Entire Section

  • PIN 5 PIN 5 Measurement of Assets and Liabilities of Insurers

    • PIN 5.1 PIN 5.1 General provisions

      • PIN 5.1.1 PIN 5.1.1

        This chapter applies to an Insurer in relation to Returns made to the DFSA.

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

        • PIN 5.1.1 Guidance

          1. This chapter establishes a set of principles for the consistent measurement of the assets and liabilities of Insurers for the purposes of reporting under PIN chapter 6 and for determining compliance with PIN chapter 4.
          2. This chapter is not intended to establish a basis of accounting for general purpose financial statements of Insurers. This chapter does not prevent Insurers from adopting measurements of assets and liabilities that might be considered excessively prudent if adopted in the Insurer's general purpose financial statements. Insurers are not however expected to mislead the DFSA as to the financial position or financial performance of the Insurer.

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

      • PIN 5.1.2

        Subject to Rules PIN 5.1.3, PIN 5.1.4, PIN 5.1.5 and PIN 5.1.6, an Insurer must recognise and measure its assets and liabilities in accordance with so many of sections PIN 5.3, PIN 5.4, PIN 5.5 and PIN 5.6 as apply to the Insurer.


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

      • PIN 5.1.3

        An Insurer may measure the value of an asset at less than the value determined in accordance with this chapter.


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

      • PIN 5.1.4

        An Insurer may measure the value of a liability at more than the value determined in accordance with this chapter.


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

      • PIN 5.1.5

        An Insurer may use approximate methods to measure an asset or a liability, where the result obtained by the use of that approximate method would not be materially different from the result obtained by applying a measurement method prescribed in this chapter.


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

      • PIN 5.1.6

        Notwithstanding any other provision of this chapter, the DFSA may, by written notice, direct an Insurer to measure an asset or a liability in accordance with principles specified by the DFSA in that written notice.


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

    • PIN 5.2 PIN 5.2 Classification of insurance business

      • PIN 5.2.1

        An Insurer must, in its own records, classify all insurance contracts effected by it as Insurer and all reinsurance contracts entered into by it as cedant, according to the Class of Business to which the contracts relate.


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

      • PIN 5.2.2 PIN 5.2.2

        Where a contract relates to more than one Class of Business, the Insurer must record separately the portions of the contract that relate to each Class of Business, except that immaterial portions need not be separately recorded.

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

        • PIN 5.2.2 Guidance

          1. The Classes of Business are set out in GEN App4.
          2. A portion of a Contract of Insurance, insuring a risk of a Class of Business other than the principal Class of Business to which the contract relates, will not normally be regarded as material if the interest that it insures is both related and subsidiary to the principal interest or interests insured under the contract, and constitutes less than ten per cent of the Gross Written Premium under the contract.

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

    • PIN 5.3 PIN 5.3 Basic principles of recognition and measurement

      • PIN 5.3.1 PIN 5.3.1

        Except where this chapter provides otherwise, the assets and liabilities of an Insurer must be recognised in accordance with a basis of accounting set out in PIN Rule 5.3.2, and the values attributed to those assets and liabilities must be measured in accordance with that basis of accounting.

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

        • PIN 5.3.1 Guidance

          The exceptions provided in this chapter relate to the following:

          a. specific Rules in respect of certain assets and liabilities, intended to achieve a regulatory objective not achieved by application of either or both of the bases of accounting set out in PIN Rule 5.3.2;
          b. assets and liabilities that are not dealt with in either or both of the bases of accounting set out in PIN Rule 5.3.2; and
          c. the overriding power of the DFSA, set out in PIN Rule 5.1.6, to require an Insurer to adopt a particular measurement for a specific asset or liability.

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

      • PIN 5.3.2

        The basis of accounting adopted by an Insurer for the purposes of PIN Rule 5.3.1 must be:

        (a) in the case of a Takaful Insurer, the standards of the Accounting and Auditing Organisation for Islamic Financial Institutions; or
        (b) in any other case, International Financial Reporting Standards.

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

      • PIN 5.3.3

        Where the valuation of an asset or liability is dependent upon the adoption of assumptions or the adoption of a calculation method, any change in the assumptions or methods adopted must be reflected immediately in the value attributed to the asset or liability concerned. The recognition of the effects of changes in assumptions or methods may not be deferred to future reporting periods.


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

    • PIN 5.4 PIN 5.4 Recognition and measurement of insurance assets and liabilities in respect of general insurance

      • PIN 5.4.1

        This section applies to assets and liabilities in respect of General Insurance contracts.


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

      • PIN 5.4.2

        Premiums in respect of direct insurance contracts, facultative reinsurance contracts and non-proportional treaty reinsurance contracts entered into by an Insurer as insurer must be treated as receivable from the date of entering into the insurance contract.


