# GUIDELINES ON
# DIFFERENTIAL LEVY SYSTEMS FRAMEWORK FOR 
# TAKAFUL OPERATORS
# ISSUE DATE : 30 MARCH 2020

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Ref No: TIPS/GL18-A3/2020(DLST)
Issued on: 30 March 2020
TITLE: Guidelines on Differential Levy Systems Framework for Takaful Operators

# TABLE OF CONTENTS

PART 1: INTRODUCTION ........................................................................................................1
 BACKGROUND.....................................................................................................1
PART 2: SCOPE OF APPLICATION ...........................................................................................3
PART 3: DIFFERENTIAL LEVY SYSTEMS FRAMEWORK .............................................................4
 OVERVIEW ..........................................................................................................4
 QUANTITATIVE CRITERIA......................................................................................4
 QUALITATIVE CRITERIA ........................................................................................6
PART 4: QUANTITATIVE CRITERIA..........................................................................................7
CAPITAL MEASURE................................................................................................7
OPERATIONAL AND SUSTAINABILITY MEASURE:
 GENERAL TAKAFUL BUSINESS ............................................................................7
 FAMILY TAKAFUL BUSINESS ................................................................................8
 GENERAL AND FAMILY TAKAFUL BUSINESSES.......................................................9
PART 5: QUALITATIVE CRITERIA ..........................................................................................10
SUPERVISORY RATING.........................................................................................10
OTHER INFORMATION ........................................................................................10
PART 6: LEVY CATEGORY AND LEVY RATE............................................................................12
 LEVY CATEGORY ................................................................................................12
 LEVY RATE.........................................................................................................12
PART 7: REPORTING, SUBMISSION AND APPEAL .................................................................13
REPORTING REFERENCE DATE .............................................................................13
INSUFFICIENT QUANTITATIVE INFORMATION.......................................................13
SUBMISSION DATE..............................................................................................14
 FILING RESUBMISSION ........................................................................................14
 INFORMATION INTERGRITY .................................................................................15
COMPUTATION AND NOTIFICATION OF SCORE.....................................................15
APPEAL PROCESS ...............................................................................................16
PROHIBITION AGAINST PUBLIC DISCLOSURE ........................................................17
PART 8: REPORTING MANUAL AND FORMS.........................................................................18
GENERAL REQUIREMENT ....................................................................................18
PART 9: NEW INSURER MEMBER AND AMALGAMATED INSURER MEMBER ...........................19
NEW INSURER MEMBER ...........................................................................................19
AMALGAMATED INSURER MEMBER ........................................................................19

### LIST OF TABLES
TABLE 1: SCOPE OF APPLICATION ...........................................................................................3
TABLE 2: SUMMARY OF OPERATIONAL AND SUSTAINABILITY MEASURE .................................5
TABLE 3: QUANTITATIVE CRITERIA MATRIX............................................................................6
TABLE 4: QUANTITATIVE CRITERIA SCORE..............................................................................6
TABLE 5: SCORE RANGE FOR SUPERVISORY RATING .............................................................10
TABLE 6: SCORE RANGE FOR OTHER INFORMATION.............................................................11
TABLE 7: OVERALL DLST SCORE RANGE AND LEVY CATEGORIES ............................................12

### LIST OF APPENDICES
APPENDIX 1: CAPITAL MEASURES: FREE CAPITAL INDEX..........................................................22
APPENDIX 2: OPERATIONAL AND SUSTAINABILITY MEASURE FOR GENERAL TAKAFUL 
 BUSINESS: GROSS CONTRIBUTION GROWTH RATE ..............................................23
APPENDIX 3: OPERATIONAL AND SUSTAINABILITY MEASURE FOR GENERAL TAKAFUL
BUSINESS: BUSINESS DIVERSIFICATION RATIO....................................................24
APPENDIX 4: OPERATIONAL AND SUSTAINABILITY MEASURE FOR GENERAL TAKAFUL
 BUSINESS: RECEIVABLE RATIO ...........................................................................25
APPENDIX 5: OPERATIONAL AND SUSTAINABILITY MEASURE FOR GENERAL TAKAFUL
 BUSINESS: LOSS RATIO ......................................................................................26
APPENDIX 6: OPERATIONAL AND SUSTAINABILITY MEASURE FOR FAMILY TAKAFUL BUSINESS:
NEW BUSINESS GROWTH RATE .........................................................................27
APPENDIX 7: OPERATIONAL AND SUSTAINABILITY MEASURE FOR FAMILY TAKAFUL BUSINESS:
BUSINESS CONCENTRATION RATIO....................................................................28
APPENDIX 8: OPERATIONAL AND SUSTAINABILITY MEASURE FOR FAMILY TAKAFUL BUSINESS:
BUSINESS CONSERVATION RATIO......................................................................29
APPENDIX 9: OPERATIONAL AND SUSTAINABILITY MEASURE FOR FAMILY TAKAFUL BUSINESS:
INVESTMENT YIELD...........................................................................................30
APPENDIX 10: OPERATIONAL AND SUSTAINABILITY MEASURE FOR GENERAL AND FAMILY 
TAKAFUL BUSINESS: EXPENSE GAP RATIO..........................................................33

### LIST OF ILLUSTRATIONS
ILLUSTRATION 1: COMPUTATION OF FREE CAPITAL INDEX...................................................35
ILLUSTRATION 2: COMPUTATION OF GROSS CONTRIBUTION GROWTH RATE .......................36
ILLUSTRATION 3: COMPUTATION OF BUSINESS DIVERSIFICATION RATIO..............................37
ILLUSTRATION 4: COMPUTATION OF RECEIVABLE RATIO .....................................................38
ILLUSTRATION 5: COMPUTATION OF LOSS RATIO................................................................39
ILLUSTRATION 6: COMPUTATION OF NEW BUSINESS GROWTH RATE...................................40
ILLUSTRATION 7: COMPUTATION OF BUSINESS CONCENTRATION RATIO.............................42
ILLUSTRATION 8: COMPUTATION OF BUSINESS CONSERVATION RATIO................................43
ILLUSTRATION 9: COMPUTATION OF INVESTMENT YIELD ....................................................44
ILLUSTRATION 10: COMPUTATION OF EXPENSE GAP RATIO ..................................................46
ILLUSTRATION 11: DLST SCORING AND LEVY CATEGORISATION .............................................47
ILLUSTRATION 12: DLST SCORING AND LEVY CATEGORISATION FOR A TAKAFUL OPERATOR
WITH INSUFFICIENT QUANTITATIVE INFORMATION. .................................48

### LIST OF DIAGRAM
DIAGRAM 1: THE DLST FRAMEWORK .....................................................................................4

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# PART 1: INTRODUCTION

## BACKGROUND

1.1 Pursuant to Malaysia Deposit Insurance Corporation (Differential Premium Systems in respect of Insurer Members) Regulations 2012 (“Regulations”),¹ Perbadanan Insurans Deposit Malaysia (“PIDM”) implemented the Differential Levy Systems framework for Takaful Operators (“DLST framework”). The DLST framework was implemented in line with PIDM’s mandate to administer the takaful and insurance benefits protection system.

1.2 The objectives of implementing the DLST framework are as follows:
(a) to differentiate takaful operators according to their risk profiles;
(b) to introduce fairness into the levy system process where takaful operators assessed to be of higher risk would pay higher levies as opposed to takaful operators assessed to be of lower risk;
(c) to provide incentives for takaful operators to adopt sound risk management practices; and
(d) to promote stability of the financial system via the overall improvement in risk management practices of takaful operators.

1.3 In exercise of the powers conferred by paragraph 209(1)(b) of the Malaysia Deposit Insurance Corporation Act 2011 (“PIDM Act”), PIDM issued the Guidelines on Differential Levy Systems for Takaful Operators (“Guidelines”). These Guidelines set out the assessment approach under the DLST framework, including the formula, threshold and score range for each of the indicators under the quantitative criteria and qualitative criteria. The requirements for reporting and submission of quantitative information by takaful operators to PIDM are also elaborated in the Guidelines.

