Entire Section

  • PIN 4.2 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 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 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 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]