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

      • PIN 5.4.3

        Premiums in respect of proportional treaty reinsurance contracts entered into by an Insurer as insurer must be treated as receivable in accordance with the pattern of the cedant entering into the underlying insurance contracts.


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

      • PIN 5.4.4

        Premiums in respect of facultative reinsurance contracts and non-proportional treaty contracts entered into by an Insurer as cedant must be treated as payable from the date of entering into the reinsurance contract.


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

      • PIN 5.4.5

        Premiums in respect of proportional treaty reinsurance contracts entered into by an Insurer as cedant must be treated as payable in accordance with the pattern of effecting the underlying insurance contracts.


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

      • PIN 5.4.6

        Expenses incurred in respect of insurance contracts effected by an Insurer must be treated as payable at the time the contracts are effected.


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

      • PIN 5.4.7 PIN 5.4.7

        An Insurer must treat as a liability, the premium liability, which is the value of future claim payments and associated direct and indirect settlement costs, arising from future events insured under policies that are in force as at the Solvency Reference Date.

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

        • PIN 5.4.7 Guidance

          The liability referred to in PIN Rule 5.4.7 is commonly represented by insurers as two separate provisions, the unearned premium provision and the premium deficiency provision. The sum of the two provisions is sometimes referred to as the unexpired risk reserve, though this term is also sometimes used to describe the premium deficiency provision alone.


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

      • PIN 5.4.8 PIN 5.4.8

        An Insurer must treat as a liability the value of future claims payments and associated direct and indirect settlement costs, arising from insured events that have occurred as at the Solvency Reference Date.

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

        • PIN 5.4.8 Guidance

          The liability referred to in PIN Rule 5.4.8 is commonly referred to as the liability for outstanding claims. Some insurers represent this liability as three separate provisions, being the liability in respect of reported claims, the liability in respect of claims incurred but not reported, and the liability in respect of settlement costs, also known as loss adjustment expenses.


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

      • PIN 5.4.9

        An Insurer must treat as an asset the value of reinsurance and other recoveries expected to be received in respect of claims referred to in Rules PIN 5.4.7 and PIN 5.4.8.


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

      • PIN 5.4.10

        Where this section requires an Insurer to recognise as a liability the value of expected future payments, that liability must be measured as the net present value of those expected future payments.


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

      • PIN 5.4.11

        Where this section requires an Insurer to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.


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

      • PIN 5.4.12 PIN 5.4.12

        Rules PIN 5.4.10 and PIN 5.4.11 do not require an Insurer to obtain a valuation by an Actuary of the assets and liabilities referred to in those Rules, at a Solvency Reference Date other than the Insurer's annual reporting date.

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

        • PIN 5.4.12 Guidance

          An Insurer is also required to provide a periodic report on its General Insurance Liabilities and associated assets, prepared by an Actuary. The relevant provisions are contained in PIN chapter 7.


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

    • PIN 5.5 PIN 5.5 Discount rates

      • PIN 5.5.1

        The DFSA may specify actuarial principles to be used by an Insurer in measuring assets and liabilities.


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

      • PIN 5.5.2

        For the purposes of determining the net present value of expected future payments in accordance with PIN Rule 5.4.10, an Insurer must use as a discount rate the gross redemption yield, as at the Solvency Reference Date, of a portfolio of AAA-Rated sovereign risk securities with a similar expected payment profile to the liability being measured.


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

      • PIN 5.5.3 PIN 5.5.3

        For the purposes of determining the net present value of expected future receipts in accordance with PIN Rule 5.4.11, an Insurer must use as a discount rate the gross redemption yield, as at the Solvency Reference Date, of a portfolio of AAA-Rated sovereign risk securities with a similar expected payment profile to the asset being measured.

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

        • PIN 5.5.3 Guidance

          1. Where an Insurer's Insurance Business includes more than one Class of Business, the Insurer will normally be expected to establish payment profiles separately for each material Class of Business.
          2. Where the expected payment profile of assets or liabilities cannot be matched — for example, because the duration is too long — the Insurer should assume a discount rate regarded as consistent with the intention of this section.

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

    • PIN 5.6 PIN 5.6 Recognition and measurement of assets and liabilities in respect of long-term insurance

      • PIN 5.6.1 PIN 5.6.1

        This section applies to assets and liabilities in respect of Long-Term Insurance contracts.

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

        • PIN 5.6.1 Guidance

          GEN provides that Long-Term Insurance Business conducted by Insurers is limited to reinsurance.


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

      • PIN 5.6.2

        Premiums in respect of reinsurance contracts entered into by an Insurer as insurer must be treated as receivable from the date on which they are due and receivable.

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

      • PIN 5.6.3

        Premiums in respect of reinsurance contracts entered into by an Insurer as cedant must be treated as payable from the date on which they are due and payable.

