UAE Takaful regulation 2026: New rules protect Islamic insurance subscribers with fund separation and tighter oversight

Abu Dhabi: The Central Bank of the UAE has mandated that Takaful insurance companies, and Takaful windows in other insurance companies, completely separate the funds of subscribers from the assets of insurance companies. It also mandated them to allocate funds to pay compensation and benefits due to the insured and beneficiaries, within a new system that came into effect in September 2026. The system prohibits the transfer of the Takaful fund or the subscribers’ investment account to another company, unless it is licensed to practice the same types and categories of Takaful insurance, and after obtaining prior approval from the Central Bank, in order to protect the rights of customers when transferring insurance portfolios or restructuring companies. The system also granted the Central Bank the authority to subject the Solidarity Fund to an independent solvency assessment if it recorded a recurring deficit or relied continuously on the interest-free loan provided by the shareholders, with the aim of ensuring its ability to pay compensations and fulfil its obligations towards the subscribers and beneficiaries. Under the system, the Takaful fund must have a legal personality and financial liability independent of the company that established it, and its assets and liabilities must remain completely separate from the company’s assets and liabilities. The fund receives subscriptions from clients, investment returns, and reinsurance revenues, and its funds are used to compensate beneficiaries and eligible parties according to the terms of the Takaful documents. With regard to personal Takaful and fund formation, the part allocated to covering risks and the part allocated to investment must be separated by creating a separate account for the investments of the participants alongside the Takaful fund. Also, the revenues and expenses of the Takaful fund, the investment account and the shareholders' account must be determined separately, in order to prevent the participants from incurring expenses or losses that are not related to their funds. The system also imposed a technical, financial and administrative separation between the activities of personal insurance and fund formation on the one hand, and property and liability insurance on the other, with the establishment of a separate fund for each type, to prevent the use of funds from a group of participants to cover claims or obligations belonging to another group. The system requires Takaful companies to disclose in their annual reports the financial position of the fund independently of the shareholders’ account, provided that the information is clear, not misleading and is regularly available to the public, enabling policyholders to know the size of the fund’s assets, its obligations and its ability to pay compensations. The system allowed for the establishment of a board of trustees for the Takaful Fund, which would represent and protect the Fund’s interests, in accordance with the governance requirements issued by the Central Bank and the Supreme Sharia Authority. The Central Bank also granted the authority to compel the company to form the board if it deemed it necessary to enhance oversight and protect the funds of the subscribers. In a move to broaden the range of products available to customers, the regulations authorised insurance companies to establish Takaful (Islamic insurance) windows, subject to approval from the Central Bank. The regulations stipulated that each window must operate under an independent Sharia governance framework, have an internal Sharia supervisory committee, and appoint a chairman whose responsibilities are limited to managing the window's operations. It also requires companies to separate the accounts of the Takaful window, including the fund, from the accounts of the parent company, in order to prevent the use of customer subscriptions to finance traditional insurance business or to cover the company’s other obligations. The system subjects Takaful companies, branches of foreign companies, and Takaful windows to the supervision of the Central Bank, which has the power to take action in case of violation, including restricting or replacing management powers, appointing a temporary management, or preventing officials from working in the insurance sector. The system thus establishes a more rigorous stage in the Takaful market, based on the independence of the participants’ funds, the clarity of financial data, and the subjection of the transfer of funds to prior control, which makes the protection of the insured a fundamental element in managing the activity, and not just a contractual obligation when compensation is due. How Takaful funds work Takaful funds operate on the basis of cooperation between participants, where subscriptions or the portion allocated to cover risks are deposited in an independent fund with a separate legal personality and financial liability from the insurance company, while the company manages the fun