PIN 8 PIN 8 Consolidated Supervision
PIN 8.1 PIN 8.1 Introduction
PIN 8.1.1 PIN 8.1.1
This chapter applies to all
Insurers, except for PIN Rule 8.5.1 which applies only to DIFC Incorporated Insurers.
PIN 8.1.1 Guidance1.
Groupmembership may be a source of both strength and weakness to an Insurer. The purpose of Group Riskrequirements is to ensure that an Insurer takes proper account of the risks related to the Insurer'smembership of a Group. The Group Riskrequirements form a key part of the DFSA'soverall approach to prudential supervision.2. An Insureris subject to separate reporting requirements in respect of changes in its Controllers. Those requirements are set out in chapter 11 of GEN. It may be also be required to provide reports in respect of any Close Linksit possesses.
PIN 8.1.2 PIN 8.1.2(1) If an
Insureris a member of a Financial Groupand the DFSAconsiders it necessary to extend the scope of the Financial Groupto include entities outside of the Financial Groupto ensure appropriate Financial Groupsupervision, an Insurer must also include in the scope of the Financial Groupany entity the DFSAmay direct the Insurer in writing to include.(2) An Insurermay, for the purposes of this section, exclude from its Financial Group, any entity the inclusion of which would be misleading or inappropriate for the purposes of Financial Groupsupervision, provided the Insurer has obtained the DFSA'sprior written approval to do so.(3) An Insurermust provide to the DFSA, where requested, information regarding other Groupentities, the Groupstructure and the systems and controls in place to manage Group Risk.
PIN 8.1.2 Guidance
If more than one member of the same
Groupis subject to an obligation to provide information in respect of a position of the Group, one or more of those Authorised Firmsmay make application to the DFSAfor an appropriate waiver or modification of these Rules.
In this chapter, a series of connected transactions between an
Insurerand a Relatedparty, or between an Insurerand parties who are Relatedto each other, is deemed to constitute a single transaction.
PIN 8.2 PIN 8.2 Adequacy of capital resources of the group[Deleted] RM46/2007 (Made 5th July 2007). [VER6/07-07]
DFSAmay, by written notice, require an Insurerto provide the DFSAwith a statement of the consolidated financial position of any Groupof which the Insureris a member, made up as at a date specified by the DFSAin that notice and in accordance with principles stated by the DFSAin the notice.
PIN 8.2.2 PIN 8.2.2
Insurerreceiving a notice under PIN Rule 8.2.1 shall have not less than three months to comply with the notice.
PIN 8.2.2 Guidance
Insurerwill normally be permitted to comply with a notice given under PIN Rule 8.2.1 by presenting a copy of a statement, relating to the Groupspecified in the notice, made up in compliance with an equivalent or substantially equivalent regulatory requirement to which the Insureror a Subsidiaryor Associateof the Insureris subject in a jurisdiction other than the DIFC. If that statement is not in English, the Insurerwill be required to provide a certified translation of the statement into English.
PIN 8.2 PIN 8.2 Systems and controls requirements
PIN 8.2.1 PIN 8.2.1
Insureris a member of a Group, it must establish and maintain systems and controls for the purpose of:(a) monitoring the effect on the Insurerof:(i) its relationship with other members of its Group;(ii) its membership in its Group; and(iii) the activities of other members of its Group; and(b) monitoring compliance with Financial Groupsupervision requirements below, including systems for the production of relevant data:(i) monitoring funding within the Financial Group; and(ii) monitoring compliance with Financial Groupreporting requirements.
PIN 8.2.1 Guidance1. For the purposes of the above requirement, an
Insurermay take into account its position within its Group, the materiality of the risk to which it is exposed because of its membership of the Group, and the access that it has to the systems and controls of other members of its Groupand any information produced by them or by Associates. For example, it would be reasonable for a small Insurer within a larger Groupto place some reliance on its Parentto ensure that appropriate systems and controls are in place.2. An Insurermay also consider together Groupswhose Parentsare all members of the same Group, except for any Groupof which the Insureris the Parent. An Insurerthat is itself the Parentof a Groupmust give specific consideration to the risks to which it is exposed as the Parent. The DFSAwill not otherwise however normally expect an Insurerto apply the provisions of this Ruleto sub- Groupsof a single Group.
PIN 8.3 PIN 8.3 Financial group capital requirements and financial group capital resources
PIN 8.3.1(1) PIN Section 8.3 does not apply to an
Insurerif:(a) the Insurer's Financial Groupis al the subject of Financial Groupprudential supervision by the DFSAas a result of the authorisation of another Financial Groupmember; or(b) the DFSAhas confirmed in writing, in response to an application from the Insurer, that it is satisfied that the Insurer's Groupis the subject of consolidated prudential supervision by an appropriate regulator; or(c) except where the DFSAhas directed the inclusion of an entity pursuant to PIN Rule 8.1.2(1), the percentage of total assets of Authorised Firmsand Financial Institutionsin the Financial Groupis less than 40% of the total Financial Groupassets.(2) Where an Insurer has received confirmation in writing from the DFSAin accordance with (1)(b), it must immediately advise the DFSAin writing if the circumstances upon which the confirmation was based change.
