PIN 2 PIN 2 Management and Control of Risk
PIN 2.1 PIN 2.1 Introduction
PIN 2.1.1 PIN 2.1.1
This chapter applies to every
PIN 2.1.1 Guidance1. All
Authorised Firmsare subject to the systems and controls provisions of GEN chapter 5. This chapter expands on the relevant requirements of GENas those provisions apply in the context of an Insurer.2. PIN App2 contains guidance for Insurersin respect of specific areas of risk management that are of particular relevance to Insurers.
PIN 2.2 PIN 2.2 Risk management
Insurer'srisk management systems must:(a) be appropriate to the size, business mix and complexity of the Insurer'soperations;(b) address all material risks, financial and non-financial, to which the Insureris likely to be exposed;(c) describe the relationships between the Insurer'srisk tolerance limits, its capital requirements, economic capital and the processes and methods for monitoring risk; and(d) be supported by adequate risk management policies and procedures which explain the risks covered, the measurement approaches used, and the key assumptions made.
The risk management systems maintained by an
Insurermust include:(a) a written risk management strategy approved by senior management, which in the opinion of senior management addresses all material risks to which the Insureris likely to be exposed;(b) risk management policies and procedures that in the opinion of senior management are adequate to identify, assess, mitigate, control, monitor and report on the material risks to which the Insureris exposed; and(c) clearly identified managerial responsibilities and controls, designed to ensure that the policies and procedures established for risk management are adhered to at all times.
Subject to PIN Rule 2.2.4, where an
Insureris a member of a Group, the Insurermust take reasonable actions to ensure that the Groupas a whole complies with the requirements of PIN Rule 2.2.1 and PIN Rule 2.2.2 as though the Groupas a whole were an Insurer.
PIN 2.2.4 PIN 2.2.4
PIN Rule 2.2.3 does not apply in respect of a
Groupwhere the Insureris not the Holding Companyand where the Holding Companyof the Groupis:(a) another Insurer; or(b) a Subsidiaryof another Holding Company.
PIN 2.2.4 Guidance1. The effect of PIN Rule 2.2.4 is to avoid duplication arising from complex
Groupstructures. If an Insureris a member of a Groupwhose Holding Companyis another Insurer, the first Insurerneed not apply PIN Rule 2.2.3 in respect of that Group, because the Insurerthat is the Holding Companyis al required to apply that Rule. Where an Insureris a member of two or more Groupsthat are also sub-groups of a single Group, the Insurermay consider that single group as a whole for the purposes of this section. An Insurerthat is a Holding Companyis however still required to apply PIN Rule 2.2.3 in respect of any Groupof which the Insureris the Holding Company.2. An Insurershould describe how its risk tolerance limits described in PIN Rule 2.2.1(c) link with its corporate objectives, business strategy and current circumstances. An Insureris expected to embed its risk tolerance limits into its day-to-day operations and its risk management policies and procedures.
PIN 2.3 PIN 2.3 Management of particular risks
Insurermust develop, implement and maintain a risk management system to identify and address balance sheet and market risk, including but not limited to:(a) reserving risk;(b) investment risk (including risks associated with the use of derivatives);(c) underwriting risk;(d) claims management risk;(e) product design and pricing risk; and(f) liquidity management risk.
Insurermust develop, implement and maintain a risk management system to identify and address credit quality risk.
Insurermust develop, implement and maintain a risk management system to identify and address the non-financial or operational risk of that Insurer, including but not limited to:(a) technology risk (including processing risks);(b) reputational risk;(c) fraud and other fiduciary risks;(d) compliance risk;(e) outsourcing risk;(f) business continuity planning risk;(g) legal risk; and(h) key person risk.
Insurermust develop, implement and maintain a risk management system to identify and address reinsurance risk. Reinsurance risk refers to risks associated with the Insurer'suse of reinsurance arrangements as cedant.
Without limiting the generality of PIN Rule 2.3.4, an
Insurer'srisk management system in respect of its use of reinsurance arrangements must include the development, implementation and maintenance of a written reinsurance management strategy, appropriate to the size and complexity of the operations of the Insurer, defining and documenting the Insurer'sobjectives and strategy in respect of reinsurance arrangements.
