PFN PIN 6.6 PFN PIN 6.6 Form 2: Statement of capital adequacy
PFN PIN 6.6 Guidance1. This form summarises the capital adequacy position of the
Insurerso far as concerns the reporting unit for which it is prepared (Global, Cell, or Fund).2. The same form is used for all types of Return, although in the calculation of the Capital Requirementsapplicable to different Insurersand to their Cellsand Long-Term Insurance Funds, different terminology is used. The terms on the face of the form need to be replaced with the specific equivalent terms from the relevant section (as set out in section 6.16), depending on the nature of the Insurerand the type of Return. This section contains the necessary Rulesto give legal effect to this concept.3. This form lists a number of adjustments to arrive at the figure to be compared to the minimum Capital Requirementapplicable to the reporting unit. The purpose of these adjustments is to remove significant anomalies that may arise due to the flexibility available to Insurersin selecting their accounting bases. Therefore, not all of these adjustments will be applicable to all Insurers. An item must not be added to the base capital figure if it is al included in the base capital figure because of the accounting basis adopted.4. The effect of the Ruleson the Returnof a Takaful Insureris to exclude from equity any element of equity that is not available to participate in the surpluses or deficits of the Insurance Businessof the Takaful Insurer, either directly or by loan to the Insurance Fund. Loans that have been made from the Owners’ Equity to the Insurance Fundare included in base capital without restriction, while amounts that are available for loan are treated as hybrid capital.
PFN PIN 6.6.1
This form is required for each reporting unit in respect of which the
Insurermust prepare a Return, except for a DIFC Business Return.
PFN PIN 6.6.2
Insurers must follow the requirements of
PINchapter 4 when preparing this form.
PFN PIN 6.6.3
On this form, terms used to describe items to be recorded must be interpreted in accordance with section 6.16.
PFN PIN 6.6.4
Item 1, Base capital, represents the starting-point for the calculation of the
Capital Resourcesof the Insurerto be compared to the minimum Capital Requirementapplicable to the Insurer. This item must be completed having regard to the following principles:(a) Item 1.1, Equity, must be equal to total equity reported at item 39.6 on form 1, less debt-financed equity reported at line 39.7 on form 1;(b) Item 1.2, Owners’ Equity, must be equal to the amount of Owners’ Equity in a Takaful Insurerthat is available for loan to the Insurance Fund. It does not include any amount of loans made from Owners’ Equity to the Insurance Fundand not repaid. This item applies only to Takaful Insurers;(c) Any amount recorded at item 1.3.1 must not exceed the amount recorded at item 35.1 on form 1;(d) Any amount recorded at item 1.3.2 must not exceed the amount recorded at item 35.2 on form 1;(e) Item 1.3.3 may only be used by a Takaful Insurer. This item must equal item 1.2; and(f) Item 1.3.4 may not exceed the amount of item 39.7 on form 1.
PFN PIN 6.6.5 PFN PIN 6.6.5
Item 2, Adjustments to base capital in accordance with
PIN, must be completed having regard to the following principles:(a) Amounts referred to in item 2.1 must not be reported if those amounts are included at item 1.7;(b) Amounts referred to in item 2.2 must not be reported if those amounts are excluded from item 1.7;(c) Item 2.1.1, minority interests in subsidiaries, applies only where an Insurerexcludes from its equity an amount representing minority interests in a controlled entity that is not accounted for as an investment;(d) Item 2.1.2, liability for dividends to be paid in the form of Shares, applies only where an Insurerhas recorded as a liability a provision for dividends that are to be paid by issuing Shares. This item does not apply to a Fund Return;(e) Item 2.2.1 applies to the liability referred to in PIN rule A3.4.3(a) and equivalent provisions in PIN RulesA5.4.3(a), A5.8.3(a) and A7.4.2(a). This item does not apply to a Fund Return;(f) Item 2.2.2 applies only to a Returnof a Takaful Insurer. This item represents amounts of Owners’ Equity that are not available for loan to the Insurance Fundor to participate in surpluses or deficits of the Insurance Fund;(g) Item 2.2.3 represents Investmentsof the Insureror by any Subsidiaryof the Insurerin the base capital of the Insurerrecorded at item 1.4;(h) Item 2.2.4 represents the amount of any tax on capital gains, that was not recognised as a liability on form 1, and that would be incurred by the Insurerif the Investmentsreported on form were realised at the values shown on that form;(i) Item 2.2.5 must be equal to the amount of any deferred acquisition costs included on form 1, whether as a separate asset or as a reduction from liabilities;(j) Item 2.2.6 must be equal to the sum of items 4.3 and 12.3 on form 1;(k) Item 2.2.7 must be equal to the sum of any asset recorded on form 1 and representing the value of in-force Long-Term Insurance Business;(l) Item 2.2.8 must be equal to the sum of item 11.3 on form 1, and any other intangible assets recorded on form 1 and not otherwise excluded from base capital;(m) Item 2.2.9 applies only to a Returnof a Takaful Insurer. This item represents any amount of Zakah or charity fund of a Takaful Insurerthat is not otherwise excluded from base capital;(n) Item 2.2.10 represents the amount of an Insurer’s Class 7 Capital Requirement, in accordance with section 4.5. This item does not apply to a Fund Return;(o) Item 2.2.11 must be equal to the amount reported at item 10.3 on form 1; and(p) Item 2.2.12 must record the amount of any other assets, not otherwise excluded from base capital, that are not available to meet the Insurance Liabilitiesof the Insurerrecorded on form 1.
PFN PIN 6.6.5 Guidance
Rule 6.6.5(p) would normally be expected to include assets that are subject to mortgages or other
Charges, or than cannot for some other reason be realised for the benefit of policyholders.
PFN PIN 6.6.6
Item 4.1, Hybrid Capital Adjustment before
DFSAapproval, must be calculated as the amount by which the sum of items 1.3.1 to 1.3.4 exceeds 15/85 of the amount arrived at by deducting item 1.2.1 from item 1.1.
PFN PIN 6.6.7 PFN PIN 6.6.7
Item 4.2, additional hybrid capital approved by
DFSA, may only be used to record additional amounts of hybrid capital that have been approved in writing by the DFSA, in accordance with PIN RulesA3.5.2, A5.5.4, A5.10.4 or A7.5.3. The amount of item 4.2 may not exceed the amount of item 4.1
PFN PIN 6.6.7 Guidance
Item 4.1 deducts hybrid capital that would normally be inadmissible because it exceeds the prescribed percentage. Item 4.2 reinstates hybrid capital that had been disallowed by item 4.1. Item 4.2 does not show the total amount of admissible hybrid capital, only that portion that exceeds the 15% ceiling.
PFN PIN 6.6.8
Minimum Capital Requirementsets out the components of the minimum Capital Requirementapplicable to the reporting unit of the Insurerin respect of which the Returnis completed. For each reporting unit, the components must be calculated in accordance with the chapter applicable to that reporting unit. The terms used in this item must be interpreted in accordance with section 6.16.
PFN PIN 6.6.9
Item 6.11 may only be used with the written approval of the
DFSA, to record an adjustment to the minimum Capital Requirementthat has been approved in writing by the DFSA.
PFN PIN 6.6.10
Item 7, Absolute minimum requirement applicable to reporting unit, must be interpreted in accordance with section 6.16 to this chapter.