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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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Prudential — Insurance Business Module (PIN) [VER15/01-18]
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  • PIN 4 Capital Adequacy

    • PIN 4.1 Introduction

      • PIN 4.1.1

        This chapter applies to all InsurersG .

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

        • PIN 4.1.1 Guidance

          1. The amount of capital is fundamental to the financial health of any insurance undertaking and therefore to the protection of its policyholders. All InsurersG are therefore required to maintain a minimum level of capital resources in accordance with this chapter.
          2. This chapter establishes minimum required levels of capital resources applicable to InsurersG of different types. PIN section 4.2 establishes provisions that are applicable to all InsurersG , wherever they are incorporated and of whatever type they are. PIN section 4.3 establishes Minimum Capital RequirementsG in respect of InsurersG other than Protected Cell CompaniesG , and PIN section 4.4 establishes equivalent requirements in respect of Protected Cell CompaniesG . Additional provisions are established by PIN section 4.6, in respect of InsurersG maintaining Long-Term Insurance FundsG , and by PIN section 4.7, in respect of InsurersG that are not DIFC Incorporated InsurersG .
          3. The DFSAG has the power under the Regulatory LawG 2004 to act if it believes that any requirement of this chapter is breached, or that it may be breached in the future.

          Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
          [Amended] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • PIN 4.1.2

        For the purposes of this chapter, assets and liabilities must be valued in accordance with PIN chapter 5.


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

      • PIN 4.1.3

        In this chapter and in the appendices referred to in this chapter, references to ratings are made according to the rating hierarchy (AAA, AA, etc) of Standard & Poor's. Where, for the purposes of a provision of this chapter or of an appendix, an InsurerG uses ratings from a Rating AgencyG other than Standard & Poor's, the InsurerG must apply that provision as though the Standard & Poor's rating referred to in the provision were replaced by the rating from that other Rating AgencyG that is equivalent to the Standard & Poor's rating.


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

      • PIN 4.1.4

        An InsurerG must not, for the purposes of this chapter or the appendices referred to in this chapter, use ratings provided by any Rating AgencyG other than Standard & Poor's, Moody's, AM Best, and Fitch Ratings, except where the DFSAG has given written approval to the InsurerG for the use of ratings provided by that other Rating AgencyG .


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

    • PIN 4.2 Basic requirement

      • PIN 4.2.1

        This section applies to all InsurersG .


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

      • PIN 4.2.2

        An InsurerG must always have capital resources that are, in the opinion of its directors formed on reasonable assumptions, adequate for the conduct of its business, taking into consideration the size of the InsurerG and the mix and complexity of its business.


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

        • PIN 4.2.2 Guidance

          1. Where an InsurerG effects Direct Long-Term InsuranceG contracts, PIN Rule 4.2.2 implies that the InsurerG must also be able to fund and service its Long-Term Insurance BusinessG in the long term.
          2. To be able to demonstrate to the DFSAG that the InsurerG meets the obligation of PIN Rule 4.2.2 on an on-going basis, the DFSAG expects the InsurerG to develop internal capital models to support the self-assessment of capital adequacy. Those internal capital models should include mechanisms to estimate in a realistic manner the impact on the Insurer'sG capital position of possible scenarios relevant to the Insurer'sG business. The results of scenario testing should be communicated to the appropriate levels of management within the InsurerG . InsurersG should be able to demonstrate to the DFSAG that the InsurerG has adequate capital resources to withstand external and internal shocks to which they may plausibly be exposed.
          3. Compliance with quantitative capital requirements set out in the PIN Module does not guarantee compliance with PIN Rule 4.2.2.
          [Added] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • PIN 4.2.3

