PIN App7 PIN App7 Calculation of Adjusted Fund Capital Resources
PIN A7.1 PIN A7.1 Purpose and general provisions
PIN A7.1.1 PIN A7.1.1
This appendix applies to all
Insurersto which PIN section 4.6 applies.
PIN A7.1.1 Guidance1. This appendix sets out the manner in which an
Insureris required to calculate the Adjusted Fund Capital Resourcesin respect of each Long-Term Insurance Fundit maintains. The calculation is analogous to that applicable to Insurersother than Protected Cell Companies, so that (except where changes are necessary to reflect structural differences) the capital of a Long-Term Insurance Fundis determined as though it was an Insurersubject to PIN App3.2. The Adjusted Fund Capital Resourcesare calculated by making adjustments to the equity of the fund, as at the Solvency Reference Date.
PIN A7.2 PIN A7.2 Adjusted fund capital resources
Insurermust calculate the Adjusted Fund Capital Resourcesin respect of each Long-Term Insurance Fundmaintained by it, according to the formula:
AFCR = AFE – FHCA
AFCR means the
Adjusted Fund Capital Resourcesin respect of the fund;
AFE means the adjusted fund equity in respect of that fund; and
FHCA means the fund hybrid capital adjustment in respect of that fund.
PIN A7.3 PIN A7.3 Base fund capital
The commencement point for calculating the adjusted fund equity in respect of a
Long-Term Insurance Fundmaintained by an Insureris the base fund capital.
Subject to Rules PIN A7.3.3, PIN A7.3.4 and PIN A7.3.5, the base fund capital in respect of a
Long-Term Insurance Fundmust consist of the following capital instruments and equity reserves of the Insurer, that are classified as capital instruments and equity reserves of the fund:(a) general reserves;(b) retained earnings;(c) amounts attributed to the Long-Term Insurance Fundby the Insurerin accordance with PIN Rule 3.4.2;(d) in the case of a Takaful Insurer, amounts provided from the Owners' Equityby loan to the Insurance Fundand not repaid as at the Solvency Reference Date;(e) current year's earnings after tax; and(f) hybrid capital (as defined in PIN Rule A7.5.1).
Insureris not a DIFC Incorporated Insurer, base capital may include capital instruments and equity reserves that are approved in writing by the DFSAas equivalent to the capital instruments and equity reserves described in PIN Rule A7.3.2.
Owners' Equityin a Takaful Insurer, that has not been transferred to the Insurance Fund, must be classified as hybrid capital for the purposes of this section if:(a) under the constitutional documents of the Insureror the terms of insurance contracts or both, the owners do not participate in the surpluses and losses of Insurance Business; and(b) the Owners' Equityis available for loan to the Insurance Fundmaintained within the Long-Term Insurance Fundof the Insurer.
Hybrid capital having a term to maturity of less than five years may only be included in base fund capital with the written consent of the
PIN A7.4 PIN A7.4 Adjusted fund equity
PIN A7.4.1 PIN A7.4.1
Insurermust calculate its adjusted fund equity in respect of each Long-Term Insurance Fundas set out in this section.
PIN A7.4.1 Guidance
The purpose of these adjustments is to provide a consistent basis for the determination of the
Insurer's Adjusted Fund Capital Resourcesand to exclude from those resources assets that may not be readily realisable for the purposes of meeting Insurance Liabilitiesof the Long-Term Insurance Fund.
The following items must be deducted from base fund capital, to the extent that the
Insurerhas not excluded them in determining its base fund capital:(a) any amounts in respect of appropriations to be made from the Long-Term Insurance Fundin respect of the current year, including dividends, distributions by Takaful Insurersof surplus, bonuses, pensions and welfare charges that are determined on the basis of the current year's profit, whether or not the amounts have been approved by the Insurerfor payment;(b) the amount of any investment by the Long-Term Insurance Fundor by a Subsidiaryof the Long-Term Insurance Fund, in the Insurer'sown capital;(c) the amount of any tax liability that would be attributable to unrealised gains on investments, if those gains were realised;(d) the amount of deferred acquisition costs;(e) the amount of any deferred tax asset;(f) the amount of any goodwill, patents, service rights, brands and any other intangible items;(g) the amount of any Zakah or charity fund of a Takaful Insurer, maintained within the Long-Term Insurance Fund;(h) the amount of any operating assets, including inventories, plant and equipment, and vehicles; and(i) the amount of any assets that may not be applied to meet Insurance Liabilitiesattributable to the Long-Term Insurance Fund(for example, assets that are subject to fixed or floating charges, mortgages or other security).
PIN A7.5 PIN A7.5 Fund hybrid capital adjustment
PIN A7.5 Guidance1. This section acts to limit hybrid capital to 15% of the adjusted fund equity in respect of a fund.2. The purpose of the fund hybrid capital adjustment is to limit the extent to which an
Insurermay rely for its Adjusted Fund Capital Resourcesin respect of any Long-Term Insurance Fundon instruments that do not or may not constitute permanent capital of that fund.
Fund hybrid capital includes the following items:(a) subordinated debt attributable to the fund; and(b)
Owners' Equityin a Takaful Insurerof the type described in PIN Rule A7.3.4.
Subject to PIN Rule A7.5.3, an
Insurermust calculate its fund hybrid capital adjustment as the amount by which the total amount of hybrid capital exceeds 15% of adjusted fund equity.
DFSAmay at its discretion permit an Insurerto apply PIN Rule A7.5.2 as though the figure of 15% was replaced with a higher figure approved in writing by the DFSA. The approved figure may not be more than the actual percentage which the fund hybrid capital represents of adjusted fund equity, and may not in any case exceed 30%.