholders.

He explained that the framework establishes three operational structures for managing participants’ funds: the wakala model, the mudaraba model, and a hybrid model combining both systems. Under the hybrid structure, companies manage insurance activities as an agent for a fee while handling investments as a mudarib in exchange for a share of investment returns, subject to specific regulatory controls.

Azzam noted that the new regulations form part of the FRA’s broader strategy to stimulate the takaful insurance market and strengthen its ability to attract new investors and clients. He added that the framework supports sector development while ensuring compliance with Sharia principles and enhancing long-term market sustainability.

The decision establishes a detailed governance framework for takaful insurance policies, including clarification of contractual relationships, mechanisms for distributing insurance surpluses, Sharia-compliant investment policies, and procedures for handling deficits in participants’ funds.

The regulations also introduce rules governing the formation of reserves aimed at strengthening the financial stability of takaful companies and participants’ funds, including deficit coverage reserves and claims fluctuation reserves designed to protect against exceptional circumstances.

Insurance surpluses are to be distributed at the end of each financial year through several approved mechanisms. These include proportional distribution based on participant contributions, restricting surplus distribution to participants without claims during the year, or calculating distributions after deducting compensation payments made to each participant. The decision also introduces a mathematical formula to ensure fairness in surplus allocation while explicitly prohibiting the distribution of insurance surpluses to shareholders.

The framework further defines methods for addressing deficits in participants’ funds, including the use of reserves, interest-free loans provided by shareholders, or charging participants for deficits when necessary. Companies will remain responsible for any shortfalls resulting from negligence or operational misconduct.

As part of efforts to strengthen governance and compliance, the regulations require companies to establish an independent Sharia supervisory committee consisting of at least three members. The committee will be responsible for reviewing contracts and activities, issuing binding Sharia opinions, and monitoring compliance with Islamic principles.

The decision also mandates the appointment of a Sharia auditor and introduces stricter disclosure and transparency requirements, including the full separation of shareholders’ and participants’ accounts, disclosure of accounting policies, mechanisms for surplus distribution and deficit treatment, and reporting of any Sharia-related violations.

In addition, the regulations govern the handling and disposal of income deemed non-compliant with Sharia principles and allow companies to establish zakat funds.

The decision further obliges takaful insurers to place inward and outward reinsurance business with takaful reinsurance companies. However, where sufficient reinsurance capacity is unavailable or specific risks cannot be covered, companies may engage with conventional reinsurance providers subject to prior FRA approval.

The new framework replaces the previous takaful insurance regulations issued under FRA Board Decision No. 23 of 2019 and will take effect from the day following its publication in the Egyptian Gazette.

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