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  • PIN A4.12 PIN A4.12 Long-term insurance risk component

    • PIN A4.12 Guidance

      1. The purpose of the Long-Term Insurance risk component of the Minimum Capital Requirement is to require an Insurer to set aside capital to address the risk that the net present value of future Policy Benefits will vary from the amounts recorded as Long-Term Insurance Liabilities in the Insurer's balance sheet.
      2. The calculation model set out in PIN Rule A4.12.1 deals separately with Direct Long-Term Insurance Business, with proportional and non-proportional reinsurance of Long-Term Insurance Business, and with finite risk reinsurance of Long-Term Insurance Business.
      3. To determine the amount for proportional reinsurance business, the calculation model applies ratios to the Insurer's premium, to its liability and to the capital at risk in respect of such business. To determine the amount for non-proportional reinsurance, a ratio is applied to the Insurer's non-proportional reinsurance premium. To determine the amount for finite risk reinsurance, ratios are applied to the balance outstanding on contracts, depending on the rating of the Insurer and the term to completion. To determine the amount for Direct Long-Term Insurance Business, the calculation model applies ratios to the Insurer's liability and to its capital at risk in respect of such business. Additional or alternative charges are made in respect of particular Classes of Business.

      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
      [Amended] RM46/2007 (Made 5th July 2007) [VER6/07-07]
      [Amended] DFSA RM56/2008 (Made 1st July 2008). [VER10/07-08]

    • PIN A4.12.1

      An Insurer must calculate its Long-Term Insurance risk component as the sum of the proportional reinsurance element determined in accordance with PIN Rule A4.12.3, the non-proportional reinsurance element determined in accordance with PIN Rule A4.12.4, the finite risk reinsurance element determined in accordance with PIN Rule A4.12.5 and the Direct Long-Term Insurance element determined in accordance with PIN Rule A4.12.8.

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

    • PIN A4.12.2

      In Rules PIN A4.12.3, PIN A4.12.4 and PIN A4.12.8:

      (a) contracts of finite risk reinsurance must be excluded from the calculation of the proportional reinsurance element and the non-proportional reinsurance element;
      (b) 'provisions in respect of Long-Term Insurance Business' means the amount of Long-Term Insurance Liability in respect of the contracts concerned, except that the amount may not be less than 85% of the liability determined without taking reinsurance into account; and
      (c) 'capital at risk' means the aggregate amount of sums assured on contracts of Long-Term Insurance issued by an Insurer, minus the aggregate amount of provisions in respect of those contracts. Where the contract is an annuity, the sum assured must be taken to be the present value of the annuity payments. The capital at risk must be determined separately for each contract, and where the capital at risk calculated for a contract is less than zero, the capital at risk for that contract must be taken as zero.
      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
      [Amended] RM46/2007 (Made 5th July 2007) [VER6/07-07]

    • PIN A4.12.3

      The proportional reinsurance element is calculated as the sum of the following six amounts, so far only as they relate to proportional reinsurance business of the Insurer:

      (a) 2% of the amount of the Insurer's Net Written Premium;
      (b) 3% of the amount of provisions in respect of Long-Term Insurance Business that is annuity and pensions business and is not Investment-Linked Insurance;
      (c) 1.25% of the amount of provisions in respect of Long-Term Insurance Business that is Investment-Linked Insurance, where the contracts are subject to a capital guarantee;
      (d) 0.5% of the amount of provisions in respect of Long-Term Insurance Business that is Investment-Linked Insurance, where the contracts are not subject to a capital guarantee;
      (e) 0.5% of the amount of provisions in respect of Long-Term Insurance Business other than business described in Rules (b), (c), and (d); and
      (f) the amount obtained by applying to the aggregate amount of capital at risk in respect of Long-Term Insurance contracts the formulae set out in the following table:

      Amount of capital at risk expressed in dollars Formula to determine the amount referred to in rule (5)
      (a) less than $500 million 0.20% of the amount of capital at risk
      (b) over $500 million up to $5 billion 0.13% of the amount of capital at risk, plus $350,000
      (c) over $5 billion up to $25 billion 0.10% of the amount of capital at risk, plus $1,850,000
      (d) over $25 billion 0.08% of the amount of capital at risk, plus $6,850,000.

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

    • PIN A4.12.4

      The non-proportional reinsurance element is calculated as 52% of the Insurer's Net Written Premium.


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

    • PIN A4.12.5

      The finite risk reinsurance element is determined as the sum of the following three amounts:

      (a) subject to PIN Rule A4.12.7, the sum of the amounts obtained by applying, to the amount outstanding in respect of each cedant, the percentages set out in PIN Rule A4.4.1(a)(i) as though the cedant were a reinsurer and the amount outstanding were reinsurance recoverable;
      (b) the sum of the amounts obtained by applying, to the amount outstanding under each contract, the percentages set out in PIN Rule A4.5.1, as though the amount outstanding were a bond; and
      (c) 2.25% of the amount outstanding.

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

    • PIN A4.12.6

      In PIN Rule A4.12.5, the amount outstanding means the amount of any experience account or advance, however called or described, that, under the terms of the contract, will be paid to the Insurer on or before the termination of the contract.


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

    • PIN A4.12.7

      For the purposes of PIN Rule A4.12.5(b), Rules PIN A4.4.4, PIN A4.4.5 and PIN A4.4.6 apply mutatis mutandis to the amount outstanding.


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

    • PIN A4.12.8

      An Insurer who carries on Direct Long-Term Insurance Business through a branch located outside the DIFC must calculate the Direct Long-Term Insurance Business element of its Long-Term Insurance risk component as the aggregate of the following, in respect of those contracts:

      (a) the following proportions of provisions in respect of Long-Term Insurance Business:
      (i) in the case of Class I, Class II, and Class VI, 4%;
      (ii) in the case of Class III and Class VII, where the Insurer bears investment risk, 4%; and
      (iii) in the case of Class III, where the Insurer bears no investment risk but the allocation to cover management expenses is fixed for more than five years, 1%;
      (b) in the case of all contracts where the Insurer bears a death risk under the contract, the following percentage of capital at risk, subject to a maximum reduction for reinsurance of 50%:
      (i) where the contract is term assurance of not more than three years, 0.1%;
      (ii) where the contract is term assurance of between three and five years, 0.15%; and
      (iii) in all other cases, 0.3%;
      (c) in the case of Class III, where the Insurer bears no investment risk and the allocation to cover management expenses is not fixed for more than five years, 25% of the Insurer's net administrative expenses in the past financial year pertaining to such business;
      (d) in the case of Class IV, the higher of:
      (i) 18% of Gross Written Premium, reducing to 16% for the amount of Gross Written Premium in excess of $50 million, and subject to a maximum reduction for reinsurance of 50%; and
      (ii) 26% of the average gross claims incurred over the three preceding financial years, reducing to 23% for the amount of that average in excess of $35 million, and subject to a maximum reduction for reinsurance of 50%; and
      (e) in the case of Class V, 1% of the assets of the tontine;
      [Added] RM46/2007 (Made 5th July 2007) [VER6/07-07]