PIN A4.11 PIN A4.11 Reserving risk component
PIN A4.11 Guidance
The purpose of the reserving 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 amounts recorded as liabilities in the Insurer'sbalance sheet. This calculation applies only to liabilities in respect of outstanding claims (the risk of deterioration in Premium Liabilityis addressed in the underwriting risk component in PIN section A4.10). The principles of the calculation are similar to those in PIN section A4.10.
Subject to the other provisions of this section, an
Insurermust calculate its reserving risk component as the sum of the amounts obtained by multiplying the Insurer'sbase claims reserve under Contracts of Insuranceand reinsurance effected by it, 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 28 28 28 (b) Class3 12 12 12 (c) Class4 16 16 16 (d) Class5 22 22 22 (e) Class6 10 10 10 (f) Classes7(a) and 7(b) 31.25 31.25 31.25 (g) Class8 28 28 28
Insurerunderwrites Contracts of Insurancein Class1 or Class2, and those contracts constitute Long-Term Insurancecontracts, the Insurermust not calculate a reserving 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 Insurance Businessin Class2, give consent in writing to the use of percentages other than those stated in PIN Rule A4.11.1(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 5%.
PIN A4.11.4(a) for an Insurer, other than a Captive Insurer, the higher of:(i) the Insurer’s provision for Gross Outstanding Claims, less the amount of reinsurance and other recoveries expected to be received in respect of that liability; and(ii) 50% of the amount of the Insurer’s provision for Gross Outstanding Claims; and(b) for a Captive Insurer, the amount of the Insurer’s provision for Gross Outstanding Claims, less the amount of reinsurance and other recoveries expected to be received in respect of that liability.
PIN A4.11.5 PIN A4.11.5
Insurerhas entered as reinsurer into a finite risk reinsurance contract, the reserving risk component in respect of that contract, regardless of the class of business it relates to, must be 6% of the base claims reserve on the contract.
PIN A4.11.5 Guidance
Provisions in respect of
Class7 are contained in PIN section 4.5.