Entire Section

  • PIN App6 PIN App6 Calculation of Minimum Non-Cellular Capital Requirement and Minimum Cellular Capital Requirement

    • PIN A6.1 PIN A6.1 Purpose and general provisions

      • PIN A6.1.1

        This appendix applies to all Insurers to which PIN section 4.4 applies.


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

      • PIN A6.1.2 PIN A6.1.2

        In this appendix, the term 'segment' includes both:

        (a) a Cell of a Protected Cell Company; and
        (b) the portion of a Protected Cell Company that is not a Cell; and the term 'segmental' is construed accordingly.
        Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

        • PIN A6.1.2 Guidance

          1. This appendix sets out how an Insurer that is a Protected Cell Company is required to calculate its Minimum Non-Cellular Capital Requirement and the Minimum Cellular Capital Requirement applicable to each Cell.
          2. The Minimum Non-Cellular Capital Requirement and the Minimum Cellular Capital Requirement are calculated on a basis that is analogous to the basis of calculation of the Minimum Capital Requirement for Insurers that are not Protected Cell Companies, as set out in PIN App4. This appendix therefore incorporates references to the provisions of PIN App4.
          3. The calculation of the Minimum Non-Cellular Capital Requirement takes into account only Non-Cellular Assets and Non-Cellular Liabilities, while the Minimum Cellular Capital Requirement in respect of a Cell takes into account only Cellular Assets of that Cell and Cellular Liabilities of the same Cell.
          4. The methods of calculation for the Minimum Non-Cellular Capital Requirement and the Minimum Cellular Capital Requirement in respect of a Cell are identical, so the term Minimum Segmental Capital Requirement is used to refer to both. Similarly, the term 'segment' is used in this appendix to refer to both a Cell and the non-cellular part of an Insurer.

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

    • PIN A6.2 PIN A6.2 Minimum segmental capital requirement

      • PIN A6.2.1

        Every Insurer must calculate its Minimum Non-Cellular Capital Requirement and the Minimum Cellular Capital Requirement applicable to each Cell, in accordance with this appendix.


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

      • PIN A6.2.2 PIN A6.2.2

        Subject to Rules PIN A6.2.4, PIN A6.2.5, and PIN A6.2.6, an Insurer must calculate its Minimum Segmental Capital Requirement according to the following applicable formula:

        (a) for an Insurer, other than a Captive Insurer: MCR = DRC + IVRC + OARC + OLRC + CRC + SFAC + URC + RRC + LIRC + AMRC;
        (b) for a Class 1 Captive Insurer: MCR = higher of URC and RRC; and
        (c) for a Class 2 and Class 3 Captive Insurer: MCR = DRC + IVRC + URC + RRC;

        where:

        Term Definition
        MSCR Insurer's Minimum Segmental Capital Requirement;
        DRC Insurer's default risk component in respect of that segment;
        IVRC Insurer's investment volatility risk component in respect of that segment;
        OARC Insurer's off-balance sheet asset risk component in respect of that segment;
        OLRC Insurer's off-balance sheet liability risk component in respect of that segment;
        CRC Insurer's concentration risk component in respect of that segment;
        SFAC Insurer's size factor adjustment component in respect of that segment;
        URC Insurer's underwriting risk component in respect of that segment;
        RRC Insurer's reserving risk component in respect of that segment;
        LIRC Insurer's Long-Term Insurance risk component in respect of that segment;
        AMRC Insurer's asset management risk component in respect of that segment.
        Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]
        [Added] DFSA RMI296/2021 (Made 24th February 2021). [VER17/04-21]

        • PIN A6.2.2 Guidance

          Because of the provision in PIN chapter 1 that all Insurance Business of an Insurer that is a Protected Cell Company must be conducted through its Cells, the URC, RRC and LIRC components will apply only to Cells.


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

      • PIN A6.2.3

        The methods of calculation of the components referred to in PIN Rule A6.2.2 are set out in sections PIN A6.4, PIN A6.5, PIN A6.6, PIN A6.7, PIN A6.8, PIN A6.9, PIN A6.10, PIN A6.11, PIN A6.12 and PIN A6.13.