¹ The Regulations were amended in 2016 pursuant to the Malaysia Deposit Insurance Corporation (Differential Premium Systems in respect of Insurer Members)(Amendment) Regulations 2016, and in 2019 pursuant to Malaysia Deposit Insurance Corporation (Differential Premium Systems in respect of Insurer Members) (Amendment) Regulations 2019.

1.4 As part of the continuous review process, PIDM reviews and enhances the DLST framework from time to time to reflect industry developments. The current revision to the DLST framework includes refinement to the investment yield indicator, to reflect changes arising from Malaysian Financial Reporting Standard 9: Financial Instruments (“MFRS 9”).

1.5 These Guidelines are effective beginning from assessment year 2020 and shall supersede the Guidelines on Differential Levy Systems Framework for Takaful Operators issued on 31 January 2020.

1.6 For purposes of these Guidelines, “Guidelines for Takaful Operators Statistical Submission” or “Guidelines for TOSS” means the Guidance Notes for Takaful Operators Statistical System on Submission of Monthly/Quarterly/Annual Statistical Returns as may be issued by Bank Negara Malaysia (“BNM”).

1.7 Unless expressly stated otherwise, any information or document required to be submitted to PIDM under these Guidelines, including any letter, report, form, returns and action plan, shall be submitted online through PIDM’s portal. The original hard copy shall be kept by the takaful operator.

1.8 A reference to a statute or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them.

1.9 PIDM may specify such other periods or dates for compliance with any of the provisions in these Guidelines, or for any act to be done, in such form and subject to such terms and conditions as PIDM thinks fit.

1.10 Enquiries relating to these Guidelines may be directed to:
Risk Assessment & Resolution Division
General Lines: 03-2173 7436 / 03-2265 6565
Fax: 03-21737494
Email: [email protected]

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# PART 2: SCOPE OF APPLICATION

2.1 The DLST framework is applicable to all takaful operators that are locally incorporated and licensed to carry on takaful business under Section 10 of the Islamic Financial Services Act 2013, except a takaful operator licensed to carry on solely retakaful business and an international takaful operator (“insurer members”). Table 1 depicts the application of the DLST framework in respect of takaful operator’s business.

### Table 1: Scope of Application

| Takaful Business Type | General Takaful DLST Criteria | Family Takaful DLST Criteria |
| :--- | :---: | :---: |
| General Takaful | ✓ | |
| Family Takaful | | ✓ |

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# PART 3: DIFFERENTIAL LEVY SYSTEMS FRAMEWORK

## OVERVIEW

3.1 A takaful operator shall be assessed and classified into different categories in an assessment year based on a combined quantitative and qualitative criteria approach.

3.2 In order to achieve higher objectivity and transparency, a heavier weightage is assigned to the quantitative criteria which carries a score of 60%, while the qualitative criteria carries the remaining score of 40% out of a total score of 100%.

3.3 The DLST framework is summarised in Diagram 1.

### Diagram 1: The DLST framework

[Diagram omitted]

## QUANTITATIVE CRITERIA

3.4 The assessment of the quantitative criteria is based on a ‘matrix approach’, which enables the risk profile of the takaful operators to be better differentiated based on two (2) independent components of assessment.

3.5 The horizontal axis of the matrix approach measures the capital strength, i.e. Free Capital Index. Capital strength is important as it provides a cushion against any unexpected adverse events in the takaful operators’ earnings and assets quality.

3.6 On the other side, the vertical axis reflects the operational and sustainability measure, which aims to assess the efficiency of the takaful operators’ operational management and sustainability of the financial performance. This measure is made up of different sets of indicators which are assigned specific weightages. The indicators and their respective weightages for both general and family takaful businesses are set out in Table 2 below.

### Table 2: Summary of Operational and Sustainability Measure

| General Takaful Business | | Family Takaful Business | |
| :--- | :---: | :--- | :---: |
| **Indicators** | **Weightage** | **Indicators** | **Weightage** |
| Gross contribution growth rate | 25% | New business growth rate | 25% |
| Business diversification ratio | 20% | Business concentration ratio | 20% |
| Receivable ratio | 15% | Business conservation ratio | 20% |
| Loss ratio | 20% | Investment yield | 15% |
| Expense gap ratio | 20% | Expense gap ratio | 20% |
| **Total** | **100%** | **Total** | **100%** |

3.7 The combined score of the capital measure and the operational and sustainability measure, will determine the position of a takaful operator in the quantitative criteria matrix, as represented by the symbols M1 to M7 as set out in Table 3 in the following page.

### Table 3: Quantitative Criteria Matrix

| Operational and Sustainability Measure | Capital Measure | | | |
| :--- | :---: | :---: | :---: | :---: |
| | < 1.00 | 1.00 ≤ but ≤1.10 | 1.10< but ≤1.20 | >1.20 |
| ≥ 85 | M6 | M4 | M2 | M1 |
| ≥ 65 but < 85 | M6 | M4 | M3 | M2 |
| ≥ 50 but < 65 | M7 | M5 | M4 | M3 |
| < 50 | M7 | M7 | M5 | M4 |

3.8 Each of the seven (7) categories within the matrix is then assigned a quantitative score as set out in Table 4 below. The score reflects the overall quantitative performance of the takaful operator.

### Table 4: Quantitative Criteria Score

| Quantitative Criteria Matrix Category | Score (%) |
| :--- | :---: |
| M1 | 60 |
| M2 | 55 |
| M3 | 45 |
| M4 | 40 |
| M5 | 30 |
| M6 | 25 |
| M7 | 15 |

## QUALITATIVE CRITERIA

3.9 The qualitative criteria include both the supervisory rating of takaful operators assigned by BNM, and any other information that will have implication on the safety and soundness of the takaful operators. The ‘Supervisory Rating’ carries a maximum score of 35%, while the remaining score of 5% is assigned to ‘Other Information’.

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# PART 4: QUANTITATIVE CRITERIA

## 4.1 Capital Measure

### Free Capital Index
Free Capital Index is a measure of the capital buffer above the individual target capital level (“ITCL”). This index reflects the takaful operator’s capital sufficiency and its resilience to adverse situations.

## 4.2 Operational and Sustainability Measure – General Takaful Business

(a) Gross Contribution Growth Rate
The gross contribution growth rate measures the takaful operator’s total gross contribution growth of its businesses. The growth in contributions provides a constant stream of income to support the takaful operator’s business operations and enhances its market share.

(b) Business Diversification Ratio
The business diversification ratio measures the extent of the takaful operator’s portfolio diversification. A well-diversified portfolio helps the takaful operator to avoid being significantly affected by any adverse experience in its line of business.

(c) Receivable Ratio
The receivable ratio measures the extent of takaful receivables against the total contribution income. This ratio indicates the operational efficiency of the takaful operator based on its ability to manage its receivables collection i.e. collect its outstanding contributions, agents balances and retakaful balances.

(d) Loss Ratio
The loss ratio measures the takaful operator’s ability in managing its claims and underwriting performance. This ratio indicates the sustainability of the underwriting results and the ability of the takaful operator to generate sufficient contributions to pay out claims incurred.

## 4.3 Operational and Sustainability Measure – Family Takaful Business

(a) New Business Growth Rate
The new business growth rate measures the total growth of a family takaful operator’s new business. The consistent growth of new business contributions will ensure a constant stream of income to support the takaful operator’s business operations and enhances its market share.

(b) Business Concentration Ratio
The business concentration ratio measures the proportion of regular contributions certificate business to single contributions certificate business. An appropriate composition of single and regular contribution products ensures continuous future stream of income.

(c) Business Conservation Ratio
The business conservation ratio measures the proportion of certificates that remain in-force at the end of a period, out of the total certificates that were in-force at the beginning of the period. This indicator assesses the business retention ability of the takaful operator and reflects the sustainability level of its business.

(d) Investment Yield
Investment yield measures the investment performance in terms of the takaful operator’s investment income in proportion to the assets held by the takaful operator. The inability to generate sufficient returns may affect the long-term sustainability of the takaful operator, including meeting its certificate owners’ reasonable expectations.

