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The Regulation on the Operating Principles and Procedures of the Participation Insurance ("Participation Insurance Regulation") has been published in the Official Gazette dated 20.09.2017 and numbered 30186 and will enter into force within 3 months as of its publication.
General Definitions
As per the Participation Insurance Regulation, the participation insurance is defined as the type of insurance which is based on joint risk participation and cooperation where the participants contribute to the risk fund ("Risk Fund"), which is established to ensure the fulfilment of the compensation and/or saving payment requests of the participants and which is managed by an insurance company, in accordance with participation finance principles.
Pursuant to the Participant Insurance Regulation, the Risk Fund is established through the saving of the participation premium payments and related income in order to fulfill the compensation and/or saving payments and other costs and expenses.
Advisory Committee
Pursuant to Article 8 of the Participation Insurance Regulation, insurance companies that engage in the participation insurance activities shall establish an Advisory Committee to ensure that their activities are in compliance with participation insurance and participation finance principles, to be able to perform the duties determined under the Participation Insurance Regulation, including the approval of the samples of policies issued within the framework of participation insurance. It is possible for the insurance companies to outsource such services.
Management Models:
Pursuant to Article 4 of the Participation Insurance Regulation, insurance company may perform activities within the framework of (i) proxy, (ii) partnership, (iii) hybrid or (iv) any other model approved by the Advisory Committee.
The Participation Insurance Regulation defines;
Proxy model as the management model where the insurance company receives a proxy fee in return of risk fund management and other technical and legal operations regarding insurance,
Partnership model as the management model where the insurance company receives a management fee in return for risk fund management and other technical and legal operations regarding insurance, which is determined in accordance with profit distribution principles within the framework of effort-capital partnership,
Hybrid model as the management model where the insurance company receives a proxy fee in return for risk fund management and other technical and legal operations regarding insurance and all profit is distributed to the participants but the investment profit is shared between the participant and the insurance company based on a pre-determined ratio.
Depending on the management model, the fees and ratios shall be determined between the insurance company and the participant before the execution of the insurance agreement.
Separation of the Funds
Pursuant to Article 6 of the Insurance of Participation Insurance Regulation, the insurance company shall manage the risk funds created by the participations of the funds and the funds of the shareholders/members separately.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