PIN 8.3.2 PIN 8.3.2
Financial Groupcontains both Insurersand Authorised Firmssubject to the requirements in PIB Module, the DFSAshall determine which of the sectoral rules in PIN section 8.3 and PIB section 7.3 shall apply in respect of the group.
PIN 8.3.2 Guidance1. The objective of PIN Rule 8.3.1(1)(a) is to avoid the necessity for multiple reporting of group capital adequacy.2. Where a
Financial Groupincludes both Insurersand entities subject to PIB, it is necessary to determine whether the Financial Groupsupervision applicable to the Financial Groupshould be that set out in PIN section 8.3 or PIB section 7.3. Normally, the DFSAwill exercise its power under PIN Rule 8.3.2 based on the relative size of the assets of the Financial Institutionsundertaking Insurance Business(representing the insurance sector) and the assets of other Authorised Firmsand Financial Institutions(representing a combined non-insurance sector). Pure holding companies will be excluded as being in neither sector. The Rulesthat will apply will be those of the sector with the larger total assets of the two. However, where the ratio of the assets of the two sectors differs by less than 1.5:1, the DFSAwill consider a request from the Authorised Firmsin the Financial Groupto apply the sectoral rules applicable to the smaller of the two sectors.
PIN 8.3.3 PIN 8.3.3
Insurermust ensure at all times that its Financial Group Capital Resources, as calculated in PIN Rule 8.3.5, are equal to or in excess of its Financial Group Capital Requirementas calculated in PIN Rule 8.3.4.
PIN 8.3.3 Guidance
Insurerbreaches PIN Rule 8.3.3, the DFSAwill take into account the full circumstances of the case including any remedial steps taken by another regulator or the Authorised Firm, in determining what action it will take.
Financial group capital requirement
PIN 8.3.4(1) An
Insurermust calculate its Financial Group Capital Requirementas the sum of the entity requirements calculated in accordance with (2) and (3);(2) Entity requirements for this purpose are:(a) an Authorised Firm's Capital Requirementor Minimum Capital Requirementcalculated in accordance with the requirements of whichever of the PIB or PIN Module applies to that Authorised Firm;(b) in the case of regulated entities supervised by a regulator other than the DFSA, then, with the written agreement of the DFSA, the capital requirement of that entity; and(c) for other entities in the Financial Group, a notional capital requirement calculated as directed by the DFSA.(3) Where an Authorised Firm's Financial Groupincludes an entity under (c) of the definition of Financial Groupin the GLO Module, that Financial Institution'scapital requirement is included on a proportionate basis.
Financial group capital resources
PIN 8.3.5 PIN 8.3.5(1) An
Insurermust calculate its Financial Group Capital Resourcesby applying either of the following methods, excluding those amounts referred to in PIN Rule 8.3.6:(a) the accounting consolidation method which calculates the Adjusted Capital Resourcesof the Financial Groupbased on the Financial Group'sconsolidated financial statements; or(b) the aggregation method, which is the sum of:(i) the Adjusted Capital Resourcesof the Parentof the Financial Group;(ii) subject to (3), the Adjusted Capital Resourcescalculated in accordance with the PIN Module, or the Capital Resourcescalculated in accordance with the PIB module, as may be appropriate, of Financial Institutionsincluded in the Financial Group; and(iii) subject to (3), the Financial Group'sproportionate share of the Adjusted Capital Resourcescalculated in accordance with the PIN Module, or the Capital Resourcescalculated in accordance with the PIB Module, as may be appropriate, of Financial Institutionparticipations included in the Financial Group.(2) In calculating the Adjusted Capital Resourcesof a member of the Financial Groupor of the Financial Group, an Insurermust follow the method of calculation set out in PIN section A3.2, with the exception that the deduction set out in PIN Rule A3.4.3(b) need not be made.(3) For the purposes of (1)(b)(ii) and (iii) an investment by one Financial Groupmember in another must not be included.
PIN 8.3.5 Guidance1. The calculation of
Financial Group Capital Resourcesis subject to PIN section 3.5 which limits the amount of hybrid capital (including subordinated debt) that may be included in Adjusted Capital Resources.2. In the calculation of Capital Resourcesof Financial Institutionsthat are Financial Groupmembers in accordance with the PIB Module, an Insurerapplies to that member the deductions for illiquid assets and material holdings and Qualifying Holdingsset out in the PIB Module.3. The deduction set out at PIN Rule 8.3.5(3) need not be made to the extent that the investment has al been excluded in whole or part by virtue of the application of the limits described in paragraphs 1 and 2 of this Guidance.