## 4.4 Operational and Sustainability Measure – General Takaful and Family Takaful Businesses

(a) Expense Gap Ratio
Expense gap ratio measures the takaful operator’s efficiency in managing operating expenses and commission incurred in relation to the wakalah fees earned and mudharabah surplus transferred. This ratio assesses the takaful operator’s efficiency in managing the operations of the takaful business.

4.5 For the detailed requirements of all the above indicators, please refer to the attached Appendices. As for the computations of the indicators, please refer to the attached Illustrations.

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# PART 5: QUALITATIVE CRITERIA

5.1 For the qualitative criteria, each takaful operator shall be assessed based on BNM’s supervisory rating and other information i.e. other qualitative factors.

(a) Supervisory Rating
The supervisory rating, namely the composite risk rating (“CRR”) as assessed by BNM for the assessment period up to 31 December of the preceding assessment year will be used. The takaful operator shall be assigned scores as set out in Table 5 below.

### Table 5: Score Range for Supervisory Rating

| Supervisory Rating | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Supervisory Rating of LOW or equivalent | 35 |
| Supervisory Rating of MODERATE or equivalent | 22 |
| Supervisory Rating of ABOVE AVERAGE or equivalent | 10 |
| Supervisory Rating of HIGH or equivalent | 0 |

(b) Other Information
The score shall be determined by PIDM based on information relating to the takaful operator’s safety and soundness, its viability or its financial condition. This information may include information about the takaful operator other than that specified in the supervisory rating of the takaful operator, which takes into account the following factors:

(i) the takaful operator’s failure to comply with any subsidiary legislation made by PIDM, including guidelines or with any regulatory requirements that apply to the takaful operator;
(ii) any action taken by any regulatory or other authority against the takaful operator or any corporation related to the takaful operator including but not limited to any notice, order or instruction relating to any deficiency or non-compliance in respect of the takaful operator or such corporation, a letter of warning, or any requirement or instruction for issuance of a letter of undertaking or commitment or a resolution of the board of directors;
(iii) any correction or action plan of the takaful operator or such corporation to address the action taken by such authority under subparagraph (ii) including but not limited to the progress report on the implementation by the takaful operator of the terms of the letter of undertaking or commitment or the resolution of the board of directors;
(iv) any rating or assessment of the takaful operator by any rating agency whether relating to the credit standing of the takaful operator or its financial condition or otherwise;
(v) whether the takaful operator has received or is receiving any form of assistance from BNM or PIDM, such assistance being financial or otherwise; and
(vi) any other information provided to PIDM or that comes to the attention of PIDM about the takaful operator or any corporation related to the takaful operator.

The scores for the other information criteria shall be determined as set out in Table 6 below.

### Table 6: Score Range for Other Information

| Other Information | |
| :--- | :---: |
| **Assessment Criteria** | **Score (%)** |
| As at 30 April of the assessment year, no information has come to PIDM’s attention about any circumstances that represent a threat to or materially affect the financial condition, safety, soundness or viability of the takaful operator. | 5 |
| As at 30 April of the assessment year, information has come to PIDM’s attention about circumstances that represent a threat to or may materially affect the financial condition, safety, soundness or viability of the takaful operator. | 3 |
| As at 30 April of the assessment year, information has come to PIDM’s attention about circumstances that materially affect the financial condition, safety, soundness or viability of the takaful operator. | 0 |

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# PART 6: LEVY CATEGORY AND LEVY RATE

## LEVY CATEGORY

6.1 The summation of the respective scores from the quantitative and qualitative criteria will determine the takaful operator’s overall DLST score. All takaful operators shall be classified into one (1) of the four (4) levy categories based on their overall DLST score. The table below sets out the overall DLST score range and the respective levy categories:

### Table 7: Overall DLST Score Range and Levy Categories

| Overall DLST Score | Levy Category |
| :--- | :---: |
| DLST Score ≥ 85% | 1 |
| 65% ≤ DLST Score < 85% | 2 |
| 50% ≤ DLST Score < 65% | 3 |
| DLST Score < 50% | 4 |

## LEVY RATE

6.2 Each levy category carries a prescribed levy rate and the minimum levy amount for the purpose of determining the amount of levy payable by a takaful operator to PIDM for the assessment year.

6.3 A takaful operator shall pay its levy by 31 May (or the immediate preceding working day if 31 May falls on a weekend or a public holiday in Kuala Lumpur) of each assessment year based on the DLST score and levy category notified by PIDM.

6.4 A takaful operator shall complete the return on calculation of levy based on the Guidelines on Takaful and Insurance Benefits Protection System: Submission of Returns on Calculation of Levies for Takaful and Insurance Businesses issued on 30 March 2020.

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# PART 7: REPORTING, SUBMISSION AND APPEAL

## REPORTING REFERENCE DATE

### QUANTITATIVE CRITERIA

7.1 The quantitative criteria shall be calculated based on a takaful operator’s relevant financial statements as at 31 December of each preceding assessment year. In this respect, the financial statements shall be referred to as the following:

(a) For a takaful operator with 31 December financial year end: audited financial statements (i.e. Takaful Operators Statistical System (“TOSS”) and Risk-Based Capital Framework for Takaful Operators (“RBCT”) reporting forms and other supporting information for the financial period); or
(b) For a takaful operator with non-31 December financial year end: approved financial statements (i.e. TOSS and RBCT reporting forms, and other supporting information for the financial period, which have been approved by the Management of the takaful operator).

### QUALITATIVE CRITERIA

7.2 For the supervisory rating criteria, the supervisory rating for each takaful operator as at 31 December of the preceding assessment year shall be applied to determine the scores for levy calculation purposes for an assessment year. BNM will provide the supervisory ratings to PIDM.

7.3 For the other information criteria, a takaful operator shall be assessed based on information received by PIDM on or before 30 April of the assessment year.

## INSUFFICIENT QUANTITATIVE INFORMATION

7.4 For a takaful operator with insufficient quantitative information for the purposes of calculating the scores of certain indicators for operational and sustainability measure, the scores for such indicators shall be determined on a proportionate basis as stated below:

[A ÷ (100 – B)] × B

where

A is the sum of the scores assigned to a takaful operator for each indicator where quantitative information is available.

B is the sum of maximum scores for indicators where quantitative information is not available for computation.

An example of the computation of the DLST scores for a takaful operator carrying on general takaful business with insufficient quantitative information is provided in Illustration 12.

## SUBMISSION DATE

7.5 A takaful operator must submit the certified quantitative information² to PIDM latest by 30 April (or the immediate preceding working day if 30 April falls on a weekend or a public holiday in Kuala Lumpur) of each assessment year for the purposes of computing the DLST score of the takaful operator.

7.6 A takaful operator’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) or Head of Finance or Appointed Actuary must certify that the quantitative information is accurate and reflective of the financial condition of a takaful operator as at 31 December of the preceding assessment year. All reports that require certification/signatories shall be scanned and the scanned copy must be submitted to PIDM online through PIDM’s portal.

7.7 For a takaful operator that fails to comply with the requirements in paragraphs 7.5 and 7.6, PIDM will assign a score to the takaful operator according to any available information, and a levy surcharge may be imposed on such takaful operator pursuant to Section 75 of the PIDM Act.

## FILING RESUBMISSION

7.8 In circumstances where a takaful operator submits its amended quantitative information to PIDM after the submission deadline i.e. 30 April of the assessment year, the amended submission shall reach PIDM by 10 May (or the immediate preceding working day if 10 May falls on a weekend or a public holiday in Kuala Lumpur) of that assessment year.

² Certified quantitative information refers to DLST reporting form in pre-formatted excel spreadsheet and the certification in pdf format.

7.9 A takaful operator shall be rated based on the latest information received by PIDM on or before 10 May of that assessment year.

7.10 A takaful operator that submits any amended information shall be expected to comply with the provisions for information integrity as specified under paragraph 7.11 (Information Integrity).

