Entire Section

  • PIN A4.4 PIN A4.4 Default risk component

    • PIN A4.4 Guidance

      The purpose of the default risk component is to require an Insurer to set aside capital to cover the risk that amounts receivable from counterparties will not be received. The basic calculation model for this component, set out in PIN A4.4.1, is modified by additional provisions that permit an Insurer to take account of the reduced default risk where an asset is covered by guarantees or collateral, and impose additional capital charges on assets that are encumbered. In addition, certain assets that are left out of account in calculating an Insurer's Adjusted Capital Resources are exempt from the default risk component calculation. Excluding these assets from Adjusted Capital Resources al effectively imposes a 100% capital requirement.


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

    • PIN A4.4.1

      An Insurer must calculate its default risk component as the sum of the amounts obtained by multiplying the value of each asset of the Insurer with the percentage applicable to that asset, as set out in the tables contained in this Rule and subject to the provisions of Rules PIN A4.4.2, PIN A4.4.5, PIN A4.4.6 and PIN A4.4.7.

      (a) Assets that are Invested Assets

      Asset %
      (a) Bonds Rated 'AAA', issued by a Government or Government agency 0.0
      (b) Bonds not included in (a), Rated 'A' or better 0.4
      (c) Bonds Rated 'BBB' 3.3
      (d) Bonds Rated 'BB' 7.5
      (e) Bonds Rated 'B' 13.7
      (f) Bonds Rated 'CCC' 20.2
      (g) Other Rated bonds 30.0
      (h) Secured loans — performing 2.0
      (i) Secured loans — Non-Performing 14.0
      (j) Loans to directors of the Insurer or to directors of Related parties, or to the dependent relatives of such directors 100.0
      (k) Unsecured loans to employees (except loans of less than $1,000) 100.0
      (l) Other bonds and loans 50.0
      (b) Assets that are not Invested Assets

      Asset %
      (a) Reinsurance recoverable from:  
        i. reinsurers Rated 'AAA' 0.5
      ii. reinsurers Rated 'AA' 1.2
      iii. reinsurers Rated 'A' 1.9
      iv. reinsurers Rated 'BBB' 4.7
      v. reinsurers Rated 'BB' 9.6
      vi. reinsurers Rated 'B' 23.8
      vii. reinsurers Rated 'CCC' 49.7
      viii. reinsurers Rated 'R' 50.0
      ix. other reinsurers 25.0
      (b) Other assets 3.0

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

    • PIN A4.4.2

      Reinsurance recoverable includes amounts recoverable in respect of outstanding claims and in respect of Premium Liabilities. Insurers may make reasonable approximations where it is not possible to identify exactly the reinsurers to which amounts recoverable relate (for example, in the case of recoveries in respect of Premium Liabilities and in respect of claims incurred but not reported).


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

    • PIN A4.4.3

      Where an asset falls within more than one category in the table in Rules PIN A4.4.1(a) or PIN A4.4.1(b), the highest of the percentages applicable to that asset must be applied.


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

    • PIN A4.4.4

      Where an asset has been explicitly, unconditionally and irrevocably guaranteed for its remaining term, by a guarantor with a rating of 'A' or better who is not Related to the Insurer, the Insurer may at its option use, in place of the relevant percentage in the table in Rules PIN A4.4.1(a) or PIN A4.4.1(b), the percentage in those tables that would apply to a debt due from the guarantor.


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

    • PIN A4.4.5

      Where an Insurer holds collateral against an asset, and the collateral consists of a charge, mortgage or other security interest in cash or in debt securities whose issuer has a rating of 'A' or above, the Insurer may at its option use, in place of the relevant percentage in the table PIN A4.4.1(a) or in PIN Rule A4.4.1(b), the percentage in those tables that would apply to the collateral.


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

    • PIN A4.4.6

      The provisions of Rules PIN A4.4.4 and PIN A4.4.5 apply only to so much of the asset that is covered by the guarantee or the collateral.


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

    • PIN A4.4.7

      Notwithstanding anything else in this section:

      (a) the amount included in the default risk component in respect of any asset that is subject to a fixed or floating charge, mortgage or other encumbrance must be 100% of the value of the asset to the extent of that charge, mortgage or encumbrance. In the case of such assets, the percentages set out in the tables above must be applied only to the amount, if any, by which the value of the asset exceeds the amount of the charge, mortgage or encumbrance; and
      (b) no amount must be included in the default risk component in respect of assets excluded from Adjusted Capital Resources in accordance with Rules PIN A3.4.3(e), PIN A3.4.3(f), PIN A3.4.3(g), PIN A3.4.3(h), PIN A3.4.3(k) or PIN A3.4.3(l).

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

    • PIN A4.4.8

      (1) Where a Captive Insurer provides a qualifying intra-group loan to a Rated member of its Group, it shall apply the same percentage factor for that intragroup loan as is applicable for a Rated bond with an equivalent rating as set out in PIN A4.4.1.
      (2) A loan is a qualifying intra-group loan for the purposes of (1), where it meets the following criteria:
      (a) the borrower is Rated;
      (b) the loan maturity is limited to 12 months with no automatic prolongation;
      (c) the loan is provided on market terms and conditions;
      (d) the loan is subject to a contractual obligation to be repaid at the first call by the Captive Insurer; and
      (e) the DFSA has been notified before granting the loan (no prior permission required).
      Derived from DFSA RMI296/2021 (Made 24th February 2021). [VER17/04-21]

    • PIN A4.4.9

      Rated Money Market Funds shall be treated as a bond and the same percentage factor shall be applied as for a bond with an equivalent rating as set out in PIN A4.4.1.

      Derived from DFSA RMI296/2021 (Made 24th February 2021). [VER17/04-21]