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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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  • PIN 4 Capital Adequacy

    • PIN 4.1 Introduction

      • PIN 4.1.1

        This chapter applies to all Insurers.

        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 Insurers 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 Insurers of different types. PIN section 4.2 establishes provisions that are applicable to all Insurers, wherever they are incorporated and of whatever type they are. PIN section 4.3 establishes Minimum Capital Requirements in respect of Insurers other than Protected Cell Companies, and PIN section 4.4 establishes equivalent requirements in respect of Protected Cell Companies. Additional provisions are established by PIN section 4.6, in respect of Insurers maintaining Long-Term Insurance Funds, and by PIN section 4.7, in respect of Insurers that are not DIFC Incorporated Insurers.
          3. The DFSA has the power under the Regulatory Law 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 Insurer uses ratings from a Rating Agency other than Standard & Poor's, the Insurer 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 Agency 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 Insurer must not, for the purposes of this chapter or the appendices referred to in this chapter, use ratings provided by any Rating Agency other than Standard & Poor's, Moody's, AM Best, and Fitch Ratings, except where the DFSA has given written approval to the Insurer for the use of ratings provided by that other Rating Agency.


        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 Insurers.


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

      • PIN 4.2.2

        An Insurer 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 Insurer 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 Insurer effects Direct Long-Term Insurance contracts, PIN Rule 4.2.2 implies that the Insurer must also be able to fund and service its Long-Term Insurance Business in the long term.
          2. To be able to demonstrate to the DFSA that the Insurer meets the obligation of PIN Rule 4.2.2 on an on-going basis, the DFSA expects the Insurer 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's capital position of possible scenarios relevant to the Insurer's business. The results of scenario testing should be communicated to the appropriate levels of management within the Insurer. Insurers should be able to demonstrate to the DFSA that the Insurer 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 Insurer that effects Direct Long-Term Insurance contracts must ensure that:
        (a) premiums for any Direct Long-Term Insurance contracts it effects are sufficient at that time for the formation of technical provisions relating to future Policy Benefits in accordance with the applicable valuation rules; and
        (b) each Long-Term Insurance Fund to which Direct Long-Term Insurance contracts are attributed holds at all times Invested Assets of appropriate safety, yield and marketability adequate to provide the future Policy Benefits under those contracts that are attributed to the Fund.
        (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 Insurer should be able to demonstrate that its procedures allow for prior assessment and periodic review of premium adequacy of Direct Long-Term Insurance 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 DFSA does not consider it appropriate for the projected profitability of Direct Long-Term Insurance 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 Insurance products. An Insurer that wishes to conduct business on a loss-leader basis would need to apply for an appropriate waiver. Such an Insurer 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 Rule 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 Insurer and the effects that the occurrences of those scenarios would have on the capital requirements of the Insurer 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 Insurer 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 Insurer 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 Insurer is not required to measure the precise amount of its capital resources and its capital requirements on a daily basis. However an Insurer should be in a position to demonstrate its capital adequacy at any time if asked to do so by the DFSA.


          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 Insurers that are not Protected Cell Companies.


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

      • PIN 4.3.2

        An Insurer that is not a Protected Cell Company must always have Adjusted Capital Resources equal to or higher than the amount of its Minimum Capital Requirement.


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

      • PIN 4.3.3

        An Insurer's Adjusted Capital Resources 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's Minimum Capital Requirement 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 Insurers that are Protected Cell Companies.


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

      • PIN 4.4.2

        An Insurer that is a Protected Cell Company must ensure that at all times the Insurer has Adjusted Non-Cellular Capital Resources equal to or higher than the amount of the Minimum Non-Cellular Capital Requirement.


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

      • PIN 4.4.3

        An Insurer that is a Protected Cell Company must ensure that at all times, in respect of each of its Cells, the Insurer has Adjusted Cellular Capital Resources equal to or higher than the amount of the Minimum Cellular Capital Requirement in respect of that Cell.


