PIN A4.10 PIN A4.10 Underwriting risk component
PIN A4.10 Guidance
The purpose of the underwriting risk component of the
Minimum Capital Requirementis to require an Insurerto set aside capital to address the risk that the cost of claims in respect of General Insurance Businesswill 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.
Subject to the other provisions of this section, an
Insurermust calculate its underwriting risk component as the sum of the amounts obtained by multiplying the Insurer'sbase 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) Classes1 and 2 18 18 27 (b) Class3 12 12 18 (c) Class4 17 17 26 (d) Class5 19 19 30 (e) Class6 27 27 29 (f) Classes7(a) and 7(b) 90 90 140 (g) Class8 18 18 27
Insurerunderwrites Contracts of Insurancein Class1 or Class2, and those contracts constitute Long-Term Insurancecontracts, the Insurermust not calculate an underwriting risk component in respect of those contracts but must instead calculate a Long-Term Insurancerisk component as set out in PIN section A4.12.
DFSAmay, on written application by an Insurerundertaking business in Class2, give consent in writing to the use of percentages other than those stated in item PIN Rule A4.10.1(a), if the DFSAis 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.
Insurer'sestimated net retention as at the Solvency Reference Datein respect of a property catastrophe exceeds the sum of the amounts calculated in accordance with PIN Rule A4.10.1 in respect of Class5, before taking account of this Rule, the sum of those amounts must be replaced by the Insurer'sestimated net retention in respect of a property catastrophe when calculating the underwriting risk component.
For the purposes of PIN Rule A4.10.4, the
Insurer'snet 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.
PIN A4.10.6(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.
In PIN Rule A4.10.6, the reference period means the reporting period ending next before the
Solvency Reference Date, except where the Insurer'sforecast 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 Premiumand Gross Written Premiumused for the purposes of PIN Rule A4.10.6 must be the forecast Net Written Premiumand Gross Written Premiumfor that second reporting period.
Insurerenters, as Insureror cedant, into a General Insurancecontract 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.
PIN A4.10.9 PIN A4.10.9
Insurerenters 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 Businessit relates to, must be 4% of the base premium on the contract.
PIN A4.10.9 Guidance
Provisions in respect of
Class7 are contained in PIN section 4.5.