PIN 2.3.6 PIN 2.3.6
Insurermust develop, implement and maintain a risk management system which includes an explicit asset-liability management (ALM) policy, which must clearly specify the nature, role and extent of ALM activities and their relationship with product development, pricing functions and investment management.[Added] DFSA RM99/2012 (Made 24th July 2012) [VER12/07-12]
PIN 2.3.6 Guidance1. An
Insurer'sALM policy should be appropriate taking into account the nature, scale and complexity of its ALM risks.2. The ALM policy should include details as to how:(a) the investment and liability strategies adopted by the Insurerallow for the interaction between assets and liabilities;(b) the correlations are taken into account;(c) the liability cash flows will be met by cash inflows; and(d) the valuations of assets and liabilities will change under an appropriate range of different scenarios.[Added] DFSA RM99/2012 (Made 24th July 2012) [VER12/07-12]
PIN 2.3.7 PIN 2.3.7
For the purposes of PIN Rule 2.3.6, an
Insurermay:(a) take into account:(i) its position within the Group,(ii) the materiality of the risk to which it is exposed because of its membership of the Group, and(iii) the access that it has to the systems and controls of other members of its Groupand any information produced by them or by Associates; and(b) consider together Groupswhose Holding Companiesare all members of the same Group, except for any Groupof which the Insureris the Holding Company.
PIN 2.3.7 Guidance
The effect of PIN Rule 2.3.7(b) is that, where an
Insureris a member of two or more Groupsthat are also sub- Groupsof a single Group, the Insurermay consider that Groupas a whole for the purposes of this section. An Insurerthat is a Holding Companyis however still required to give specific consideration to the risks to which it is exposed as Holding Company.
PIN 2.4 PIN 2.4 Record-keeping
Insurermust maintain records adequate to enable it to:(a) fulfill its obligations under Contracts of Insuranceeffected by it; and(b) demonstrate that it complies with the Rulesin PIN.
PIN 2.5 PIN 2.5 Insurers that undertake surety insurance business
This section applies only to
Insurersthat undertake Insurance Businessin Class 7(b).
Insurerthat undertakes Insurance Businessin Class 7(b) must ensure that:(a) in any reporting period, the amount of its Gross Written Premiumattributable to Class 7(b) does not exceed 5% of its total Gross Written Premiumin all classes of non-life insurance;(b) the Personinsured under any Contract of Insurancein Class 7(b) is:(i) a Body Corporate; or(ii) if not a Body Corporate, a Financial Institution;(c) at the time of effecting a Contract of Insurancein Class 7(b), the Person insured under that contract has a rating of BBB or better; and(d) the maximum period of any Contract of Insurancein Class 7(b) does not exceed twenty years.
Insurerthat is a Protected Cell Companythat undertakes Insurance Businessin Class 7(b) must comply with PIN Rule 2.5.2 in respect of each Cellto which such business is attributable.
PIN 2.5.5 PIN 2.5.5(1) An
Insurerintending to undertake Insurance Businessin Class 7(b) must:(a) notify the DFSAin writing of its proposal to undertake such business; and(b) give to the DFSAa business plan for the business intended to be undertaken.(2) The DFSAmay object to a proposal made by an Insurerunder (1).(3) The procedures in Schedule 3 to the Regulatory Lawapply to a decision of the DFSAunder (2).(4) If the DFSAdecides to exercise its power under (2), the Insurer may refer the matter to the FMTfor review.(5) An Insurermust not effect any contract of insurance in Class 7(b) if the DFSAhas objected to a proposal it has made under (1).
PIN 2.5.5 Guidance1. If all the information required is provided to the
DFSArelating to the proposal to effect Contracts of Insurancein Class 7(b), generally, it will take about 45 days for the DFSAto be able to determine whether an Insurershould be allowed to conduct this type of business. An Insurermay commence a reference to the FMTin relation to a decision of the DFSAto object to a proposal.2. The current requirements relating to Class 7(b) do not cater to monoline specialist financial guarantee insurers. However, if such an Insurerwishes to operate in the DIFC, the DFSAwill consider what requirements should apply to it. In doing so, the DFSAwill consider capital adequacy and other requirements that are generally applied to such specialist Insurersin other jurisdictions.