        (1) Without limiting the generality of PIN Rule 4.2.2, an InsurerG that effects Direct Long-Term InsuranceG contracts must ensure that:
        (a) premiums for any Direct Long-Term InsuranceG contracts it effects are sufficient at that time for the formation of technical provisions relating to future Policy BenefitsG in accordance with the applicable valuation rules; and
        (b) each Long-Term Insurance FundG to which Direct Long-Term InsuranceG contracts are attributed holds at all times Invested AssetsG of appropriate safety, yield and marketability adequate to provide the future Policy BenefitsG under those contracts that are attributed to the FundG .
        (2) For the purposes of (1)(b), assets of the type described in PIN Rule A3.4.3 must be excluded.
        [Added] RM46/2007 (Made 5th July 2007). [VER6/07-07]

        • PIN 4.2.3 Guidance

          1. PIN Rule 4.2.3(1)(a) applies at the time that a contract is effected. Circumstances may arise in which premiums subsequently prove to be inadequate. However, this does not create a breach of the requirement in that subparagraph. Neither does the fact that an individual contract might suffer a large loss.
          2. An InsurerG should be able to demonstrate that its procedures allow for prior assessment and periodic review of premium adequacy of Direct Long-Term InsuranceG contracts that it writes. The assessment will consider the adequacy of premiums taking into account projected revenues and expenses in respect of the relevant contracts, including the likely impact of any discretionary features. In making this assessment, credit should not be taken for the impact of voluntary discontinuance (lapse, surrender of or making the contract paid-up) by the policyholder. The DFSAG does not consider it appropriate for the projected profitability of Direct Long-Term InsuranceG contracts to be dependent on 'lapse support'.
          3. PIN Rule 4.2.3(1)(a) generally prevents an Insurer from writing 'loss leader' Direct Long-Term InsuranceG products. An InsurerG that wishes to conduct business on a loss-leader basis would need to apply for an appropriate waiver. Such an InsurerG would need to demonstrate that its resources are adequate to cover an appropriate level of technical provisions in respect of the contracts concerned, without detriment to its ability to comply with this RuleG in respect of its other business.
          [Added] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • PIN 4.2.4

        Systems and controls maintained by directors for the purposes of PIN Rule 4.2.2 and PIN Rule 4.2.3 must include analysis of realistic scenarios relevant to the circumstances of the InsurerG and the effects that the occurrences of those scenarios would have on the capital requirements of the InsurerG and on its capital resources.

        Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] RM46/2007 (Made 5th July 2007). [VER6/07-07]

        • PIN 4.2.4 Guidance

          Because an InsurerG is required to maintain adequate capital resources at all times, its systems and controls need to enable the directors to determine and monitor the capital requirements of the InsurerG and the capital resources that it has available, and to identify occurrences where the capital resources fall short of the capital requirements or may fall short in the future. An InsurerG is not required to measure the precise amount of its capital resources and its capital requirements on a daily basis. However an InsurerG should be in a position to demonstrate its capital adequacy at any time if asked to do so by the DFSAG .


          Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
          [Amended] RM46/2007 (Made 5th July 2007). [VER6/07-07]

    • PIN 4.3 Minimum capital requirement for insurers that are not protected cell companies

      • PIN 4.3.1

        This section applies only to InsurersG that are not Protected Cell CompaniesG .


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

      • PIN 4.3.2

        An InsurerG that is not a Protected Cell CompanyG must always have Adjusted Capital ResourcesG equal to or higher than the amount of its Minimum Capital RequirementG .


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

      • PIN 4.3.3

        An Insurer'sG Adjusted Capital ResourcesG must be calculated in accordance with PIN App3.


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

      • PIN 4.3.4

        An Insurer'sG Minimum Capital RequirementG must be calculated in accordance with PIN App4.


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

    • PIN 4.4 Minimum capital requirement for insurers that are protected cell companies

      • PIN 4.4.1

        This section applies only to InsurersG that are Protected Cell CompaniesG .


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

      • PIN 4.4.2

        An InsurerG that is a Protected Cell CompanyG must ensure that at all times the InsurerG has Adjusted Non-Cellular Capital ResourcesG equal to or higher than the amount of the Minimum Non-Cellular Capital RequirementG .


