PIN 3 PIN 3 Long-Term Insurance Business
PIN 3.1 PIN 3.1 Introduction
PIN 3.1.1 PIN 3.1.1
This chapter applies to all
PIN 3.1.1 Guidance1. This chapter sets out requirements in respect of
Long-Term Insurance Business. An Insureris required to maintain a separate fund in respect of Long-Term Insurance Businessor to subject itself to the same restrictions as apply to a Long-Term Insurance Fund.2. Requirements in this section that are not specified as applying to Direct Long-Term Insurance Businessapply to all Long-Term Insurance Business.
PIN 3.2 PIN 3.2 Establishment of long-term insurance funds
Insurerthat is required, under the provisions of PIN section 3.3, to establish or maintain a Long-Term Insurance Fundin respect of a part of its business must identify separately in its books and records the assets, liabilities, revenues and expenses attributable to that business. Those assets, liabilities, revenues and expenses must be recorded separately and accounted for as a Long-Term Insurance Fund.
Insurerthat is not a Protected Cell Companycarries on Long-Term Insurance Businessthat, under the provisions of PIN section 3.3, must be attributed to a Long-Term Insurance Fund, it must either:(a) establish one or more Long-Term Insurance Funds; or(b) notify the DFSAin writing that the Insureris deemed to constitute a single Long-Term Insurance Fund.
PIN 3.2.3 PIN 3.2.3
Insurerthat is a Protected Cell Companycarries on, through a Cell, Long-Term Insurance Businessthat, under the provisions of PIN section 3.3, must be attributed to a Long-Term Insurance Fund, it must either:(a) establish, in respect of that Cell, one or more Long-Term Insurance Funds; or(b) notify the DFSAin writing that the Cellis deemed to constitute a single Long-Term Insurance Fund.
PIN 3.2.3 Guidance
Because of the prohibition set out in COB part 1,
Insurance Businessof an Insurerthat is a Protected Cell Companycan only be carried out through its Cells.
Insurerthat is subject to a regulatory requirement in another jurisdiction to arrange its affairs or any part of its affairs in a manner that is equivalent or substantially equivalent to the maintenance of a Long-Term Insurance Fundrequired by this section, may make a written application to the DFSAfor that arrangement of its affairs or that part of its affairs to be deemed for the purposes of these Rulesto constitute a Long-Term Insurance Fund. If the DFSAapproves that application, it must inform the Insurerin writing, and must state in its notice to the Insurerthe manner in which the arrangement will be deemed for the purpose of these Rulesto constitute a Long-Term Insurance Fund.
Insurer, or a Cellof an Insurer, that is deemed in accordance with PIN Rule 3.2.2(b) or PIN Rule 3.2.3(b) to constitute a single Long-Term Insurance Fund, shall be treated for all purposes relating to these Rulesas though the Insurerhad established a Long-Term Insurance Fundto which all of the assets and liabilities of the Insureror of the Cellare attributed.
Notwithstanding anything to the contrary contained in the above provisions, the
DFSAmay, at its sole discretion, direct that an Insurerwhich conducts Long-Term Insurance Businessestablish one or more Long-Term Insurance Fundsin respect of its Long-Term Insurance Businessor any part of such business. An Insurershall establish one or more Long-Term Insurance Fundswhere so directed by the DFSA.
PIN 3.3 PIN 3.3 Attribution of contracts to a fund
All contracts of
Long-Term Insuranceeffected by a DIFC Incorporated Insurermust be attributed to a Long-Term Insurance Fund.
All contracts of
Long-Term Insuranceeffected by an Insurerthat is not a DIFC Incorporated Insurerthrough an establishment in the DIFCmust be attributed to a Long-Term Insurance Fund.
Except as allowed in PIN Rule 3.3.4, an
Insurermay not attribute General Insurancecontracts to a Long-Term Insurance Fund.
Insurermay attribute insurance contracts in General Insurance Class1 or Class2 to a Long-Term Insurance Fund.
PIN 3.4 PIN 3.4 Segregation of assets and liabilities
All assets, liabilities, revenues and expenses in respect of a
Contract of Insurancethat is attributed to a Long-Term Insurance Fundmust be recorded as assets, liabilities, revenues and expenses of that Long-Term Insurance Fund.
PIN 3.4.2 PIN 3.4.2
Insurermay at any time attribute any of its assets to a Long-Term Insurance Fundthat were not previously attributed to such a Long-Term Insurance Fund.