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

      • PIN A6.2.4

        An Insurer's Minimum Non-Cellular Capital Requirement must always be equal to or higher than US$ 50,000.


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

      • PIN A6.2.5

        The Minimum Cellular Capital Requirement in respect of a Cell must always be equal to or higher than US$ 50,000.


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

      • PIN A6.2.6

        Where the aggregate of the Minimum Segmental Capital Requirements of the segments of an Insurer, calculated in accordance with the formula set out in PIN Rule A6.2.2 is less than US$ 250,000, the difference between that aggregate and US$ 250,000 must be added to the Minimum Non-Cellular Capital Requirement.


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

    • PIN A6.3 PIN A6.3 Applicability of components to assets of the insurer

      • PIN A6.3.1

        Subject to Rules PIN A6.3.2 and PIN A6.3.3, an Insurer must calculate those components of a Minimum Segmental Capital Requirement that are relevant to assets, in respect of every asset that is attributable to that segment and that is available to meet liabilities attributable to that segment.


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

      • PIN A6.3.2 PIN A6.3.2

        Where an Insurer arranges its affairs such that Invested Assets attributable to a segment are held in a Related entity, the Insurer may, with the written approval of the DFSA, calculate components of the relevant Minimum Segmental Capital Requirement by reference to the Insurer's interest in the assets that are held by the Related entity, instead of by reference to the interest that the Insurer has in that Related entity. In that case this appendix shall be interpreted as though the assets (representing the Insurer's interest) held by the Related entity were held directly by the Insurer.

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

        • PIN A6.3.2 Guidance

          The effect of PIN Rule A6.3.2 is to provide flexibility for Insurers whose investments are managed on a pooled basis within a Group, or which establish specialist Subsidiaries to manage their investments. While the Insurer's asset in such cases is a balance with, or investment in, a Related entity, this rule permits the Insurer to 'look through' the corporate arrangement and apply this appendix to the assets of the Related entity as though they were the Insurer's own.


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

      • PIN A6.3.3 PIN A6.3.3

        Where an Insurer that is a Protected Cell Company arranges its affairs such that the Invested Assets of a segment are held in another segment of the same Insurer, the Insurer may, with the written approval of the DFSA, calculate relevant components of its Minimum Segmental Capital Requirement in respect of the first segment, by reference to the segment's interest in the assets that are held by the second segment, instead of by reference to the interest that the first segment has in the second segment. In that case this appendix shall be interpreted as though the assets (representing the first segment's interest) held by the second segment were held directly by the first segment.

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

        • PIN A6.3.3 Guidance

          1. The effect of PIN Rule A6.3.3 is to extend the flexibility given by PIN A6.3.2 to cover situations where one segment of an Insurer uses another segment of the same Insurer as a specialist investment entity.
          2. Where PIN A6.3.3 is applied, the Insurer still needs to calculate the Minimum Segmental Capital Requirement for the specialist investment segment, in respect of the Invested Assets which the specialist investment segment owns. Two segments would therefore be required to hold capital in respect of those Invested Assets.

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

    • PIN A6.4 PIN A6.4 Default risk component

      • PIN A6.4 Guidance

        The purpose of the default risk component is to require an Insurer to set aside capital to cover the risk that amounts receivable from counterparties will not be received. The basic calculation model for this component, as it applies to Insurers that are not Protected Cell Companies, is set out in PIN section A4.4. The provisions in this section apply this basic model to the segments of a Protected Cell Company.


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

      • PIN A6.4.1

        An Insurer must calculate the default risk component in respect of a segment as the sum of the amounts obtained by multiplying the value of each asset of the segment with the relevant percentage, in accordance with the following tables and subject to the provisions of Rules PIN A6.4.2 and PIN A6.4.3:

        (a) assets that are Invested Assets: the table set out in PIN Rule A4.4.1(a); and
        (b) assets that are not Invested Assets: the table set out in PIN Rule A4.4.1(b).