PIN 8.3.6 PIN 8.3.6
When calculating the
Financial Group Capital Resourcesof a Financial Group, an Insurermust not include Capital Resourcesor Adjusted Capital Resources(as the case may be) of Subsidiariesor participations to the extent that those Capital Resourcesor Adjusted Capital Resources:(a) exceed the entity requirement in respect of that Subsidiaryor participation, calculated in accordance with PIN Rule 8.3.4; and(b) are not freely transferable within the Financial Group.
PIN 8.3.6 Guidance1. Because the
Financial Group Capital Requirementset out in PIN Rule 8.3.4 includes capital requirements in respect of Groupentities, capital resources may be included in the calculation of Financial Group Capital Resourcesto the extent of those requirements. Capital that is surplus to those requirements is however subject to an additional condition before it may be taken into account for the purposes of Financial Groupcapital adequacy.2. In general, Capital Resourcesor Adjusted Capital Resourcesare considered not to be freely transferable if they are subject to a legal or constructive limitation on their transferability, whether that transfer would be made by dividend, return or capital or other form of distribution. Examples of relevant limitations might include obligations to maintain minimum capital requirements to meet domestic solvency requirements, or to comply with debt covenants.
PIN 8.4 PIN 8.4 Transactions within a group
PIN 8.4.1 PIN 8.4.1
This section applies to all
Insurersin respect of all transactions that are material.
PIN 8.4.1 Guidance
A single transaction or series of connected transactions that constitute a sale, purchase, exchange, loan or extension of credit, investment or guarantee involving one-half of one percent (0.5%) or less of surplus as at the end of the reporting period immediately preceding the effective date of the transaction will not normally be considered material for the purposes of this section.
Transactions entered into by an
Insurerwith Relatedentities must comply with the following conditions:(a) the terms of the transactions must be fair and reasonable; and(b) the books, accounts and records of the Insurermust clearly and accurately disclose the nature and details of the transactions including any accounting information necessary to support the fairness and reasonableness of the terms and conditions of the transactions.
PIN 8.5 PIN 8.5 Significant transactions other than group transactions
PIN 8.5.1(1) A
DIFC Incorporated Insurermust not enter into a transaction of the type described in this Ruleunless the directors of the Insurerare satisfied following reasonable enquiry that the transaction does not adversely affect the interests of policyholders. The transactions to be considered are:(a) a sale, purchase, exchange, loan or extension of credit, guarantee or investment where the counterparty is a Person Relatedto the Insurerand the amount of the transaction equals or exceeds three per cent of the Insurer'ssurplus as at the end of the reporting period immediately preceding the transaction;(b) a loan or extension of credit to any Personwho is not Relatedto the Insurer, where the Insurermakes the loan or extension of credit with the agreement or understanding that the proceeds of the transaction, in whole or in substantial part, are to be used to make loans or extensions of credit to purchase assets of, or to make investments in, any Relatedparty of the Insurermaking the loans or extensions of credit, where the amount of the transaction equals or exceeds three per cent of the Insurer'ssurplus as at the end of the reporting period immediately preceding the transaction;(c) a reinsurance agreement or modification to a reinsurance agreement in which the reinsurance premium or a change in the Insurersliabilities equals or exceeds five per cent of the Insurer'ssurplus;(d) a reinsurance agreement or modification to a reinsurance agreement involving the transfer of assets from an Insurerto a Personnot Relatedto the Insurer, if an agreement or understanding exists between the Insurerand that Personthat any portion of the assets will be transferred to one or more other Persons Relatedto the Insurerand the reinsurance premium or a change in the Insurersliabilities equals or exceeds five per cent of the Insurer'ssurplus; and(e) any management agreement, service contract or cost-sharing arrangement.(2) For the purposes of (1), 'surplus' means:(a) in the case of an Insurerthat is not a Protected Cell Company, the Insurer's Adjusted Capital Resources; and(b) in the case of an Insurerthat is a Protected Cell Company, the Insurer's Adjusted Cellular Capital Resourcesin respect of the Cellto which the transaction relates, where the transaction relates to a Cell, and otherwise the Insurer's Adjusted Non-Cellular Capital Resources.
Insurermust report to the DFSAall dividends and other distributions to shareholders within 21 days following the declaration of the dividend or distribution.
Insurerthat is a Takaful Insurermust report to the DFSAall distributions of profit or surplus (however called or described) to policyholders within 21 days of the date of declaration of the distribution.
Insurermust notify the DFSAin writing within 30 days if the Insurermakes an investment in a body corporate to which it is Related, if the total investment in the Relatedbody corporate by the Insurerand other bodies corporate to which the Insureris Relatedexceeds ten per cent of the body corporate's paid-up capital or voting rights.