PIN 3.4.2 Guidance
A transaction described in PIN Rule 3.4.2 is sometimes described as a transfer of capital into the
Long-Term Insurance Fund.
All revenues and expenses arising by way of earnings, revaluation or other change to the assets and liabilities of a
Long-Term Insurance Fundmust be recorded as revenues and expenses, or movements in capital, of that Long-Term Insurance Fund.
Insurerwhich is required to maintain a Long-Term Insurance Fundmust maintain adequate accounting and other records to identify the contracts and the assets, liabilities, revenues and expenses attributable to the Long-Term Insurance Fund.
PIN 3.5 PIN 3.5 Limitation on use of assets in long-term insurance fund
Except as provided in this section, assets that are attributable to a
Long-Term Insurance Fundmust be applied only for the purposes of the business attributed to the Long-Term Insurance Fund.
Assets attributable to a
Long-Term Insurance Fundmay not be transferred so as to be available for other purposes of the Insurerexcept:(a) where the transfer constitutes appropriation of a surplus determined in accordance with PIN section 7.3, provided that the transfer is performed within four months of the Reference Dateof the actuarial investigation referred to in that Rule;(b) where the transfer constitutes a payment of dividend or return of capital, in accordance with Rules PIN 3.5.3 and PIN 3.5.4;(c) where the transfer is made in exchange for other assets at fair value;(d) where the transfer constitutes reimbursement of expenditure borne on behalf of the Long-Term Insurance Fund, and in respect of expenses attributable to the Long-Term Insurance Fund; or(e) where the transfer constitutes reattribution of assets attributed to the Long-Term Insurance Fundin error.
Assets attributable to a
Long-Term Insurance Fundmust not be distributed by way of dividend or by way of return of capital, except by an Insureror a Cellthat is deemed to constitute a single Long-Term Insurance Fund.
A dividend or return of capital by an
Insureror a Cellthat is deemed to constitute a single Long-Term Insurance Fundmay only be made where the dividend or return of capital constitutes appropriation of a surplus determined in accordance with PIN section 7.3, and:(a) if the payment is made within four months of the Reference Dateof the actuarial investigation determining that surplus, the payment does not cause the total aggregate amount of the dividends or returns of capital made by the Insureror the Cellsince that Reference Dateto exceed the amount of that surplus; or(b) If the payment is made more than four months after the Reference Dateof the actuarial investigation determining that surplus, the payment does not cause the total aggregate amount of the dividends or returns of capital made by the Insureror the Cellsince that Reference Dateto exceed 50 per cent of the amount of that surplus.
PIN 3.5.5 PIN 3.5.5
Assets attributable to a
Long-Term Insurance Fundmust not be lent or otherwise made available for use for any other purposes of the Insureror any purposes of any party Relatedto the Insurer.
PIN 3.5.5 Guidance
PIN Rule 3.5.5 operates to prohibit, among other things, lending between
Long-Term Insurance Fundsof the same Insurer. Assets must not be organised in such a manner as to create indebtedness between Long-Term Insurance Funds.
PIN 3.5.6 PIN 3.5.6
Insurermay not enter into any arrangement, whether or not described as a contract of reinsurance, whereby a Long-Term Insurance Fundof the Insurerstands in the same relation to the Insureras though the Insurerwere the reinsurer in a contract of reinsurance in which the Long-Term Insurance Fundis the cedant.
PIN 3.5.6 Guidance
PIN Rule 3.5.6 operates to prohibit reinsurance between Long Term
Insurance Fundsof the same Insurer, as well as arrangements of the nature of internal contracts of reinsurance where the cession transaction is attributed to a Long-Term Insurance Fundbut the corresponding reinsurance acceptance transaction is not.