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

      • PIN A6.4.2

        The provisions of Rules PIN A4.4.2, PIN A4.4.3, PIN A4.4.4, PIN A4.4.5, and PIN A4.4.6 must be applied, mutatis mutandis, to assets of a segment as though references in those Rules to an Insurer were instead references to a segment.


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

      • PIN A6.4.3

        Notwithstanding anything else in this section:

        (a) the default risk component in respect of any asset that is subject to a fixed or floating charge, mortgage or other encumbrance must be 100% of the value of the asset to the extent of that charge, mortgage or encumbrance. In the case of such assets, the percentages set out in the tables referred to above must be applied only to the amount, if any, by which the value of the asset exceeds the amount of the charge, mortgage or encumbrance; and
        (b) no default risk component must be calculated in respect of assets excluded from Adjusted Cellular Capital Resources or Adjusted Non-Cellular Capital Resources in accordance with Rules PIN A5.4.3(e), PIN A5.4.3(f), PIN A5.4.3(i), PIN A5.4.3(j), PIN A5.8.3(e), PIN A5.8.3(f), PIN A5.8.3(g), PIN A5.8.3(h), PIN A5.8.3(k) or PIN A5.8.3(l).

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

    • PIN A6.5 PIN A6.5 Investment volatility risk component

      • PIN A6.5 Guidance

        The purpose of the investment volatility risk component is to require an Insurer to set aside capital to cover the risk of deterioration in the values of Invested Assets. The basic calculation model for this component, as it applies to Insurers that are not Protected Cell Companies, is set out in PIN section A4.5. The provisions in this section apply this basic model to the segments of a Protected Cell Company.


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

      • PIN A6.5.1

        An Insurer must calculate the investment volatility risk component in respect of a segment as the sum of the amounts obtained by multiplying the value of each Invested Asset attributable to the segment with the relevant percentage, in accordance with the table set out in PIN Rule A4.5.1, but subject to the provisions of PIN Rule A4.5.2.


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

    • PIN A6.6 PIN A6.6 Off-balance sheet asset risk component

      • PIN A6.6 Guidance

        The purpose of the off-balance sheet asset risk component is to require an Insurer to set aside capital to cover the risk of default and deterioration in value in respect of exposures that the Insurer has because it is a party to a derivative contract. The provisions in this section apply the basic provisions of PIN section A4.6 to the segments of a Protected Cell Company.


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

      • PIN A6.6.1

        An Insurer is required to calculate an off-balance sheet asset risk component, if the Insurer is, as at the Solvency Reference Date, a party to a derivative contract, including a forward, future, swap, option or other similar contract, but not including:

        (a) a put option serving as a guarantee;
        (b) a foreign exchange contract having an original maturity of 14 days or less; or
        (c) an instrument traded on a futures or options exchange, which is subject to daily mark-to-market and margin payments.

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

      • PIN A6.6.2

        An Insurer must calculate the off-balance sheet asset risk component in respect of a segment as the sum of the amounts obtained by applying the calculations set out in PIN Rule A6.6.3 in respect of each derivative contract entered into by the Insurer in respect of that segment that meets the description in PIN Rule A6.6.1.


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

      • PIN A6.6.3

        The amount in respect of a derivative contract is obtained by calculating, for an asset equivalent amount as determined in PIN Rule A6.6.4, a default risk component as set out in PIN section A6.4 and an investment volatility risk component as set out in PIN section A6.5, as though the asset equivalent amount were a debt obligation due from the derivative counterparty.


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

      • PIN A6.6.4

        The asset equivalent amount in respect of a derivative is calculated as the sum of the current mark-to-market exposure of the derivative (where this is positive) and the amount obtained by multiplying the notional principal amount of the derivative by the factors specified in the table set out in PIN Rule A4.6.4, according to the nature and residual maturity of the derivative.