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

      • PIN 4.4.3

        An InsurerG that is a Protected Cell CompanyG must ensure that at all times, in respect of each of its CellsG , the InsurerG has Adjusted Cellular Capital ResourcesG equal to or higher than the amount of the Minimum Cellular Capital RequirementG in respect of that CellG .


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

      • PIN 4.4.4

        The Adjusted Non-Cellular Capital ResourcesG in respect of an InsurerG that is a Protected Cell CompanyG must be calculated in accordance with PIN App5.


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

      • PIN 4.4.5

        The Minimum Non-Cellular Capital RequirementG in respect of an InsurerG that is a Protected Cell CompanyG must be calculated in accordance with PIN App6.


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

      • PIN 4.4.6

        The Adjusted Cellular Capital ResourcesG in respect of a CellG must be calculated in accordance with PIN App5.


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

      • PIN 4.4.7

        The Minimum Cellular Capital RequirementG in respect of a CellG must be calculated in accordance with PIN App6.


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

    • PIN 4.5 [Deleted]

      [Deleted] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • The content selected is no longer in force and cannot be presented in Whole Section view.

    • PIN 4.6 Insurers that undertake long-term insurance business

      • PIN 4.6.1

        Subject to PIN Rule 4.6.2, this section applies only to InsurersG that undertake Long-Term Insurance BusinessG through a Long-Term Insurance FundG .


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

      • PIN 4.6.2

        This section does not apply to either:

        (a) an InsurerG that is deemed to constitute a single Long-Term Insurance FundG in accordance with PIN Rule 3.2.2(b); or
        (b) an InsurerG that is a Protected Cell CompanyG in respect of a CellG that is deemed to constitute a single Long-Term Insurance FundG in accordance with PIN Rule 3.2.3(b).

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

      • PIN 4.6.3

        An InsurerG that undertakes Long-Term Insurance BusinessG through a Long-Term Insurance FundG must ensure that at all times, in respect of each Long-Term Insurance FundG maintained by it, the InsurerG has Adjusted Fund Capital ResourcesG equal to or higher than the amount of the Minimum Fund Capital RequirementG in respect of that Long-Term Insurance FundG .


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

      • PIN 4.6.4

        The Adjusted Fund Capital ResourcesG in respect of a Long-Term Insurance FundG maintained by an InsurerG must be calculated in accordance with PIN App7.


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

      • PIN 4.6.5

        The Minimum Fund Capital RequirementG in respect of a Long-Term Insurance FundG maintained by an InsurerG must be calculated in accordance with PIN App8.


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

    • PIN 4.7 Availability of assets of insurers incorporated outside the DIFC

      • PIN 4.7.1

        This section applies only to InsurersG that are not DIFC Incorporated InsurersG .

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

        • PIN 4.7.1 Guidance

          The provisions in this section require an InsurerG to have assets, of a minimum quality, available to meet its gross Insurance LiabilitiesG arising from its DIFCG Insurance BusinessG plus a margin. Although the InsurerG is required to cover its Insurance LiabilitiesG gross of reinsurance, an InsurerG still has benefit of its reinsurance arrangements because assets may include amounts receivable from reinsurers in respect of gross Insurance LiabilitiesG , including amounts potentially receivable from reinsurers in respect of the exposures reflected in the Insurer'sG Premium LiabilityG . No credit, however, may be taken in respect of a reinsurer that is RatedG worse than BBB.


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

      • PIN 4.7.2

        An InsurerG that is not a DIFC Incorporated InsurerG must always have assets, of a type referred to in PIN Rule 4.7.3, that are available to meet Insurance LiabilitiesG of the InsurerG arising in respect of operations conducted by the InsurerG in the DIFCG , at least equal to the sum of the following:

        (a) the sum of the default risk component and the investment volatility risk component in respect of those assets, calculated according to the methods set out in sections PIN A4.4 and PIN A4.5 respectively, applying those methods so far as concerns those assets only;
        (b) Insurance LiabilitiesG of the InsurerG in respect of its DIFCG Insurance BusinessG ; and
        (c) the Insurer'sG DIFC Business Risk Capital RequirementG , calculated in accordance with PIN App9.
        Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] RM46/2007 (Made 5th July 2007). [VER6/07-07]