## INFORMATION INTEGRITY

7.11 A takaful operator shall be accountable to ensure the accuracy of the information submitted for DLST. For a takaful operator that does not comply with the requirements with regard to information integrity, a levy surcharge may be imposed on such takaful operator pursuant to Section 75 of the PIDM Act.

7.12 In respect of the accuracy of the DLST quantitative information and the Returns on Calculation of Levies (“RCL”) submitted to PIDM, a takaful operator’s internal auditor and external auditor will perform an independent validation under the Guidelines on Validation Programme: Differential Levy Systems and Premium Calculation issued on 30 March 2020³.

7.13 Pursuant to Section 193 of the PIDM Act, any person who prepares, signs, approves or concurs in any account, statement, return, report or other document required for submission to PIDM that he or she knows or has reason to believe is false or contains false or misleading information, commits an offence punishable by fine or imprisonment or both.⁴

## COMPUTATION AND NOTIFICATION OF SCORE

7.14 The DLST score shall be the sum of scores assigned for the quantitative and the qualitative criteria.

³ Which supersedes the “Guidelines on Validation Programme: Differential Levy Systems and Levies Calculation” issued on 31 January 2020.
⁴ Section 193 of the Act, applies to officers of the insurance companies, internal auditors and external auditors with regard to the DLST framework and RCL reporting and the validation programme.

7.15 The score of each criterion is prescribed pursuant to the Malaysia Deposit Insurance Corporation (Differential Premium Systems in Respect of Insurer Members) Regulations 2012⁵.

7.16 PIDM will compute the overall DLST score for each takaful operator and notify the takaful operator of their respective score, levy category and applicable levy rate by 15 May of each assessment year. This will provide sufficient time for a takaful operator to make the necessary arrangement for the payment of levy that is due to PIDM by 31 May of each assessment year. Please refer to Illustration 11 for an example of DLST scoring and levy categorisation.

## APPEAL PROCESS

7.17 An appeal process is put in place to provide an avenue for any takaful operator to request for a review of its final score, levy category and levy rate in certain circumstances.

7.18 A takaful operator may appeal against its score, levy category and levy rate after 31 May of an assessment year and is required to formally submit its appeal in writing to PIDM within the time prescribed in paragraph 7.20. The reason(s) or ground(s) for the appeal, as set out in paragraph 7.19, must be included.

7.19 The appeal must be on the basis of an error in the quantitative information provided by a takaful operator to PIDM or an error in PIDM’s computation of any of the indicators for operational and sustainability measure or an error in PIDM’s assessment of the qualitative criteria, other than the supervisory rating by BNM.

7.20 Any request for appeal shall be submitted in writing to PIDM no later than 31 August of that assessment year. PIDM will review and respond to the appeal by 30 September of that assessment year. Notwithstanding the appeal, an insurer member must pay the annual levy on or before 31 May of that assessment year.

7.21 If the appeal results in PIDM determining that a takaful operator has overpaid its annual levy for that assessment year, PIDM shall refund a takaful operator the difference after the appeal process is concluded. Conversely, if it is determined that a takaful operator has underpaid its annual levy for that assessment year, a takaful operator shall pay the difference to PIDM.

⁵ As amended by the Malaysia Deposit Insurance Corporation (Differential Premium Systems in respect of Insurer Members) (Amendment) Regulations 2016 and Malaysia Deposit Insurance Corporation (Differential Premium Systems in respect of Insurer Members) (Amendment) Regulations 2019.

## PROHIBITION AGAINST PUBLIC DISCLOSURE

7.22 A takaful operator acknowledges that the following information (“Information”) is confidential:

(a) A takaful operator’s score for any indicator or criteria of the DLST;
(b) A takaful operator’s total criteria score;
(c) Levy category in which a takaful operator is or has been classified;
(d) Levy rate that is or was applicable to a takaful operator; and
(e) The amount of levy payable or paid by a takaful operator.

7.23 No director, officer, employee or agent of a takaful operator or any person who for any reason has by any means access to any of the Information or any document which discloses or contains any of the Information, shall provide or disclose to any other person or publish any such Information or document unless the disclosure is permitted under any law or court order or for the purpose of a takaful operator performing its duties or carrying out the provisions of any law or any regulation, guideline or instruction made by BNM or PIDM.

7.24 A levy surcharge may be imposed on a takaful operator that does not comply with the prohibition against public disclosure.

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# PART 8: REPORTING MANUAL AND FORMS

## GENERAL REQUIREMENT

8.1 Any restatement made to a takaful operator’s previous year’s financial information shall be reflected in the submission of quantitative information to PIDM. However, the takaful operator’s previous year DLST score will not be amended.

8.2 All amounts shall be reported in thousands (‘000).

8.3 All percentages shall be expressed to two (2) decimal points.

8.4 A takaful operator must use the pre-formatted excel spreadsheet provided in the PIDM’s corporate website for submission to PIDM. A takaful operator must also ensure that no alteration or amendment is made to the pre-formatted excel spreadsheet. A takaful operator shall only be required to fill-in the marked cells.

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# PART 9: NEW INSURER MEMBER AND AMALGAMATED INSURER MEMBER

## NEW INSURER MEMBER

9.1 A takaful operator shall be automatically categorised in the best levy category for the assessment year in which it becomes an insurer member (“first assessment year”), and the assessment year immediately after the assessment year it becomes an insurer member (“second assessment year”).

9.2 A takaful operator is not required to submit the quantitative information to PIDM for the first and second assessment years. The takaful operator is required to submit the quantitative information to PIDM from the third assessment year onwards.

9.3 In the event that a takaful operator does not have sufficient information to calculate certain criteria in the third assessment year, the scores of these criteria shall be assigned proportionately according to paragraph 7.4 (Insufficient Quantitative Information).

9.4 For the computation of the quantitative criteria for the third assessment years onwards, the quantitative information relating to the position as at 31 December of the first assessment year shall not be included in the computation. The scores of these criteria shall be assigned proportionately according to paragraph 7.4 (Insufficient Quantitative Information).

## AMALGAMATED INSURER MEMBER

9.5 An amalgamated insurer member means a takaful operator formed from the acquisition of one (1) takaful operator by another takaful operator or the merger of two (2) or more takaful operators at any time from 1 June of the preceding assessment year to 31 May of an assessment year.

9.6 The following provisions shall apply in determining the quantitative and qualitative scores of the amalgamated insurer member for a particular assessment year:

(a) An amalgamated insurer member is formed before or on 31 December of the preceding assessment year

The computation of each indicator of the amalgamated insurer member for the quantitative criteria shall be based on the financial information of the amalgamated insurer member as at 31 December of the preceding assessment year.

The scoring of the amalgamated insurer member for the qualitative criteria shall be based on the supervisory rating and other relevant information of the amalgamated insurer member as at 31 December of the preceding assessment year.

Example 1:
Takaful Operators A and B were involved in the process of merger and acquisition and transferred whole or part of their takaful business to the amalgamated insurer member known as Takaful Operator ‘X’. Takaful Operator ‘X’ commences operations on 1 September 2019.

For the assessment year 2020, Takaful Operator ‘X’ shall submit its quantitative information based on the financial information as at 31 December 2019.

(b) An amalgamated insurer member is formed after 31 December of the assessment year

The computation of each indicator of the amalgamated insurer member for the quantitative criteria shall be based on the financial information of the amalgamating insurer member⁶ as at 31 December of the preceding assessment year.

The scoring of the amalgamated insurer member for the qualitative criteria shall be based on the supervisory rating and other relevant information of the amalgamating insurer member as at 31 December of the preceding assessment year.

⁶ An amalgamating insurer member refers to any one of the insurer members involved in an amalgamation or a merger with the highest total scoring for quantitative criteria as of 31 December of the preceding assessment year.