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

    • PIN A6.7 PIN A6.7 Off-balance sheet liability risk component

      • PIN A6.7 Guidance

        1. The purpose of the off-balance sheet liability risk component is to require an Insurer to set aside capital to cover the risk that it will be required to perform on a guarantee, letter of credit or other credit substitute that it has entered into. Although such items are not liabilities of the Insurer as at the Solvency Reference Date, they have the capacity to crystallise as liabilities at a subsequent date and therefore to affect the Insurer's capital position. The provisions in this section apply the relevant provisions of PIN section A4.7 to the segments of a Protected Cell Company.
        2. Credit substitutes that are Contracts of Insurance are excluded from the calculation of this component, as they are subject to a separate capital requirement under PIN section 4.5.

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

      • PIN A6.7.1

        An Insurer must calculate an off-balance sheet liability risk component in respect of a segment if the Insurer has issued guarantees, including put options serving as guarantees, letters of credit or any other credit substitute (other than an insurance contract) in favour of another party, so that the segment is exposed to the risk of having to make payment on those instruments should the guaranteed party default.


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

      • PIN A6.7.2

        An Insurer must calculate its off-balance sheet risk component as the sum of the amounts obtained by applying the calculations set out in PIN Rule A6.7.3 in respect of each guarantee, letter of credit or other credit substitute.


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

      • PIN A6.7.3

        The amount in respect of a guarantee, letter of credit or other credit substitute (other than an insurance contract) is obtained by calculating, for the nominal amount of the guarantee, letter of credit or other credit substitute, a default risk component as set out in PIN section A6.4 and an investment volatility risk component as set out in PIN section A6.5 in respect of the obligation or asset over which the guarantee, letter of credit or other credit substitute is written, as though that obligation or asset were an obligation or asset of the Insurer.


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

    • PIN A6.8 PIN A6.8 Concentration risk component

      • PIN A6.8 Guidance

        The purpose of the concentration risk component is to require an Insurer to set aside capital to cover the sensitivity that it has to default or volatility in respect of assets and exposures to single counterparties or groupings of connected counterparties, or single properties. The provisions in this section apply the relevant provisions of PIN section A4.8 to the segments of a Protected Cell Company.


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

      • PIN A6.8.1

        An Insurer is required to calculate a concentration risk component in respect of a segment if the segment has, as at the Solvency Reference Date, an investment exposure to a single counterparty or group of Related counterparties, or to a single property, that exceeds 10% of the adjusted segmental capital resources.


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

      • PIN A6.8.2

        For the purposes of the calculation referred to in PIN Rule A6.8.1:

        (a) 'investment exposure' means the aggregate value of all equity, bond or other investments in or in respect of the counterparty or group of Related parties or property in question, together with off-balance sheet exposures to the same counterparty or group of Related counterparties or property that the Insurer has because it has issued guarantees, letters of credit or other credit substitutes (other than insurance contracts), or because it has entered into derivative contracts, but excluding any assets excluded from base cellular capital or base non-cellular capital by reason of any of the Rules referred to in PIN Rule A6.4.3(b);
        (b) 'adjusted segmental capital resources' in respect of a segment means Adjusted Cellular Capital Resources in respect of that segment (where the segment is a Cell) or the Insurer's Adjusted Non-Cellular Capital Resources (where the segment is not a Cell); and
        (c) 'AAA'-Rated Governments and Government agencies are not counterparties.

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

      • PIN A6.8.3

        An Insurer must calculate its concentration risk component in respect of a segment as the sum of the amounts obtained by multiplying each investment exposure of that segment that exceeds 10% of the adjusted segmental capital resources, by the relevant factor percentage set out in the table set out in PIN Rule A4.8.3, reading that table as though all references to Adjusted Capital Resources were references to adjusted segmental capital resources, and subject to PIN Rule A6.8.4.


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

      • PIN A6.8.4

        If the concentration risk component in respect of an investment exposure of a segment, aggregated with the sum of the default risk, investment volatility risk and off-balance sheet asset risk components (so far as concerns that segment), in respect of the assets and off-balance sheet exposures comprising that investment exposure, exceeds 100% of that investment exposure, the concentration risk component in respect of that investment exposure must be reduced so that the total of the four components in respect of that investment exposure is equal to 100% of that investment exposure.