        • PIN 4.7.2 Guidance

          1. Assets are not normally available to meet Insurance LiabilitiesG of an InsurerG arising in respect of operations conducted by the InsurerG in the DIFCG , if those assets are required to meet liabilities of the InsurerG in jurisdictions other than the DIFCG , except where those liabilities are also Insurance LiabilitiesG of the InsurerG arising in respect of operations conducted by the InsurerG in the DIFCG .
          2. Assets are not normally available to meet Insurance LiabilitiesG of an InsurerG arising in respect of operations conducted by the InsurerG in the DIFCG , if those assets are required, under the laws of any jurisdiction, to be located in a jurisdiction other than the DIFCG , except where the assets are required to be located in that jurisdiction to meet, or as collateral against, either:
          a. liabilities that are Insurance LiabilitiesG of the InsurerG arising in respect of operations conducted by the InsurerG in the DIFCG ; or
          b. liabilities that may arise in the future and that would, if they arose, be Insurance LiabilitiesG of the InsurerG arising in respect of operations conducted by the InsurerG in the DIFCG .

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

      • PIN 4.7.3

        The assets available to an InsurerG for the purposes of PIN Rule 4.7.2 may comprise any combination of the following types of asset:

        (a) bonds RatedG 'BBB' or better;
        (b) equities listed on an Approved Stock ExchangeG ;
        (c) reinsurance recoverable in respect of General Insurance LiabilitiesG referred to in PIN Rule 4.7.2(b), where the reinsurer is RatedG 'BBB' or better; and
        (d) land and buildings.

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

      • PIN 4.7.4

        An InsurerG subject to this section must demonstrate to the satisfaction of the DFSAG that the InsurerG complies with PIN Rule 4.7.2, when the DFSAG requests it by written notice to do so.


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

    • PIN 4.8 Failure to comply with this chapter

      • PIN 4.8.1

        An InsurerG that becomes aware that it does not comply with this chapter:

        (a) must immediately notify the DFSAG in writing;
        (b) must not effect any Contracts of InsuranceG through an establishment in the DIFCG until the DFSAG has given it written permission to recommence business;
        (c) must not, if the InsurerG is a DIFC Incorporated InsurerG , effect any Contracts of InsuranceG until the DFSAG has given it written permission to recommence business; and
        (d) must not make any distribution of profits or surplus however called or described, or return of capital, without the written permission of the DFSAG .

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

      • PIN 4.8.2

        An InsurerG that believes that it may not be in compliance with this chapter or may not continue to comply with this chapter in the future must immediately provide the DFSAG with a written statement of:

        (a) the reasons for the Insurer'sG belief that it may not be in compliance or may not continue to comply; and
        (b) the action that the InsurerG is taking to avoid non-compliance.

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

      • PIN 4.8.3

        An InsurerG to which PIN Rule 4.8.2 applies must not make any distribution of profits or surplus, however called or described, or return of capital without the written permission of the DFSAG .

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

        • PIN 4.8.3 Guidance

          In dealing with non-compliance, or possible non-compliance, with this chapter, the DFSA'sG primary concern will be the interests of policyholders, both existing and prospective. It recognises that there will be circumstances in which a problem may be resolved quickly, for example by support from a parent company, without jeopardising the interests of policyholders. In such circumstances, it will be in the interests of all parties for there to be minimum disruption to the Insurer'sG business. The DFSA'sG normal approach will be to seek to work cooperatively with firms to deal with any problems. There will, however, be other circumstances in which it is necessary to take firm action to avoid exposing further policyholders to the risk of the Insurer'sG failure, and the DFSAG will not hesitate to do so.


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

    • PIN 4.9 Limitations on distributions by insurers

      • PIN 4.9.1

        No InsurerG may make any distribution of profits or surplus, however called or described, or return of capital if such distribution or return would cause the InsurerG to fail to comply with any provision of this chapter.


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