• PIN 3 PIN 3 LONG-TERM INSURANCE BUSINESS

    • PIN 3.1 PIN 3.1 Introduction

      • PIN 3.1.1 PIN 3.1.1

        This Chapter applies to all Insurers.

        • Guidance

          1. This Chapter sets out requirements in respect of Long-Term Insurance Business. An Insurer is required to maintain a separate fund in respect of a Long-Term Insurance Business or to comply with the restrictions that apply to a Long-Term Insurance Fund.
          2. Requirements in this section that are not specified as applying to Direct Long-Term Insurance Business apply to all Long-Term Insurance Business.

    • PIN 3.2 PIN 3.2 Establishment of Long-Term Insurance Funds

      • PIN 3.2.1

        An Insurer that is required, under the provisions of Rule 3.3, to establish or maintain a Long-Term Insurance Fund in respect of a part of its business must identify separately in its books and records the assets, liabilities, revenues and expenses attributable to that part of its business. Those assets, liabilities, revenues and expenses must be recorded separately and accounted for as a Long-Term Insurance Fund.

      • PIN 3.2.2

        Where an Insurer that is not a Cell Company carries on Long-Term Insurance Business that, under the provisions of Rule 3.3, must be attributed to a Long-Term Insurance Fund, it must either:

        (a) establish one or more Long-Term Insurance Funds; or
        (b) notify the Regulator in writing that the Insurer is deemed to constitute a single Long-Term Insurance Fund.

      • PIN 3.2.3 PIN 3.2.3

        When an Insurer that is a Company carries on, through a Cell, Long-Term Insurance Business that, under the provisions of Rule 3.3, must be attributed to a Long-Term Insurance Fund, it must either:

        (a) establish, in respect of that Cell, one or more Long-Term Insurance Funds; or
        (b) notify the Regulator in writing that the Cell is deemed to constitute a single Long-Term Insurance Fund.

        • Guidance

          Because of the prohibition set out in COBS 7.2.5, Insurance Business of an Insurer that is a Cell Company can only be carried out through its Cells.

      • PIN 3.2.4

        An Insurer that is subject to a regulatory requirement in another jurisdiction to arrange its affairs or any part of its affairs in a manner that is equivalent or substantially equivalent to the maintenance of a Long-Term Insurance Fund required by this section, may make a written application to the Regulator for that arrangement of its affairs or that part of its affairs to be deemed for the purposes of these Rules to constitute a Long-Term Insurance Fund. If the Regulator approves that application, it must inform the Insurer in writing, and must state in its notice to the Insurer the manner in which the arrangement will be deemed for the purpose of these Rules to constitute a Long-Term Insurance Fund.

      • PIN 3.2.5

        An Insurer, or a Cell of an Insurer, that is deemed in accordance with Rule 3.2.2(b) or Rule 3.2.3(b) to constitute a single Long-Term Insurance Fund, shall be treated for all purposes relating to these Rules as though the Insurer had established a Long-Term Insurance Fund to which all of the assets and liabilities of the Insurer or of the Cell are attributed.

      • PIN 3.2.6

        Notwithstanding anything to the contrary contained in the above provisions, the Regulator may, at its sole discretion, direct an Insurer which conducts Long-Term Insurance Business to establish one or more Long-Term Insurance Funds in respect of its Long-Term Insurance Business or any part of such business.

    • PIN 3.3 PIN 3.3 Attribution of contracts to a fund

      • PIN 3.3.1

        All contracts of Long-Term Insurance effected by either an ADGM Incorporated Insurer or an Insurer that is not an ADGM Incorporated Insurer through an establishment in ADGM must be attributed to a Long-Term Insurance Fund.

      • PIN 3.3.2

        An Insurer may only attribute Contracts of Insurance in General Insurance Class 1 or Class 2 to a Long-Term Insurance Fund.

    • PIN 3.4 PIN 3.4 Segregation of assets and liabilities

      • PIN 3.4.1

        An Insurer may at any time attribute any of its assets to a Long-Term Insurance Fund that were not previously attributed to such a Long-Term Insurance Fund.

    • PIN 3.5 PIN 3.5 Limitation on use of assets in Long-Term Insurance Fund

      • PIN 3.5.1

        Except as provided in this section, assets that are attributable to a Long-Term Insurance Fund must be applied only for the purposes of the business attributed to the Long-Term Insurance Fund.

      • PIN 3.5.2

        Assets attributable to a Long-Term Insurance Fund may not be transferred so as to be available for other purposes of the Insurer except:

        (a) where the transfer constitutes appropriation of a surplus determined in accordance with Rule 7.3, provided that the transfer is performed within four months of the Reference Date of the actuarial investigation referred to in that Rule;
        (b) where the transfer constitutes a payment of dividend or return of capital, in accordance with Rules 3.5.3 and 3.5.4;
        (c) where the transfer is made in exchange for other assets at fair value;
        (d) where the transfer constitutes reimbursement of expenditure borne on behalf of the Long-Term Insurance Fund, and in respect of expenses attributable to the Long-Term Insurance Fund; or
        (e) where the transfer constitutes reattribution of assets attributed to the Long-Term Insurance Fund in error.

