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Dubai Financial Services Authority (DFSA): Contents

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PIN A2.5 Guidance



Whole Section PDF

The definitive version of DFSA handbook text is the PDF version as that is the text of the instrument as made and published by the DFSA.

To view past versions of this module in PDF format, please visit the Archive.

1. Reserving risk is the risk that Insurance LiabilitiesG recorded by the InsurerG , net of reinsurance and other recoveries in respect of those liabilities, will be inadequate to meet the net amount payable when the Insurance LiabilitiesG crystallise. Insurance LiabilitiesG include the liability for claims incurred up to the reporting date, as well as the Premium LiabilityG . In the case of General InsuranceG , reinsurance recoveries anticipated in respect of those liabilities are generally recognised as a separate asset. In the case of Long-Term InsuranceG , Insurance LiabilitiesG include also the net value of future Policy BenefitsG and the effects of reinsurance arrangements are taken into account when these are estimated.
2. An Insurer'sG risk management system should therefore include a process for ongoing review and appraisal of the Insurance LiabilityG valuation framework (i.e. assumptions made, reinsurance recoveries estimated etc). In conducting this review, consideration should be given to emerging pricing and claim payment trends.
3. An InsurerG should maintain appropriate systems, controls and procedures to ensure that the provision for Insurance LiabilitiesG is, at all times, sufficient to cover any liabilities that have been incurred, or are yet to be incurred on Contracts of InsuranceG accepted by the InsurerG , as far as can be reasonably estimated.
4. Appropriate methods should be applied in estimating the provision for Insurance LiabilitiesG , including provisions in respect of individual notified incurred claims. In determining a provision estimation method, managers may consider using alternative approaches before selecting those which may be regarded as most appropriate to the nature of the business.
5. Appropriate methods should be applied in estimating the amount of the asset in respect of reinsurance recoveries that are expected to arise on crystallisation of the gross Insurance LiabilitiesG . The manner of estimating those assets should be consistent with the manner estimating the gross liabilities, except where there is a sound justification for doing otherwise.
6. Suitable systems and controls should be put in place to ensure that the selected approaches are applied accurately and on a consistent basis.
7. Procedures should be in place to review and monitor, on a regular basis, the out-turn of provisions made in previous years for Insurance LiabilitiesG , both gross and net of reinsurance recoveries.
8. An InsurerG is required by PIN chapter 7 to obtain an annual report by an ActuaryG on the valuation of its Insurance LiabilitiesG and associated assets. The RulesG do not require the performance of an actuarial valuation at other times, however an InsurerG should consider the use of actuaries or other appropriately qualified and experienced loss reserving specialists to estimate Insurance LiabilitiesG periodically through the year. The InsurerG should in any case undertake periodic testing of its reserving processes and the level of its reserves, including continual reassessment of assumptions used, and testing the sensitivity of the valuation of Insurance LiabilitiesG to stress arising from realistic scenarios relevant to the circumstances of the InsurerG . Whether in-house or outside experts are used, appropriate procedures should be in place to ensure that the specialist selected possesses the appropriate level of skill and experience and has available the necessary information to carry out the estimation required.
9. Suitable controls should be in place to ensure that the data used in determining the Insurance LiabilitiesG are extracted from the underlying records accurately and to the necessary level of detail. The level of detail should be sufficient to ensure that the data available to managers in their assessment of Insurance LiabilitiesG covers the whole of its liabilities and exposures under insurance contracts.
10. Scenario testing should cover a period of several years into the future, particularly in the case of an InsurerG carrying on Long-Term Insurance BusinessG .

Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]