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

      • PIN 5.6.4

        (1) Acquisition costs incurred in respect of insurance contracts entered into by an Insurer must be treated as payable:
        (a) in the case of expenses directly related to the premiums in respect of the contract, at the same time as the premium is treated as receivable; and
        (b) in the case of expenses not directly related to the premiums in respect of the contract, at the time the contract is effected.
        (2) Expenses associated with the maintenance of insurance contracts, including, but not limited to, the costs of reporting to policyholders and the costs of managing investments, must be treated as payable as they are incurred.
        Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • PIN 5.6.5

        An Insurer must treat as a liability the amount of Policy Benefits that are due for payment on or before the Solvency Reference Date.


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

      • PIN 5.6.6

        An Insurer must treat as a liability the net present value of future Policy Benefits under policies that are in force as at the Solvency Reference Date, taking into account all prospective liabilities as determined by the policy conditions for each existing contract, and taking credit for premiums payable after the Solvency Reference Date.

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

      • PIN 5.6.7 PIN 5.6.7

        In measuring the liability referred to in PIN Rule 5.6.6, the Insurer must:

        (a) use actuarial principles;
        (b) make proper provision for all liabilities on prudent assumptions that include appropriate margins for adverse deviation of the relevant factors;
        (c) assign a liability value greater than or equal to zero to each contract or to each homogeneous group of contracts;
        (d) not make allowance for any future lapse, surrender, making paid-up or revival of a contract where such an allowance would result in a decrease in the liability in respect of that contract;
        (e) take specifically into account:
        (i) all guaranteed Policy Benefits, including guaranteed surrender values;
        (ii) vested, declared or allotted bonuses or other forms of participation to which policy holders are al either collectively or individually contractually entitled;
        (iii) reasonable expectations of policyholders in respect of bonuses or other forms of participation, other than as set out in (ii);
        (iv) all options available to the policy holder under the terms of the contract;
        (v) discretionary charges and deductions from Policy Benefits, in so far as they do not exceed the reasonable expectations of policy holders;
        (vi) expenses, including commissions; and
        (vii) any rights under contracts of reinsurance in respect of Long-Term Insurance Business; and
        (f) apply a discount rate determined with reference to the expected risk-adjusted yield on the assets allocated to cover the liability and investment of net receipts attributable to the policies. In arriving at the discount rate, prudent allowance must be made for the risk of adverse deviation in those expected yields.
        Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] RM46/2007 (Made 5th July 2007). [VER6/07-07]

        • PIN 5.6.7 Guidance

          1. Because of PIN Rule 5.6.7(c), no policy may be treated as an asset in the valuation and policies must be valued individually, unless they form part of a homogeneous group of contracts. This means an Insurer may treat groups of homogeneous contracts together and not breach the requirements in that Rule, provided that the valuation in respect of that group of homogeneous contracts does not collectively represent an asset. The onus is on the Insurer to demonstrate that the contracts represent a homogeneous group. In deciding whether to treat a group of contracts as homogeneous, an Insurer should consider whether the group would remain homogeneous under realistic scenarios to which the Insurer could be exposed.
          2. PIN Rule 5.6.7(d) prevents an Insurer from reducing the valuation by taking into account future lapses and surrenders, or future action by the policyholder to make the policy paid-up or to 'revive' a paid-up policy where the product features allow such action. Since persistency may be volatile, it is considered imprudent for an Insurer to rely upon 'lapse support' in its valuation. However, voluntary discontinuance of policies may increase a valuation as well as reduce it (for example, a guaranteed surrender value may exceed the actuarially-calculated liability for part of the life of the contract). In performing the valuation, the insurer should therefore make prudent allowance for the effect of lapses, surrenders, and related policyholder actions where these increase the valuation. The impact may vary over the life of a particular contract; for example, lapse at one stage in the contract life may represent a cost to the Insurer, whereas at another, it may represent a benefit.
          3. PIN Rule 5.6.7(e)(iii) requires an Insurer to take into account bonuses not yet allocated in determining the liability for capital adequacy purposes. In essence, this Rule prevents an Insurer from counting as capital any surplus on participating contracts that is expected, under the terms of the contracts concerned, to inure to the policyholders in the future. Therefore, although attribution of surplus on participating contracts is discretionary, the Insurer must make a reasonable estimate, taking into account the perceived and reasonable expectations of policyholders. Assumptions made in reaching this estimate (for example, on future investment income) should be consistent with those made for other purposes of the valuation. However, the recognition of future bonuses or other forms of participation in this liability does not affect the determination of surplus for other purposes, such as allocation of bonuses of surplus prior to allocation of those bonuses.
          4. For the purposes of PIN Rule 5.6.7(f), an Insurer should ensure that yields used to determine the discount rate are adjusted to take account of the risk that yields will decrease. High yields that represent compensation for risks such as credit or currency risk should be adjusted down to normalise for those elements of the yield.
          [Added] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • PIN 5.6.8

        The DFSA may specify actuarial principles to be followed by Insurers in measuring the liability referred to in PIN Rule 5.6.6.


