PIN App3 PIN App3 Calculation of Adjusted Capital Resources
PIN A3.1 PIN A3.1 Purpose and general provisions
PIN A3.1.1 PIN A3.1.1
This appendix applies to all
Insurersto which PIN section 4.3 applies.
PIN A3.1.1 Guidance1. This appendix sets out the manner in which an
Insurerthat is not a Protected Cell Companyis required to calculate its Adjusted Capital Resources. The equivalent provisions for Insurersthat are Protected Cell Companiesare set out in PIN App5.2. The Adjusted Capital Resourcesare calculated by making adjustments to the Insurer'sequity as at the Solvency Reference Date.
PIN A3.2 PIN A3.2 Adjusted capital resources
Insurermust calculate its Adjusted Capital Resourcesaccording to the formula:
ACR = AE – HCA
ACR means the
Insurer's Adjusted Capital Resources;
AE means the
Insurer'sadjusted equity; and
HCA means the
Insurer'shybrid capital adjustment.
PIN A3.3 PIN A3.3 Base capital
PIN A3.3 Guidance
The commencement point for calculating an
Insurer'sadjusted equity is the Insurer'sbase capital.
PIN A3.3.1(a) paid-up ordinary shares, except for shares referred to in PIN Rule A3.5.1(d);(b) general reserves;(c) in the
Insurance Fundof a Takaful Insurer, amounts provided from the Owners' Equityby loan to the Insurance Fundand not repaid as at the Solvency Reference Date;(d) retained earnings;(e) current year's earnings after tax; and(f) hybrid capital, as defined in PIN Rule A3.5.1.
Insureris not a DIFC Incorporated Insurer, base capital may include capital instruments and equity reserves that are approved in writing by the DFSAas equivalent to the capital instruments and equity reserves described in PIN Rule A3.3.1.
Owner's Equityin a Takaful Insurerother than amounts referred to in PIN Rule A3.3.1(c) must be classified as hybrid capital for the purposes of this section if:(a) under the constitutional documents of the Insureror the terms of insurance contracts or both, participation in the surpluses and losses of Takaful business is limited to the policyholders of the Insurer; and(b) the Owners' Equityis available for loan to the Insurance Fundof the Insurer.
Hybrid capital having a term to maturity of less than five years may only be included in base capital with the written consent of the
PIN A3.4 PIN A3.4 Adjusted equity
PIN A3.4.1 PIN A3.4.1
Insurermust calculate its adjusted equity by adding items to and deducting them from its base capital, as set out in this section.
PIN A3.4.1 Guidance
The purpose of these adjustments is to provide a consistent basis for the determination of the
Insurer's Adjusted Capital Resourcesand to exclude from those resources assets that may not be readily realisable for the purposes of meeting Insurance Liabilitiesof the Insurer.
The following items must be added to base capital, to the extent that the
Insurerhas excluded them in determining its base capital:(a) any minority interests in companies that are Subsidiariesof the Insurer; and(b) any amount in respect of dividends to be paid by the Insurerin the form of shares.
The following items must be deducted from base capital, to the extent that the
Insurerhas not excluded them in determining its base capital, or has added them to base capital under PIN Rule A3.4.2:(a) any amounts in respect of appropriations to be made from profit in respect of the reporting period most recently ended, including dividends, distributions by Takaful Insurersof surplus, bonuses, pensions and welfare charges that are determined on the basis of the profit of that reporting period, whether or not the amounts have been approved by the Insurerfor payment;(b) Owners' Equityin a Takaful Insurerthat does not, under the constitutional documents of the Insureror the terms of insurance contracts or both, participate in the surpluses and losses of Takaful business;(c) the amount of any investment by the Insureror by a Subsidiaryof the Insurer, in the Insurer'sown shares;(d) the amount of any tax liability that would be attributable to unrealised gains on investments, if those gains were realised;(e) the amount of deferred acquisition costs;(f) the amount of any deferred tax asset;(g) the amount of any asset representing the value of in-force Long-Term Insurance Businessof the Insurer;(h) the amount of any goodwill, patents, service rights, brands and any other intangible items;(i) the amount of any Zakah or charity fund of a Takaful Insurer;(j) the amount of any operating assets, including inventories, plant and equipment, and vehicles; and(k) the amount of any other assets that may not be applied to meet Insurance Liabilitiesof the Insurer.
PIN Rule A3.4.3(1) does not require an
Insurerto exclude assets attributable to a Long-Term Insurance Fundmaintained by the Insurer.
PIN A3.5 PIN A3.5 Hybrid capital adjustment
PIN A3.5 Guidance1. This section acts to limit hybrid capital to 15% of an
Insurer'sadjusted equity.2. The purpose of the hybrid capital adjustment is to limit the extent to which an Insurermay rely for its Adjusted Capital Resourceson instruments that do not or may not constitute permanent capital of the Insurer. Such instruments include share capital contributed by a Holding Company, where the Holding Company'sinvestment is financed by debt rather than by its own capital.
Hybrid capital includes the following items:(a) subordinated debt;(b) preference shares;(c)
Owners' Equityin a Takaful Insurer, of the type described in PIN Rule A3.3.3; and(d) ordinary shares issued by an Insurerto a Holding Companywhose own paid-up ordinary share capital, taken together with its general reserves, is lower than that of the Insurer.
Subject to PIN Rule A3.5.3, an
Insurermust calculate its hybrid capital adjustment as the amount by which the total amount of hybrid capital exceeds 15% of adjusted equity.
DFSAmay at its discretion and on the application of an Insurer, permit that Insurerto apply PIN Rule A3.5.2 as though the figure of 15% was replaced with a higher figure approved in writing by the DFSA. The approved figure may not be more than the actual percentage which the hybrid capital represents of adjusted equity, and may not in any case exceed 30%.