Entire Section

  • 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]