• PIN 4 PIN 4 CAPITAL ADEQUACY

    • PIN 4.1 PIN 4.1 Introduction

      • PIN 4.1.1 PIN 4.1.1

        This Chapter applies to all Insurers.

        • Guidance

          1. The amount of capital is fundamental to the financial health of any insurer and therefore to the protection of its policyholders. All Insurers are therefore required to maintain a minimum level of capital resources in accordance with this Chapter.
          2. This Chapter establishes the required minimum levels of capital resources applicable to Insurers of different types. Rule 4.2 is applicable to all Insurers, wherever they are incorporated and of whatever type they are. Rule 4.3 establishes the Minimum Capital Requirements in respect of Insurers other than Cell Companies, and Rule 4.4 establishes equivalent requirements in respect of Cell Companies. Additional rules in respect of Insurers maintaining Long-Term Insurance Funds and Insurers that are not ADGM Incorporated Insurers are contained in Rules 4.5 and 4.6 respectively.
          3. The Regulator has the power under FSMR to act if it believes that any requirement of this Chapter is breached, or may be breached in the future.

      • PIN 4.1.2

        For the purposes of this Chapter, assets and liabilities must be valued in accordance with Chapter 5.

      • PIN 4.1.3

        In this Chapter and in the appendices referred to in this Chapter, references to ratings are made according to the rating hierarchy (AAA, AA, etc) of Standard & Poor's. Where, for the purposes of a provision of this Chapter or of an appendix, an Insurer uses ratings from a Rating Agency other than Standard & Poor's, the Insurer must apply that provision as though the Standard & Poor's rating referred to in the provision were replaced by the rating from that other Rating Agency that is equivalent to the Standard & Poor's rating.

      • PIN 4.1.4

        An Insurer must not, for the purposes of this Chapter or the appendices referred to in this Chapter, use ratings provided by any Rating Agency except those approved/registered by the Regulator or by the Emirates Securities and Commodities Authority (ESCA) or by the European Securities and Markets Authority (ESMA) or by an equivalent financial services regulator accepted as such by ADGM.

    • PIN 4.2 PIN 4.2 Basic requirement

      • PIN 4.2.1

        This section applies to all Insurers.

      • PIN 4.2.2 PIN 4.2.2

        An Insurer must always have capital resources that are, in the opinion of its directors formed on reasonable assumptions, adequate for the conduct of its business, taking into consideration the size of the Insurer and the nature, mix and complexity of the risks it underwrites in its business.