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

    • PIN A6.9 PIN A6.9 Size factor component

      • PIN A6.9 Guidance

        The effect of the size factor component is to provide a relatively higher capital requirement in respect of segments with smaller portfolios of Invested Assets. The provisions in this section apply the relevant provisions of PIN section A4.9 to the segments of a Protected Cell Company.


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

      • PIN A6.9.1

        The base figure for the size factor component is determined by aggregating the following components, for the segment:

        (a) the aggregate of the default components determined in accordance with PIN section A6.4, in respect of Invested Assets;
        (b) the investment volatility risk component determined in accordance with PIN section A6.5; and
        (c) the concentration risk component determined in accordance with PIN section A6.8.

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

      • PIN A6.9.2

        An Insurer must calculate the size factor component in respect of a segment by multiplying the base figure for that segment as determined in accordance with PIN Rule A6.9.1 by the factor derived by applying the following formula, where x represents the total Invested Assets of the segment, expressed in millions of dollars:

        (a) if x ≤ 100, the factor is 1.5;
        (b) if 100 < x ≤ 200, the factor is (150 + 0.5(x-100))/x;
        (c) if 200 < x ≤ 1,200, the factor is (200 - 0.2(x-200))/x; and
        (d) if x > 1,200, the factor is zero.

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

    • PIN A6.10 PIN A6.10 Underwriting risk component

      • PIN A6.10 Guidance

        1. The purpose of the underwriting risk component is to require an Insurer to set aside capital to address the risk that the cost of claims will vary from the cost implicit in the premiums being charged. The provisions in this section apply the relevant provisions of PIN section A4.10 to the segments of a Protected Cell Company.
        2. As Insurance Business in Protected Cell Companies may only be carried on through Cells, every Insurer will have an underwriting risk component of zero in respect of its Minimum Non-Cellular Capital Requirement.

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

      • PIN A6.10.1

        An Insurer must calculate the underwriting risk component in respect of a segment according to the method set out in PIN section A4.10, applied as though all references in that section to an Insurer were instead references to that segment.


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

    • PIN A6.11 PIN A6.11 Reserving risk component

      • PIN A6.11 Guidance

        1. The purpose of the reserving risk component is to require an Insurer to set aside capital to address the risk that the cost of claims will vary from the amounts recorded as liabilities in the Insurer's balance sheet. This calculation applies only to liabilities in respect of outstanding claims (the risk of deterioration in Premium Liability is addressed in the underwriting risk component in PIN section A6.10). The provisions in this section apply the relevant provisions of PIN section A4.11 to the segments of a Protected Cell Company.
        2. As Insurance Business in Protected Cell Companies may only be carried on through Cells, every Insurer will have a reserving risk component of zero in respect of its Minimum Non-Cellular Capital Requirement.

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

      • PIN A6.11.1

        An Insurer must calculate the reserving risk component in respect of a segment according to the method set out in PIN section A4.11, applied as though all references in that section to an Insurer were instead references to that segment.


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

    • PIN A6.12 PIN A6.12 Long-term insurance risk component

      • PIN A6.12 Guidance

        1. The purpose of the Long-Term Insurance risk component 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. The provisions in this section apply the relevant provisions of PIN section A4.12 to the segments of a Protected Cell Company.
        2. As Insurance Business in Protected Cell Companies may only be carried on through Cells, every Insurer will have a Long-Term Insurance risk component of zero in respect of its Minimum Non-Cellular Capital Requirement.

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

      • PIN A6.12.1

        An Insurer must calculate the Long-Term Insurance risk component in respect of a segment according to the method set out in PIN section A4.12, applied as though all references in that section to an Insurer were instead references to that segment.


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

    • PIN A6.13 PIN A6.13 Asset management risk component

      • PIN A6.13 Guidance

        This section requires an Insurer to set aside capital in respect of assets that it manages. This section applies the relevant provisions of PIN section A4.13 to the segments of a Protected Cell Company.


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

      • PIN A6.13.1

        An Insurer must calculate the asset management risk component in respect of a segment according to the method set out in PIN section A4.13, applied as though all references in that section to an Insurer were instead references to that segment.


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