Entire Section

  • PIN A4.10 PIN A4.10 Underwriting risk component

    • PIN A4.10 Guidance

      The purpose of the underwriting risk component of the Minimum Capital Requirement is to require an Insurer to set aside capital to address the risk that the cost of claims in respect of General Insurance Business will vary from the cost implicit in the premiums being charged. The basic calculation model set out in PIN Rule A4.10.2 applies different factors to the premium in respect of different Classes of Business, based on the different perceived risk of variability associated with each. The model is modified by additional provisions dealing with certain Classes of Business. This section also restricts the extent to which reinsurance may be taken into account when calculating the underwriting risk component for an Insurer, other than a Captive Insurer.

      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
      [Added] DFSA RMI296/2021 (Made 24th February 2021). [VER17/04-21]

    • PIN A4.10.1

      Subject to the other provisions of this section, an Insurer must calculate its underwriting risk component as the sum of the amounts obtained by multiplying the Insurer's base premium, for each Class of Business, by the percentage factors set out in the following table.

      Class of Business Percentage factor
        Direct insurance Proportional reinsurance Non-proportional and facultative reinsurance
      (a) Classes 1 and 2 18 18 27
      (b) Class 3 12 12 18
      (c) Class 4 17 17 26
      (d) Class 5 19 19 30
      (e) Class 6 27 27 29
      (f) Classes 7(a) and 7(b) 90 90 140
      (g) Class 8 18 18 27

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

    • PIN A4.10.2

      Where an Insurer underwrites Contracts of Insurance in Class 1 or Class 2, and those contracts constitute Long-Term Insurance contracts, the Insurer must not calculate an underwriting risk component in respect of those contracts but must instead calculate a Long-Term Insurance risk component as set out in PIN section A4.12.


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

    • PIN A4.10.3

      The DFSA may, on written application by an Insurer undertaking business in Class 2, give consent in writing to the use of percentages other than those stated in item PIN Rule A4.10.1(a), if the DFSA is satisfied that adequate mortality and morbidity information exists in respect of that business, to provide a reasonable basis for reliance on actuarial principles. The percentages that may be used must be those stated in the notice giving consent, but may not be lower than 12% in the case of direct insurance and proportional reinsurance, and 18% in the case of non-proportional or facultative reinsurance.


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

    • PIN A4.10.4

      Where the Insurer's estimated net retention as at the Solvency Reference Date in respect of a property catastrophe exceeds the sum of the amounts calculated in accordance with PIN Rule A4.10.1 in respect of Class 5, before taking account of this Rule, the sum of those amounts must be replaced by the Insurer's estimated net retention in respect of a property catastrophe when calculating the underwriting risk component.


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

    • PIN A4.10.5

      For the purposes of PIN Rule A4.10.4, the Insurer's net retention means the sum of claims expected to be paid, associated direct and indirect settlement costs and reinstatement premiums expected to be paid in respect of reinsurance recoveries resulting from those claims, less the sum of reinstatement premiums expected to be received and reinsurance and other recoveries expected to be received resulting from those claims, in the event of a property catastrophe representing a return period of not less than 100 years.


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

    • PIN A4.10.6

      For the purposes of this section, and subject to PIN Rule A4.10.8, the Insurer's base premium means the following amounts:

      (a) for an Insurer, other than a Captive Insurer, the higher of:
      (i) the Insurer’s Net Written Premium during the reference period; and
      (ii) 50% of the amount of the Insurer’s Gross Written Premium during the reference period; and
      (b) for a Captive Insurer: the amount of the Insurer’s Net Written Premium during the reference period.
      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
      [Amended] DFSA RMI296/2021 (Made 24th February 2021). [VER17/04-21]

    • PIN A4.10.7

      In PIN Rule A4.10.6, the reference period means the reporting period ending next before the Solvency Reference Date, except where the Insurer's forecast Net Written Premium, according to its business plan, for the reporting period next after that reporting period, is higher, in which case the reference period will be the second of the two reporting periods and the Net Written Premium and Gross Written Premium used for the purposes of PIN Rule A4.10.6 must be the forecast Net Written Premium and Gross Written Premium for that second reporting period.


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

    • PIN A4.10.8

      Where an Insurer enters, as Insurer or cedant, into a General Insurance contract of longer than twelve months' duration, the premium or reinsurance premium on that contract must not be included fully in the calculation of base premium in the reporting period in which the contract was effected, but must be apportioned over the duration of the contract by allocating to each reporting period a fraction of the premium proportionate to the fraction of the contract period that falls into that reporting period, or on a different basis approved in writing by the DFSA.


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

    • PIN A4.10.9 PIN A4.10.9

      Where an Insurer enters as reinsurer into a finite risk reinsurance contract in respect of General Insurance Business, the underwriting risk component in respect of that contract, regardless of the Class of Business it relates to, must be 4% of the base premium on the contract.

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

      • PIN A4.10.9 Guidance

        Provisions in respect of Class 7 are contained in PIN section 4.5.


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