        • Guidance

          1. Where an Insurer effects Direct Long-Term Insurance contracts, Rule 4.2.2 implies that the Insurer must also be able to fund and service the claims and obligations arising out of its Long-Term Insurance Business in a manner which is sustainable over the long term.
          2. To be able to demonstrate to the Regulator that the Insurer complies with Rule 4.2.2 on an on-going basis, the Regulator expects the Insurer to develop internal capital models to support the self-assessment of capital adequacy. Those internal capital models should include mechanisms to estimate in a realistic manner the impact on the Insurer's capital position of possible scenarios relevant to the Insurer's business. The results of scenario testing should be communicated to the appropriate levels of management within the Insurer. Insurers should be able to demonstrate to the Regulator that the Insurer has adequate capital resources to withstand external and internal shocks to which they may plausibly be exposed.
          3. Compliance with quantitative capital requirements set out in the PIN Rulebook is not sufficient to ensure compliance with Rule 4.2.2. Without limiting the generality of Rule 4.2.2, an Insurer that effects Direct Long-Term Insurance contracts must ensure that:
          a. premiums it charges for any Direct Long-Term Insurance contracts it effects are sufficient at that time for the formation of technical provisions relating to future Policy Benefits in accordance with the terms of the contract and applicable valuation rules; and
          b. each Long-Term Insurance Fund to which Direct Long-Term Insurance contracts are attributed holds at all times Invested Assets of appropriate safety, yield and marketability adequate to provide the future Policy Benefits under those contracts that are attributed to the Fund.
          For the purposes of (1)(b), assets of the type described in Rule A3.4.3 must be excluded.
          4. Guidance point 3 to Rule 4.2.2 applies at the time that a contract is effected. Circumstances may arise in which premiums charged for a particular policy or for a group of policies or for an entire business portfolio may subsequently prove to be inadequate due to variations in interest rates, for example. However, such inadequacies during the lift of the policy would not amount to a breach of Rule 4.2.3(1).
          5. An Insurer should be able to demonstrate that its procedures allow for prior assessment and periodic review of premium adequacy of Direct Long-Term Insurance contracts that it writes. The assessment will consider the adequacy of premiums taking into account projected revenues and expenses in respect of the relevant contracts, including the likely impact of variations in relevant parameters or due to any discretionary features. In making this assessment, credit should not be taken for the impact of voluntary discontinuance (lapse, surrender of or making the contract paid-up) by the policyholder. The Regulator does not consider it appropriate for the projected profitability of Direct Long-Term Insurance contracts to be dependent on 'lapse support'.
          6. Rule 0(1)(a) generally prevents an Insurer from writing 'loss leader' Direct Long-Term Insurance products. An Insurer that wishes to conduct business on a loss-leader basis would need to apply for an appropriate waiver. Such an Insurer would need to demonstrate that its resources are adequate to cover an appropriate level of technical provisions in respect of the contracts concerned, without detriment to its ability to comply with this Rule in respect of its other business.
          7. Because an Insurer is required to maintain adequate capital resources at all times, its systems and controls need to enable the directors to determine and monitor the capital requirements of the Insurer and the capital resources that it has available, and to identify occurrences where the capital resources fall short of the capital requirements or may fall short in the future. An Insurer is not required to measure the precise amount of its capital resources and its capital requirements on a daily basis. However an Insurer should be in a position to demonstrate its capital adequacy at any time if asked to do so by the Regulator.
          Amended on (3 February, 2020).

    • PIN 4.3 PIN 4.3 Minimum Capital Requirement for Insurers that are not Cell Companies

      • PIN 4.3.1

        This section applies only to Insurers that are not Cell Companies.

      • PIN 4.3.2

        An Insurer that is not a Cell Company must always have Adjusted Capital Resources equal to or higher than the amount of its Minimum Capital Requirement.

      • PIN 4.3.3

        An Insurer's Adjusted Capital Resources must be calculated in accordance with APP3.

      • PIN 4.3.4

        An Insurer's Minimum Capital Requirement must be calculated in accordance with APP4.

    • PIN 4.4 PIN 4.4 Minimum Capital Requirement for Insurers that are Companies

      • PIN 4.4.1

        This section applies only to Insurers that are Cell Companies.

      • PIN 4.4.2

        An Insurer that is a Company must ensure that the Insurer has at all times Adjusted Non-Cellular Capital Resources equal to or higher than the amount of the Minimum Non-Cellular Capital Requirement.

      • PIN 4.4.3

        An Insurer that is a Company must ensure that at all times, in respect of each of its Cells, the Insurer has Adjusted Cellular Capital Resources equal to or higher than the amount of the Minimum Cellular Capital Requirement in respect of that Cell.

      • PIN 4.4.4

        The Adjusted Non-Cellular Capital Resources in respect of an Insurer that is a Cell Company must be calculated in accordance with APP5.

      • PIN 4.4.5

        The Minimum Non-Cellular Capital Requirement in respect of an Insurer that is a Cell Company must be calculated in accordance with APP6.

      • PIN 4.4.6

        The Adjusted Cellular Capital Resources in respect of a Cell must be calculated in accordance with APP5.

      • PIN 4.4.7

        The Minimum Cellular Capital Requirement in respect of a Cell must be calculated in accordance with APP6.