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

      • PIN 5.6.9 PIN 5.6.9

        PIN Rule 5.6.6 does not require an Insurer to obtain a valuation by an Actuary of the liability referred to in that Rule, at a Solvency Reference Date other than the Insurer's annual reporting date.

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

        • PIN 5.6.9 Guidance

          An Insurer is also required to provide a periodic report on its Long-Term Insurance Liabilities, prepared by an Actuary, including an actuarial investigation of the financial condition of its Long-Term Insurance Business. The relevant provisions are set out in PIN section 7.3.


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

    • PIN 5.7 PIN 5.7 Value of investments in subsidiaries and associates that are subject to minimum capital requirements

      • PIN 5.7.1

        This section applies to all Insurers.


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

      • PIN 5.7.2 PIN 5.7.2

        Where an Insurer is the Parent of a Financial Group, the value of the Insurer's investment in any Subsidiary or Associate that is an Authorised Firm or a Financial Institution must be taken as the amount of the Insurer's proportionate share of that Subsidiary or Associate's Capital Resources or Adjusted Capital Resources determined in accordance with PIN Rule 8.3.4(1)(b), reduced by the Insurer's proportionate share of the Subsidiary or Associate's Capital Requirement determined in accordance with PIN Rule 8.3.3(2).

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

        • PIN 5.7.2 Guidance

          The impact of PIN Rule 5.7.2 is that an Insurer's capital resources are calculated on a basis consistent with the manner of calculation of Financial Group Capital Resources, and that capital resources required to support the capital adequacy of Group companies are not used to support the individual capital adequacy of the Insurer itself. The Insurer's capital adequacy calculation is therefore also an indication of the degree of capital adequacy of the Financial Group of which it is the Parent. In this and other Rules where reference is made to a Parent for the purposes of calculating capital adequacy of a group of companies, generally, it is a reference to the ultimate Parent within the group.

          [Added] RM46/2007 (Made 5th July 2007). [VER6/07-07]

      • PIN 5.7.3

        In PIN Rule 5.7.2, the Insurer's proportionate share of the Subsidiary's or Associate's Minimum Capital Requirement or equivalent means the amount of the Subsidiary's or Associate's Minimum Capital Requirement or equivalent, multiplied by the proportion of the Subsidiary's or Associate's total ownership rights that is held by the Insurer.


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

    • PIN 5.8 PIN 5.8 Transfer of risk by an Insurer to an ISPV

      • PIN 5.8.1

        This section applies to all Insurers.

        [Added] DFSA RM48/2007 (Made 1st October 2007). [VER7/10-07]

      • PIN 5.8.2 PIN 5.8.2

        An Insurer may not:

        (a) treat amounts recoverable from an ISPV as:
        (i) an asset; or
        (ii) reinsurance for the purposes of calculating its liabilities under contracts of insurance it has effected; or
        (b) otherwise ascribe a value to such amounts;
        unless it has first obtained a waiver from the DFSA.

        [Added] DFSA RM48/2007 (Made 1st October 2007). [VER7/10-07]

        • PIN 5.8.2 Guidance

          In considering:

          a. whether to grant such a waiver; and
          b. the amount which the DFSA will allow the Insurer to bring into account for these purposes;

          the DFSA will take into account the following factors:

          c. where the ISPV is an Authorised ISPV, the DFSA will wish to be satisfied that the ISPV complies with PIN Rules 10.1.2 to 10.1.7 The DFSA may rely on information supplied in connection with the ISPV's application for authorisation. However, if the application for a waiver is made after authorisation has been granted, the DFSA may request confirmation that there has been no material change to the information originally supplied;
          d. where the ISPV is not authorised, the DFSA will expect to receive confirmation that the ISPV is subject to regulation by a Financial Services Regulator in a jurisdiction acceptable to the DFSA. In addition, it will need details of the debt issuance or other financing mechanism by which the ISPV's reinsurance liabilities are funded. The DFSA will also expect to receive information about the ISPV's key management and control functions, including details of the ISPV's auditors and arrangements for claims handling, and any material outsourcing agreements. The DFSA will also need information about the structure of any Group of which the ISPV is a member;
          e. no credit will be allowed for a contract of reinsurance with an ISPV unless there is an effective transfer of risk to the ISPV. The DFSA will require evidence of such transfer.
          f. the DFSA will also expect to receive an analysis of the potential for risk to revert to the Insurer or any of its associates under realistic adverse scenarios or for liabilities to arise in respect of the risks transferred for which no provision has been made.

          [Added] DFSA RM48/2007 (Made 1st October 2007). [VER7/10-07]