      • PIN 3.5.3

        Assets attributable to a Long-Term Insurance Fund must not be distributed by way of dividend or by way of return of capital, except by an Insurer or a Cell that is deemed to constitute a single Long-Term Insurance Fund.

      • PIN 3.5.4

        A dividend or return of capital by an Insurer or a Cell that is deemed to constitute a single Long-Term Insurance Fund may only be made where the dividend or return of capital constitutes appropriation of a surplus determined in accordance with Rule 7.3, and:

        (a) if the payment is made within four months of the Reference Date of the actuarial investigation determining that surplus, the payment does not cause the total aggregate amount of the dividends or returns of capital made by the Insurer or the Cell since that Reference Date to exceed the amount of that surplus; or
        (b) if the payment is made more than four months after the Reference Date of the actuarial investigation determining that surplus, the payment does not cause the total aggregate amount of the dividends or returns of capital made by the Insurer or the Cell since that Reference Date to exceed 50% of the amount of that surplus.

      • PIN 3.5.5 PIN 3.5.5

        Assets attributable to a Long-Term Insurance Fund must not be lent or otherwise made available for use for any other purposes of the Insurer or any purposes of any party Related to the Insurer. This Rule operates to prohibit, among other things, lending between Long-Term Insurance Funds of the same Insurer. Assets must not be organised in such a manner as to create indebtedness between Long-Term Insurance Funds.

        • Guidance

          An Insurer may not enter into any arrangement, whether or not described as a contract of reinsurance, whereby a Long-Term Insurance Fund of the Insurer stands in the same relation to the Insurer as though the Insurer were the reinsurer in a contract of reinsurance in which the Long-Term Insurance Fund is the cedant.

    • PIN 3.6 PIN 3.6 Other requirements

      • PIN 3.6.1 PIN 3.6.1

        (1) Except as permitted in this Rule, an ADGM Incorporated Insurer must not effect any Direct Long-Term Insurance contract the terms of which include of the following:
        (a) investment components of Policy Benefits, that are wholly or partly guaranteed;
        (b) options to receive Policy Benefits on expiry, maturity or surrender as annuities, where annuity rates are wholly or partly guaranteed at the inception of the contract;
        (c) bonuses on participating contracts where those bonuses become vested Policy Benefits or guaranteed by the Insurer at a date prior to expiry, maturity or surrender; or
        (d) other options or discretionary Policy Benefits that expose the Insurer to investment, expense or other risk that is not readily definable at the inception of the contract.
        (2) An Insurer may request the permission of the Regulator to effect Direct Long-Term Insurance contracts with features of the kind referred to in (1). A request must be made in writing and must include:
        (a) details of the terms of the proposed contracts;
        (b) an explanation of how the Insurer intends to price such contracts, and to value the associated assets and liabilities for the purposes of its capital adequacy and solvency calculations; and
        (c) an explanation of how the Insurer intends to quantify, monitor and manage the risks to its capital adequacy and solvency arising from such features of contracts.
        (3) The Regulator may give an Insurer permission to effect Direct Long-Term Insurance contracts having one or more features of the kind referred to in (1). Permission shall be given in writing and shall be subject to such terms or conditions as the Regulator may specify in its notice giving permission. Where any terms and conditions are imposed on the Insurer, the Insurer shall comply with such terms and conditions.
        (4) The Regulator may on its own initiative at any time vary or revoke permission given under (3) above. Variation or revocation shall be communicated to the Insurer in writing.
        (5) If the Regulator decides to exercise its power under this Rule not to give permission or to impose conditions or restrictions or to vary or revoke permission, the Insurer may refer the matter to the Regulatory Committee for review.

        • Guidance

          1. The features described in Rule 3.6.1(1) have the potential to expose an Insurer to risks that are not adequately provided for in the capital adequacy and solvency framework set out in this Rulebook. The Regulator retains the power to prohibit or limit the inclusion of such features in a Long-Term Insurance contract where it is of the view that the inclusion of such features may have a materially adverse impact upon the long term viability of the Insurer. It is natural for Insurers to seek to stimulate a market by offering features such as guarantees or options. However, the solvency of Insurers could be threatened if they have not adequately valued, stress-tested and set aside adequate capital to service such features. Therefore, the Regulator will expect Insurers seeking permission to write contracts with such features to demonstrate that these steps have been undertaken, and that their procedures provide adequately for ongoing monitoring of the associated risks. Permission to undertake such business may be subject to conditions, for example, a requirement to maintain additional capital, or to restrict business of this nature to a specific proportion of its total business. The Regulator may also as a condition of granting permission require additional information relating to the business in question to be reported to the Regulator in the Insurer's periodic Regulatory Returns, or in the Actuary's report referred to in Rule 7.3.4.
          Amended on (3 February, 2020).