PIN 3.6 PIN 3.6 Other requirements
PIN 3.6.1 PIN 3.6.1(1) Except as permitted in this
Rule, a DIFC Incorporated Insurermust not effect any Direct Long-Term Insurancecontract the terms of which include any of the following:(a) investment components of Policy Benefits, that are wholly or partly guaranteed;(b) options to receive Policy Benefitson expiry, maturity or surrender as annuities, where annuity rates are wholly or partly guaranteed at the inception of the contract;(c) bonuses on participating contracts where those bonuses become vested Policy Benefitsor guaranteed by the Insurer at a date prior to expiry, maturity or surrender; or(d) other options or discretionary Policy Benefitsthat expose the Insurer to investment, expense or other risk that is not readily definable at the inception of the contract.(2) An Insurermay request the permission of the DFSAto effect Direct Long-Term Insurancecontracts with features of the kind referred to in (1). A request must be made in writing and must include:(a) details of the terms of the proposed contracts;(b) an explanation of how the Insurerintends to price such contracts, and to value them for the purposes of its capital adequacy calculations; and(c) an explanation of how the Insurerintends to quantify, monitor and manage the risks to its capital adequacy represented by such features of contracts.(3) The DFSAmay give an Insurerpermission to effect Direct Long-Term Insurancecontracts having one or more features of the kind referred to in (1). Permission shall be given in writing and shall be subject to such terms or conditions as the DFSAmay specify in its notice giving permission. Where any terms and conditions are imposed on the Insurer, the Insurershall comply with such terms and conditions.(4) The DFSAmay on its own initiative at any time vary or revoke permission given under (3) above. Variation or revocation shall be communicated to the Insurerin writing.(5) The procedures in Schedule 3 to the Regulatory Lawapply to a decision of the DFSAunder this Rule not to give permission or to impose conditions or restrictions or to vary or revoke permission.(6) If the DFSAdecides to exercise its power under this Rule not to give permission or to impose conditions or restrictions or to vary or revoke permission, the Insurer may refer the matter to the FMTfor review.
PIN 3.6.1 Guidance1. The features described in PIN Rule 3.6.1(1) have the potential to expose an Insurer to risks that are not adequately provided for in the capital adequacy framework set out in this
Rulebook. The DFSAretains the power to prohibit or limit the inclusion of such features in a Long-Term Insurancecontract where it is of the view that the inclusion of such features may have a materially adverse impact upon the long term viability of the Insurer. It is natural for Insurersto seek to stimulate a market by offering features such as guarantees or options. However, the solvency of Insurerscould be threatened if they have not adequately valued, stress-tested and set aside adequate capital to service such features. Therefore, the DFSAwill expect Insurersseeking permission to write contracts with such features to demonstrate that these steps have been undertaken, and that their procedures provide adequately for ongoing monitoring of the associated risks. Permission to undertake such business may be subject to conditions, for example, a requirement to maintain additional capital, or to restrict business of this nature by reference to total business. The DFSAmay also as a condition of granting permission require additional information relating to the business in question to be reported to the DFSAin the Insurer'speriodic regulatory returns, or in the Actuary'sreport referred to in PIN Rule 126.96.36.199. If all the information required is provided to the DFSArelating to a request for permission under PIN Rule 3.6.2, generally, it will take about 45 days for the DFSAto be able to determine whether an Insurershould be permitted to effect Direct Long-Term Insurancecontracts with features of the kind referred to in that Rule.
PIN 3.6.2 PIN 3.6.2
DIFC Incorporated Insurerwhich undertakes Direct Long-Term Insurance Businessmust supervise adequately the conduct of its Direct Long-Term Insurance Businessin each jurisdiction in which that business is undertaken.
PIN 3.6.2 Guidance1. In order to demonstrate compliance with PIN Rule 3.6.2, the senior management of a
DIFC Incorporated Insurershould have mechanisms in place such that adequate information, in appropriate detail, is reported internally to senior management on a timely basis, and that this information is appropriately considered and acted upon.2. In discharging its responsibilities under PIN Rule 3.6.2, and under the high level requirements to which it is subject under GEN Rule 5.3.1, senior management will need to consider specific risks to which the Insurer is exposed as a consequence of its activity within each jurisdiction. Internal governance procedures such as Internal Auditshould include examination of non-DIFC activities. Compliance procedures should be designed to ensure that the Insurer complies with any domestic regulation to which it may be subject in the jurisdiction in which it is doing business. Insurersare also expected to ensure that conduct of business by them in other jurisdictions does not pose any risk to the reputation of the DIFC. Consequently, senior management should ensure that adequate standards of customer protection are adopted by the Insurer'soperation in each jurisdiction. Senior management should have regard to the provisions of GEN section 4.2 and in particular Principles 6, 7, 8 and 9 in considering whether standards of consumer protection are adequate. Review of persistency statistics may assist in identifying problems in the area of conduct of business.3. PIN Rule 3.6.2 does not preclude the establishment of appropriate local management structures with responsibility for the Insurer'sbusiness in the jurisdiction in question. However, the overall responsibility for ensuring compliance with domestic and DIFCregimes rests with the senior management of the Insurer.