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

      • PIN 4.4.4

        The Adjusted Non-Cellular Capital Resources in respect of an Insurer that is a Protected Cell Company 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 Requirement in respect of an Insurer that is a Protected Cell Company 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 Resources in respect of a Cell 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 Requirement in respect of a Cell 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]

      • PIN 4.5.1

        This section applies only to Insurers that undertake Insurance Business in Class 7.


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

      • PIN 4.5.2

        An Insurer that undertakes Insurance Business in Class 7 must calculate a Class 7 Capital Requirement in respect of that business.


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

      • PIN 4.5.3

        An Insurer that is a Protected Cell Company that undertakes Insurance Business in Class 7 must calculate a Class 7 Capital Requirement in respect of every Cell to which such business is attributable.


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

      • PIN 4.5.4

        The Class 7 Capital Requirement must be calculated in accordance with principles notified to the Insurer by the DFSA.


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

      • PIN 4.5.5

        An Insurer intending to undertake Insurance Business in Class 7 must notify the DFSA in writing before commencing to undertake such business.


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

    • 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 Insurers that undertake Long-Term Insurance Business through a Long-Term Insurance Fund.


        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 Insurer that is deemed to constitute a single Long-Term Insurance Fund in accordance with PIN Rule 3.2.2(b); or
        (b) an Insurer that is a Protected Cell Company in respect of a Cell that is deemed to constitute a single Long-Term Insurance Fund 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 Insurer that undertakes Long-Term Insurance Business through a Long-Term Insurance Fund must ensure that at all times, in respect of each Long-Term Insurance Fund maintained by it, the Insurer has Adjusted Fund Capital Resources equal to or higher than the amount of the Minimum Fund Capital Requirement in respect of that Long-Term Insurance Fund.


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

      • PIN 4.6.4

        The Adjusted Fund Capital Resources in respect of a Long-Term Insurance Fund maintained by an Insurer 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 Requirement in respect of a Long-Term Insurance Fund maintained by an Insurer 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 Insurers that are not DIFC Incorporated Insurers.

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

        • PIN 4.7.1 Guidance

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


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

      • PIN 4.7.2

        An Insurer that is not a DIFC Incorporated Insurer must always have assets, of a type referred to in PIN Rule 4.7.3, that are available to meet Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in the DIFC, 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 Liabilities of the Insurer in respect of its DIFC Insurance Business; and
        (c) the Insurer's DIFC Business Risk Capital Requirement, 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 Liabilities of an Insurer arising in respect of operations conducted by the Insurer in the DIFC, if those assets are required to meet liabilities of the Insurer in jurisdictions other than the DIFC, except where those liabilities are also Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in the DIFC.
          2. Assets are not normally available to meet Insurance Liabilities of an Insurer arising in respect of operations conducted by the Insurer in the DIFC, if those assets are required, under the laws of any jurisdiction, to be located in a jurisdiction other than the DIFC, except where the assets are required to be located in that jurisdiction to meet, or as collateral against, either:
          a. liabilities that are Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in the DIFC; or
          b. liabilities that may arise in the future and that would, if they arose, be Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in the DIFC.

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

      • PIN 4.7.3

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

        (a) bonds Rated 'BBB' or better;
        (b) equities listed on an Approved Stock Exchange;
        (c) reinsurance recoverable in respect of General Insurance Liabilities referred to in PIN Rule 4.7.2(b), where the reinsurer is Rated '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 Insurer subject to this section must demonstrate to the satisfaction of the DFSA that the Insurer complies with PIN Rule 4.7.2, when the DFSA 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 Insurer that becomes aware that it does not comply with this chapter:

        (a) must immediately notify the DFSA in writing;
        (b) must not effect any Contracts of Insurance through an establishment in the DIFC until the DFSA has given it written permission to recommence business;
        (c) must not, if the Insurer is a DIFC Incorporated Insurer, effect any Contracts of Insurance until the DFSA 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 DFSA.

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

      • PIN 4.8.2

        An Insurer 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 DFSA with a written statement of:

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

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

      • PIN 4.8.3

        An Insurer 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 DFSA.

        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's 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's business. The DFSA's 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's failure, and the DFSA 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 Insurer may make any distribution of profits or surplus, however called or described, or return of capital if such distribution or return would cause the Insurer to fail to comply with any provision of this chapter.


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