---

Example 2:
Takaful Operators A and B were involved in the process of merger and acquisition. The process of transferring assets and liabilities is completed, resulting in the formation of an amalgamated takaful operator, Takaful Operator ‘Y’, on 2 January 2020. The table below depicts the scores of the quantitative, supervisory and other information of amalgamating takaful operators for position as at 31 December 2019:

| Criteria | Takaful Operators | |
| :--- | :---: | :---: |
| | **A** | **B** |
| **Quantitative** | | |
| Capital – FCI | 1.21 | 1.15 |
| Operational and sustainability score | 75% | 55% |
| **Total Quantitative Score (a)** | **55%** | **40 %** |
| **Qualitative** | | |
| Supervisory rating | 22% | 10% |
| Other information criteria | 5% | 0% |
| **Total Qualitative Score (b)** | **27%** | **10%** |
| **Total DLST Score (a) + (b)** | **82%** | **50%** |

Takaful Operator A (the amalgamating insurer member) has the highest quantitative score as at 31 December 2019. Takaful Operator ‘Y’ shall submit its quantitative information forms based on the financial information of Takaful Operator A for the assessment year 2020. Takaful Operator A‘s supervisory rating score of 22% and the other information score of 5% will be also applied to Takaful Operator ‘Y’ to arrive at the overall DLST score for assessment year 2020.

Perbadanan Insurans Deposit Malaysia
30 March 2020

---

# Appendix 1
## CAPITAL MEASURE
### Free Capital Index

**Formula:**
Free Capital Index = Capital adequacy ratio (%) / Individual target capital level (%)

**Note:**
(i) Capital Adequacy Ratio (“CAR”) is as defined in the ‘Risk-Based Capital Framework for Takaful Operators (“RBCT”)’ specified by BNM.
(ii) Individual target capital level (“ITCL”) is as determined in the 'Guidelines on Internal Capital Adequacy Assessment Process (“ICAAP”) for Takaful Operators issued by BNM.
(iii) The takaful operator’s ITCL shall be based on the latest ITCL agreed by BNM as at 31 December of the preceding assessment year.
(iv) In the case of amalgamated insurer member (please refer to paragraph 9.5), if the ITCL of a takaful operator has yet to be determined as at 31 December of the preceding assessment year, the takaful operator shall be categorised at the minimum required FCI (score range of 1.00 ≤ FCI ≤1.10) until the ITCL of the takaful operator is determined.

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| CAR | Form A of the RBCT Framework - Reporting Form. | CAR is based on the average CAR of four (4) quarters within the preceding assessment year. |
| ITCL | As agreed by BNM, specified in the Guidelines on RBCT Framework. | |

**Score Range:**

| Free Capital Index | |
| :--- | :--- |
| **Range of Results** | |
| Free Capital Index > 1.20 | |
| 1.10 < Free Capital Index ≤ 1.20 | |
| 1.00 ≤ Free Capital Index ≤ 1.10 | |
| Free Capital Index < 1.00 | |

---

# Appendix 2
## OPERATIONAL AND SUSTAINABILITY MEASURE - GENERAL TAKAFUL BUSINESS
### Gross Contribution Growth Rate

**Formula:**
Gross Contribution Growth Rate = [Gross contributions (t) – Gross contributions (t-1)] / Gross contributions (t-1) x 100%

**3-year weighted average**
Gross Contribution Growth Rate = [50% x growth rate (t)] + [30% x growth rate (t-1)] + [20% x growth rate (t-2)]

where,
t = one year immediately preceding the current assessment year;
t-1 = two years immediately preceding the current assessment year; and
t-2 = three years immediately preceding the current assessment year.

**Note:**
(i) Gross contribution growth rate is based on a 3-year weighted average growth rate, i.e. weightages of 50% for one year immediately preceding the current assessment year, 30% for two years immediately preceding the current assessment year and 20% for three years immediately preceding the current assessment year.
(ii) A takaful operator which has less than four (4) years of data shall not be assigned a score for this indicator. The score of this indicator shall be determined on a proportionate basis as specified in paragraph 7.4 (Insufficient Quantitative Information).

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Gross contributions | Statement of Contributions, Form GT5 as specified in the Guidelines for TOSS. | Gross contributions include contribution from direct business (less return contributions) and all retakaful accepted. |

**Score Range:**

| Gross Contribution Growth Rate | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Gross Contribution Growth Rate > 7.00% | 25 |
| 5.00% < Gross Contribution Growth Rate ≤ 7.00% | 16 |
| 0.00% < Gross Contribution Growth Rate ≤ 5.00% | 8 |
| Gross Contribution Growth Rate ≤ 0.00% | 0 |

---

# Appendix 3
## OPERATIONAL AND SUSTAINABILITY MEASURE - GENERAL TAKAFUL BUSINESS
### Business Diversification Ratio

**Formula:**
Business Diversification Ratio = (Provision of risk margin for adverse deviation (“PRAD”) – Fund provision of risk margin for adverse deviation (“FPRAD”)) / Provision of risk margin for adverse deviation (“PRAD”) x 100%

**Note:**
(i) The PRAD refers to the provision of risk margin for adverse deviation, is the component of the value of the takaful liabilities that relates to the uncertainty inherent in the best estimate, as defined in the Guidelines on Valuation Basis for Liabilities of General Takaful Business as specified by BNM.

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| PRAD | RBCT Framework - Reporting Form: General takaful fund - Valuation liabilities, Form K. | The PRAD includes valuation of contribution liabilities attributable to all classes of businesses. |
| FPRAD | RBCT Framework - Reporting Form: General takaful fund - Valuation liabilities, Form K. | The FPRAD includes valuation of contribution liabilities attributable to all classes of businesses. |

**Score Range:**

| Business Diversification Ratio | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Business Diversification Ratio > 30.00% | 20 |
| 20.00% < Business Diversification Ratio ≤ 30.00% | 14 |
| 15.00% ≤ Business Diversification Ratio ≤ 20.00% | 7 |
| Business Diversification Ratio < 15.00% | 0 |

---

# Appendix 4
## OPERATIONAL AND SUSTAINABILITY MEASURE - GENERAL TAKAFUL BUSINESS
### Receivable Ratio

**Formula:**
Receivable Ratio = Takaful receivables / Gross contributions x 100%

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Gross Contributions | Statement of Contributions, Form GT5 as specified in the Guidelines for TOSS. | Gross contributions include contribution from direct business (less return contributions) and all retakaful accepted. |
| Takaful Receivables | Ageing Schedule, Schedule 12, Form GT3 as specified in the Guidelines for TOSS. | Takaful receivables refers to the aggregate of total gross outstanding contributions and agents’ balances of more than 60 days and total amount due from retakaful or ceding companies of more than 90 days. |

**Score Range:**

| Receivable Ratio | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Receivable Ratio ≤ 10.00% | 15 |
| 10.00% < Receivable Ratio ≤ 15.00% | 10 |
| 15.00% < Receivable Ratio ≤ 20.00% | 5 |
| Receivable Ratio > 20.00% | 0 |

---

# Appendix 5
## OPERATIONAL AND SUSTAINABILITY MEASURE - GENERAL TAKAFUL BUSINESS
### Loss Ratio

**Formula:**
Loss Ratio = Net claims incurred / Earned contribution income x 100%

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Net claims incurred | Statement of Claims, Form GT6 as specified in the Guidelines for TOSS. | Net claims incurred refers to claims paid plus increase or less decrease in provisions for outstanding claims within the preceding assessment year and net of retakaful recoveries. |
| Earned contribution income | Statement of Contributions, Form GT5 as specified in the Guidelines for TOSS. | Earned contribution income refers to net contribution less increase or plus decrease in unearned contribution reserves within the preceding assessment year. |

**Score Range:**

| Loss Ratio | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Loss Ratio ≤ 40.00% | 20 |
| 40.00% < Loss Ratio ≤ 50.00% | 14 |
| 50.00% < Loss Ratio ≤ 60.00% | 7 |
| Loss Ratio > 60.00% | 0 |

---

# Appendix 6
## OPERATIONAL AND SUSTAINABILITY MEASURE - FAMILY TAKAFUL BUSINESS
### New Business Growth Rate

**Formula:**
New Business Growth Rate = [New business contributions (t) – New business contributions (t-1)] / New business contributions (t-1) x 100%

**3-year weighted average**
New Business Growth Rate = [50% x growth rate (t)] + [30% x growth rate (t-1)] + [20% x growth rate (t-2)]

where,
t = one year immediately preceding the current assessment year;
t-1 = two years immediately preceding the current assessment year; and
t-2 = three years immediately preceding the current assessment year.

**Note:**
(i) The new business contributions refer to both single and annual contributions for all types of businesses (ordinary family, annuity and investment linked) as reported in the ‘Statement of New Business’ as specified in the Guidelines for TOSS.
(ii) The new business growth rate is based on a 3-year weighted average growth rate, i.e. weightages of 50% for one year immediately preceding the current assessment year, 30% for two years immediately preceding the current assessment year and 20% for three years immediately preceding the current assessment year.
(iii) A takaful operator which has less than four (4) years of data shall not be assigned a score for this indicator. The score of this indicator shall be determined on a proportionate basis as specified in paragraph 7.4 (Insufficient Quantitative Information).

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Single and annual/ regular contributions | Statement of New Business, Form FT5 as specified in the Guidelines for TOSS. | The annual contribution equivalent (“ACE”) is adopted where it aggregates total new regular contributions with 10% new single contribution in the calculation. |

**Score Range:**

| New Business Growth Rate | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| New Business Growth Rate > 10.00% | 25 |
| 5.00% < New Business Growth Rate ≤ 10.00% | 16 |
| 0.00% < New Business Growth Rate ≤ 5.00% | 8 |
| New Business Growth Rate ≤ 0.00% | 0 |

---

# Appendix 7
## OPERATIONAL AND SUSTAINABILITY MEASURE - FAMILY TAKAFUL BUSINESS
### Business Concentration Ratio

**Formula:**
Business Concentration Ratio = New business regular contributions (t) / New business single contributions (t) x 100%

where,
t = one year immediately preceding the current assessment year.

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| New business regular contributions | “Annual Contributions” category in the Statement of New Business, Form FT5 as specified in the Guidelines for TOSS. | New business regular contributions refers to total annual contributions that include ordinary family, investment linked and annuities. |
| New business single contributions | “Single Contributions” category in the Statement of New Business, Form FT5 as specified in the Guidelines for TOSS. | New business single contributions refers to total single contributions that include ordinary family, investment linked and annuities. |

**Score Range:**

| Business Concentration Ratio | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Business Concentration Ratio > 150.00% | 20 |
| 125.00% < Business Concentration Ratio ≤ 150.00% | 14 |
| 100.00% ≤ Business Concentration Ratio ≤ 125.00% | 7 |
| Business Concentration Ratio < 100.00% | 0 |

---

# Appendix 8
## OPERATIONAL AND SUSTAINABILITY MEASURE - FAMILY TAKAFUL BUSINESS
### Business Conservation Ratio

**Formula:**
Business Conservation Ratio = Renewal contributions (t) / (Renewal contributions (t-1) + First year contributions (t-1)) x 100%

where,
t = one year immediately preceding the current assessment year; and
t-1 = two years immediately preceding the current assessment year.

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Renewal contributions | Contribution Income/Consideration of Annuities Granted, Form FT1-1 (Schedule 1) and Contribution/Net Creation of Units for Investment Linked Business, Form FT1-2 (Schedule 1) as specified in the Guidelines for TOSS. | Renewal contributions refer to contributions receivable subsequent to the first certificate year, where the contribution payment term is two or more years. In calculating the renewal contributions, it includes the total gross direct contributions for renewal year’s contribution income of all businesses and total investment linked risk fund for renewal year contribution. |
| First year contributions | Contribution Income/Consideration of Annuities Granted, Form FT1-1 (Schedule 1) and Contribution/Net Creation of Units for Investment Linked Business, Form FT1-2 (Schedule 1) as specified in the Guidelines for TOSS. | First year contributions refer to contributions receivable for the first certificate year, where the contribution payment term is two or more years. In calculating the first year contributions, it includes the total gross direct contributions for first year’s contribution income of all businesses and total investment linked risk fund for first year contribution. |

**Score Range:**

| Business Conservation Ratio | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Business Conservation Ratio > 80.00% | 20 |
| 76.00% < Business Conservation Ratio ≤ 80.00% | 14 |
| 70.00% ≤ Business Conservation Ratio ≤ 76.00% | 7 |
| Business Conservation Ratio < 70.00% | 0 |

---

# Appendix 9
## OPERATIONAL AND SUSTAINABILITY MEASURE - FAMILY TAKAFUL BUSINESS
### Investment Yield

**Formula:**
Investment Yield = 2 x [Net investment income (I) + Net capital gains or losses (C)] / (Total assets (t) + Total assets (t-1) – (I+C)) x 100%

where,
t = one year immediately preceding the current assessment year; and
t-1 = two years immediately preceding the current assessment year.

**Note:**
(i) In setting the benchmark for the score range, the Government Investment Issues (“GII”) 5-year Spot Rate is used, i.e. average GII spot rate as at last trading date of each quarter within the preceding assessment year. The GII spot rate refers to the GII for the tenure of five (5) years, as published by Bond Pricing Agency Malaysia Sdn Bhd.

---

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Net investment income | Family Takaful Business Revenue Account, Form FT1, as specified in the Guidelines for TOSS | Net investment income refers to the total net investment income that includes ordinary family, annuity and investment linked. |
| Net capital gains or losses | Family Takaful Business Revenue Account, Form FT1, as specified in the Guidelines for TOSS | Net capital gains or losses* include: (i) Profit on disposal of securities and properties; (ii) Loss on disposal of securities and properties; (iii) Accretion of discounts on securities; (iv) Amortisation of premiums on securities; (v) Unrealised capital gains on securities and other investments; (vi) Unrealised capital loss on securities and other investments; (vii) Write back of diminution in value of corporate securities and other investments; (viii) Diminution in value of corporate securities and other investments; and (ix) Changes in Gross Available-for-sale (“AFS”) reserves or Fair Value through Other Comprehensive Income (“FVOCI”) reserves.** |
| | Oher supporting information | * Net capital gains or losses refer to the total net capital gains or losses of the ordinary life fund, annuity fund and investment-linked operating fund. ** Changes in gross AFS or FVOCI reserves is the difference between AFS or FVOCI reserves, gross of tax as at 31 December of two years immediately preceding the current assessment year and the AFS or FVOCI reserves, gross of tax, as at 31 December of one year immediately preceding the current assessment year. |
| Total assets | Family Fund Balance Sheet, Form FT3-2, as specified in the Guidelines for TOSS | Total assets refer to total assets of the takaful funds, where takaful funds include ordinary family, annuities and investment-linked fund. |

**Score Range:**

| Investment Yield | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Investment Yield > GII + 150bp | 15 |
| GII + 75bp < Investment Yield ≤ GII + 150bp | 10 |
| GII ≤ Investment Yield ≤ GII + 75bp | 5 |
| Investment Yield < GII | 0 |

---

# Appendix 10
## OPERATIONAL AND SUSTAINABILITY MEASURE - GENERAL AND FAMILY TAKAFUL BUSINESSES
### Expense Gap Ratio

**Formula:**
Expense Gap Ratio = (Management expenses + Commission expenses) / (Earned wakalah fees + Mudharabah surplus transfer) x 100%

**Note:**
(i) Earned wakalah fee refers to the total earned wakalah fee charged by the takaful operator.

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Management expenses | Income Statement, Form GT2/FT2, as specified in Guidelines for TOSS. | Management expenses refer to the expenses incurred for shareholder fund and takaful funds where: (i) Shareholders’ fund refers to all expenses relating to shareholders and corporate affairs. (ii) Takaful funds refer to all expenses relating to takaful business other than commission that are borne by the shareholders. |
| Commission expenses | Income Statement, Form GT2/FT2, as specified in Guidelines for TOSS. | Commission expenses refer to the expense incurred for general takaful fund and family takaful fund where: (i) General takaful fund refers to commissions paid or payable to the intermediaries on direct general takaful business. (ii) Family takaful fund refers to commission paid or payable to the intermediaries on direct family business. It aggregates gross commission on direct family business and agency-related expenses that include ordinary family, investment-linked and annuities fund. |

---

| Data Requirement | Source of Information | Remarks |
| :--- | :--- | :--- |
| Earned wakalah fee = Wakalah fee – changes of expense liabilities | Income Statement, Form GT2/FT2, as specified in Guideline for TOSS. | Wakalah fee refers to fees charged by a Takaful Operator that adopts the wakalah (agency) concept in its takaful business. |
| | Form M of the RBCT Framework - Reporting Form for shareholder fund’s expense liabilities for general takaful business as at reporting period. | Changes of expense liabilities refer to the increase or decrease within the preceding assessment year of the shareholder fund’s expense liabilities*. The difference between gross expense liabilities after zerorisation as at 31 December of two years immediately preceding the current assessment year and gross expense liabilities after zerorisation as at 31 December of one year immediately preceding the current assessment year. |
| | Form L1 of the RBCT Framework - Reporting Form for shareholder fund’s expense liabilities for family takaful business as at reporting period. | *Expense liabilities is the expected future expenses payable from the shareholders’ fund in managing the takaful funds. |
| Mudharabah surplus transfer | Other supporting information | Mudharabah surplus transfer refers to surplus transferred from takaful funds in relation to mudharabah agreements only. |

**Score Range:**

| Expense Gap Ratio | |
| :--- | :---: |
| **Range of Results** | **Score (%)** |
| Expense Gap Ratio ≤ 105.00% | 20 |
| 105.00% < Expense Gap Ratio ≤ 115.00% | 14 |
| 115.00% < Expense Gap Ratio ≤ 120.00% | 7 |
| Expense Gap Ratio > 120.00% | 0 |

---

# ILLUSTRATION 1: COMPUTATION OF FREE CAPITAL INDEX

**Takaful Operator A**

| | Four (4) Quarters Within the Preceding Assessment Year | | | |
| :--- | :---: | :---: | :---: | :---: |
| | 31 March | 30 June | 30 September | 31 December |
| Capital Adequacy Ratio | 200.00% | 210.00% | 190.00% | 220.00% |

Individual Target Capital Level: 200%

Free Capital Index = Capital adequacy ratio (%) * / Individual target capital level (%)
= (200.00% + 210.00% + 190.00% + 220.00%) / 4 / 200%
= 205.00% / 200%
= 1.03

* Average CAR of four (4) quarters within the preceding assessment year.

As a result, Takaful Operator A will be placed at the free capital index range of 1.00 to 1.10.

---

# ILLUSTRATION 2: COMPUTATION OF GROSS CONTRIBUTION GROWTH RATE

**Takaful Operator B**
Gross contributions for 2019 (RM’ 000): 620,000
Gross contributions for 2018 (RM’ 000): 560,000
Gross contributions for 2017 (RM’ 000): 520,000
Gross contributions for 2016 (RM’ 000): 480,000

Gross Contribution Growth Rate = [Gross contributions (t) – Gross contributions (t-1)] / Gross contributions (t-1) x 100%

**One Year Immediately Preceding the Current Assessment Year (t)**
Gross Contribution Growth Rate = (RM620 million – RM560 million) / RM560 million x 100%
= RM60 million / RM560 million x 100%
= 10.71%

**Two Years Immediately Preceding the Current Assessment Year (t-1)**
Gross Contribution Growth Rate = (RM560 million – RM520 million) / RM520 million x 100%
= RM40 million / RM520 million x 100%
= 7.69%

**Three Years Immediately Preceding the Current Assessment Year (t-2)**
Gross Contribution Growth Rate = (RM520 million – RM480 million) / RM480 million x 100%
= RM40 million / RM480 million x 100%
= 8.33%

**3-Year Weighted Average**
Gross Contribution Growth Rate = [50% x growth rate (t)] + [30% x growth rate (t-1)] + [20% x growth rate (t-2)]
= [50% x 10.71%] + [30% x 7.69%] + [20% x 8.33%]
= 9.33%

As a result, Takaful Operator B will get a score of 25% under the gross contribution growth rate indicator.

---

# ILLUSTRATION 3: COMPUTATION OF BUSINESS DIVERSIFICATION RATIO

**Takaful Operator C**

| As at 31 December of the Preceding Assessment Year | RM’ 000 |
| :--- | :---: |
| Provision of risk margin for adverse deviation | 120,000 |
| Fund provision of risk margin for adverse deviation | 100,000 |

Business Diversification Ratio = (Provision of risk margin for adverse deviation – Fund provision of risk margin for adverse deviation) / Provision of risk margin for adverse deviation x 100%
= (RM120 million – RM100 million) / RM120 million x 100%
= 16.67%

As a result, Takaful Operator C will get a score of 7% under the business diversification ratio indicator.

---

# ILLUSTRATION 4: COMPUTATION OF RECEIVABLE RATIO

**Takaful Operator D**

| As at 31 December of the Preceding Assessment Year | RM’ 000 |
| :--- | :---: |
| Gross contributions | 180,000 |
| Takaful receivables | |
| Total outstanding contributions and agents’ balances * | 15,000 |
| Total amount due from retakaful/ceding companies ** | 15,000 |
| Total takaful receivables | 30,000 |

* Only includes outstanding balances more than 60 days.
** Only includes amount due more than 90 days.

Receivable Ratio = Takaful receivables / Gross contributions x 100%
= RM30 million / RM180 million x 100%
= 16.67%

As a result, Takaful Operator D will get a score of 5% under the receivable ratio indicator.

---

# ILLUSTRATION 5: COMPUTATION OF LOSS RATIO

**Takaful Operator E**

| As at 31 December of the Preceding Assessment Year | RM’ 000 |
| :--- | :---: |
| Earned contribution income | 95,000 |
| Net claims incurred | 50,000 |

Loss Ratio = Net claims incurred / Earned contribution income x 100%
= RM50 million / RM95 million x 100%
= 52.63%

As a result, Takaful Operator E will get a score of 7% under the loss ratio indicator.

---

# ILLUSTRATION 6: COMPUTATION OF NEW BUSINESS GROWTH RATE

**Takaful Operator F**

| | New Business Contributions | | |
| :--- | :---: | :---: | :---: |
| **Year** | **Single Contributions (SC)** | **Annual Contributions (AC)** | **Annual Contributions Equivalent (ACE) [(SC x 10%) +AC]** |
| | | **(RM’ 000)** | |
| 2015 | 20,000 | 130,000 | 132,000 |
| 2014 | 20,000 | 125,000 | 127,000 |
| 2013 | 10,000 | 120,000 | 121,000 |
| 2012 | 10,000 | 100,000 | 101,000 |

New Business Growth Rate = [New business contributions (t) – New business contributions (t-1)] / New business contributions (t-1) x 100%

**One Year Immediately Preceding the Current Assessment Year (t)**
New Business Growth Rate = (RM132 million – RM127 million) / RM127 million x 100%
= RM5 million / RM127 million x 100%
= 3.94%

**Two Year Immediately Preceding the Current Assessment Year (t-1)**
New Business Growth Rate = (RM127 million – RM121 million) / RM121,000 x 100%
= RM6 million / RM121 million x 100%
= 4.96%

---

**Three Years Immediately Preceding the Current Assessment Year (t-2)**
New Business Growth Rate = (RM121 million – RM101 million) / RM101 million x 100%
= RM20 million / RM101 million x 100%
= 19.80%

**3-Year Weighted Average**
New Business Growth Rate = [50% x growth rate (t)] + [30% x growth rate (t-1)] + [20% x growth rate (t-2)]
= [50% x 3.94%] + [30% x 4.96%] + [20% x 19.80%]
= 7.42%

As a result, Takaful Operator F will get a score of 16% under the new business growth rate indicator.

---

# ILLUSTRATION 7: COMPUTATION OF BUSINESS CONCENTRATION RATIO

**Takaful Operator G**

| As at 31 December of the Preceding Assessment Year | RM’ 000 |
| :--- | :---: |
| Regular contributions – New certificates | 300,000 |
| Single contributions – New certificates | 180,000 |

Business Concentration Ratio = New business regular contributions (t) / New business single contributions (t) X 100%
= RM300 million / RM180 million x 100%
= 166.67%

where,
t = one year immediately preceding the current assessment year.

As a result, Takaful Operator G will get a score of 20% under the business concentration ratio indicator.

---

# ILLUSTRATION 8: COMPUTATION OF BUSINESS CONSERVATION RATIO

**Takaful Operator H**

| Type of Contributions | t-1 (2018) | t (2019) |
| :--- | :---: | :---: |
| | **RM’ 000** | |
| First year contributions: | | |
| Ordinary Takaful | 15,000 | |
| Annuity | 10,000 | |
| Investment-linked risk fund | 15,000 | |
| **Total** | **40,000** | |
| Renewal contributions: | | |
| Ordinary Takaful | 70,000 | 73,000 |
| Annuity | 30,000 | 32,000 |
| Investment-linked risk fund | 90,000 | 95,000 |
| **Total** | **190,000** | **200,000** |

Business Conservation Ratio = Renewal contributions (t) / (Renewal contributions (t-1) + First year contributions (t-1)) x 100%
= RM200 million / (RM190 million + RM40 million) x 100%
= 86.96%

where,
t = one year immediately preceding the current assessment year; and
t-1 = two years immediately preceding the current assessment year

As a result, Takaful Operator H will get a score of 20% under the business conservation ratio indicator.

---

# ILLUSTRATION 9: COMPUTATION OF INVESTMENT YIELD

**Takaful Operator I**

| Balance Sheet | t-1(2018) | t(2019) |
| :--- | :---: | :---: |
| | **RM’ 000** | **RM’ 000** |
| Total assets | 700,000 | 600,000 |

where,
t = one year immediately preceding the current assessment year; and
t-1 = two years immediately preceding the current assessment year

| Revenue Account: For the year ended 31 December 2019 | RM’ 000 | RM’ 000 |
| :--- | :---: | :---: |
| Net capital gains/loss: | | |
| Profit on disposal of securities and properties | 13,000 | |
| Loss on disposal of securities and properties | -1,000 | |
| **Net** | | **12,000** |
| Accretion of discounts on securities | 0 | |
| Amortisation of premiums on securities | -1,000 | |
| **Net** | | **-1,000** |
| Unrealised capital gain | 1,000 | |
| Unrealised capital loss | -1,000 | |
| **Net** | | **0** |
| Writeback of diminution in value of corporate securities and other investments | 1,000 | |
| Diminution in value of corporate securities and other investments | -6,000 | |
| **Net** | | **-5,000** |
| Gross AFS/FVOCI reserves – Two years immediately preceding the current assessment year | 2,000 | |
| Gross AFS/FVOCI reserves – One year Immediately preceding the current assessment year | -1,000 | |
| **Net** | | **1,000** |
| **Total net capital gains** | | **7,000** |
| **Net investment income** | | **23,000** |

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The average GII 5-year Spot Rate as at last trading date of each quarter within the preceding assessment year is 3.75% as shown in the table below:

| 31 March | 30 June | 30 September | 31 December | Average |
| :--- | :--- | :--- | :--- | :--- |
| 3.70% | 3.70% | 3.80% | 3.80% | 3.75% |

Investment Yield = 2 x [Net Investment Income (I) + Net Capital Gains or Loss (C)] / (Total Assets (t) + Total Assets (t-1) – (I + C)) x 100%
= 2 x [(RM23 million + RM7 million)] / (RM700 million + RM600 million) - (RM23 million + RM7 million) x 100%
= 4.72%

As a result, Takaful Operator I will get a score of 10% under the investment yield indicator [scoring of the above investment yield of 4.72% is between the investment yield of 4.50% (GII of 3.75% + 75 b.p.) and 5.25% (GII of 3.75% + 150 b.p.)].

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# ILLUSTRATION 10: COMPUTATION OF EXPENSE GAP RATIO

**Takaful Operator J**

| As at 31 December of the Preceding Assessment Year | RM’ 000 |
| :--- | :---: |
| Management expenses (a+b) | 30,000 |
| a. Shareholders’ fund | 10,000 |
| b. General and Family takaful business | 20,000 |
| Commission expenses (a+b) | 10,000 |
| a. General takaful business | 5,000 |
| b. Family takaful business | 5,000 |
| Earned wakalah fees (a-b) | 25,000 |
| a. Total wakalah fees charged by the shareholders’ fund | 33,000 |
| b. Changes of expense liabilities | |
| - General takaful business | 3,000 |
| - Family takaful business | 5,000 |
| Mudharabah surplus transfer | 10,000 |

Expense Gap Ratio = (Management expenses + Commission expenses) / (Earned wakalah fees + Mudharabah surplus transfer) x 100%
= (RM30 million + RM10 million) / (RM25 million + RM10 million) x 100%
= 114.29%

As a result, Takaful Operator J will get a score of 14% under the expense gap ratio indicator.

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# ILLUSTRATION 11: DLST SCORING AND LEVY CATEGORISATION

**Calculation of Total DLST Score for a Family Takaful Operator**

| Criteria & Indicators | Maximum Score | Takaful Operator Score |
| :--- | :---: | :---: |
| **Quantitative** | | |
| 1. Capital | | |
| FCI | NA | 1.30 |
| 2. Operational & Sustainability | | |
| (i) New Business Growth Ratio | 25% | 16% |
| (ii) Business Concentration Ratio | 20% | 14% |
| (iii) Business Conservation Ratio | 20% | 20% |
| (iv) Investment Yield | 15% | 15% |
| (v) Expense Gap Ratio | 20% | 14% |
| **Total Operational & Sustainability Score** | **100%** | **79%** |
| **Total Quantitative Criteria Score (placed at M2 in Table 3: Quantitative Criteria Matrix)** | **60%** | **55%** |
| **Qualitative** | | |
| 1. Supervisory Rating | 35% | 10% |
| 2. Other Information | 5% | 5% |
| **Total Qualitative Score** | **40%** | **15%** |
| **Total DLST Score** | **100%** | **70%** |

Based on table above, the takaful operator will be categorised in Category 2.

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# ILLUSTRATION 12: DLST SCORING AND LEVY CATEGORISATION FOR A TAKAFUL OPERATOR WITH INSUFFICIENT QUANTITATIVE INFORMATION

**Calculation of total DLST score for a takaful operator carrying on general takaful business with insufficient quantitative information.**

| Criteria & Indicators | Maximum Score | Takaful operator Score |
| :--- | :---: | :---: |
| **Quantitative** | | |
| 1. Capital | | |
| FCI | N/A | 1.21 |
| 2. Operational & Sustainability | | |
| (i) Gross Contribution Growth Rate | 25% | 16% |
| (ii) Business Diversification Ratio | 20% | NI* |
| (iii) Receivable Ratio | 15% | NI* |
| (iv) Loss Ratio | 20% | 14% |
| (v) Expense Gap Ratio | 20% | 14% |
| **Total Operational & Sustainability Score** | **100%** | **68%** |
| **Total Quantitative Criteria Score (placed at M2 in Table 3: Quantitative Criteria Matrix)** | **60%** | **55%** |
| **Qualitative** | | |
| 1. Supervisory Rating | 35% | 10% |
| 2. Other Information | 5% | 5% |
| **Total Qualitative Criteria Score** | **40%** | **15%** |
| **Total DLST Score** | **100%** | **70%** |

**Note:**
* NI denotes insufficient quantitative information.

Referring to paragraph 7.4 (Insufficient Quantitative Information), depicted below is the proportionate quantitative score for indicators with insufficient quantitative information (item ii and iii):

[44% / (100% - 35%)] x 35% = 24%

The table below shows the total operational and sustainability score for the takaful operator:

| Description | Takaful operator Score |
| :--- | :---: |
| Quantitative score for indicators with sufficient quantitative information | 44% |
| Add: Proportionate quantitative score for indicators with insufficient quantitative information | 24% |
| **Total Operational & Sustainability Score** | **68%** |

Based on total DLST score, the takaful operator will be categorised in Category 2.