    • PIN 4.5 PIN 4.5 Insurers that undertake Long-Term Insurance Business

      • PIN 4.5.1

        Subject to Rule 4.5.2, this section applies only to Insurers that undertake Long-Term Insurance Business.

      • PIN 4.5.2

        This section does not apply to either:

        (a) an Insurer that is deemed to constitute a single Long-Term Insurance Fund in accordance with Rule 3.2.2(b); or
        (b) an Insurer that is a Cell Company in respect of a Cell that is deemed to constitute a single Long-Term Insurance Fund in accordance with Rule 3.2.3(b).

      • PIN 4.5.3

        An Insurer that undertakes Long-Term Insurance Business through a Long-Term Insurance Fund must ensure that at all times, in respect of each Long-Term Insurance Fund maintained by it, the Insurer has Adjusted Fund Capital Resources equal to or higher than the amount of the Minimum Fund Capital Requirement in respect of that Long-Term Insurance Fund.

      • PIN 4.5.4

        The Adjusted Fund Capital Resources in respect of a Long-Term Insurance Fund maintained by an Insurer must be calculated in accordance with APP7.

      • PIN 4.5.5

        The Minimum Fund Capital Requirement in respect of a Long-Term Insurance Fund maintained by an Insurer must be calculated in accordance with APP8.

    • PIN 4.6 PIN 4.6 Availability of assets of Insurers incorporated outside ADGM

      • PIN 4.6.1 PIN 4.6.1

        This section applies only to Insurers that are not ADGM Incorporated Insurers.

        • Guidance

          The provisions in this section require an Insurer to have assets, of a minimum quality, available to meet its gross Insurance Liabilities arising from its ADGM Insurance Business plus a margin. Although the Insurer is required to cover its Insurance Liabilities gross of reinsurance, an Insurer still has benefit of its reinsurance arrangements because assets may include amounts receivable from reinsurers in respect of gross Insurance Liabilities, including amounts potentially receivable from reinsurers in respect of the exposures reflected in the Insurer's Premium Liability. No credit, however, may be taken in respect of a reinsurer that is Rated worse than BBB.

      • PIN 4.6.2 PIN 4.6.2

        An Insurer that is not an ADGM Incorporated Insurer must always have assets, of a type referred to in Rule 4.6.3, that are available to meet Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in ADGM, at least equal to the sum of the following:

        (a) the sum of the default risk component and the investment volatility risk component in respect of those assets, calculated according to the methods set out in Rules A4.4 and A4.5 respectively, applying those methods so far as concerns those assets only;
        (b) Insurance Liabilities of the Insurer in respect of its ADGM Insurance Business; and
        (c) the Insurer's ADGM Business Risk Capital Requirement, calculated in accordance with APP9.

        • Guidance

          1. Assets are not normally available to meet Insurance Liabilities of an Insurer arising in respect of operations conducted by the Insurer in ADGM, if those assets are required to meet liabilities of the Insurer in jurisdictions other than ADGM, except where those liabilities are also Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in ADGM.
          2. Assets are not normally available to meet Insurance Liabilities of an Insurer arising in respect of operations conducted by the Insurer in ADGM, if those assets are required, under the laws of any jurisdiction, to be located in a jurisdiction other than ADGM, except where the assets are required to be located in that jurisdiction to meet, or as collateral against, either:
          a. liabilities that are Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in ADGM; or
          b. liabilities that may arise in the future and that would, if they arose, be Insurance Liabilities of the Insurer arising in respect of operations conducted by the Insurer in ADGM.

      • PIN 4.6.3

        The assets available to an Insurer for the purposes of Rule 4.6.2 may comprise any combination of the following types of assets:

        (a) Cash at bank and in hand and deposits held with any Credit Institution;
        (b) bonds Rated 'BBB' or better;
        (c) equities listed on an Approved Stock Exchange;
        (d) reinsurance recoverable in respect of General Insurance Liabilities referred to in Rule 4.6.2(b), where the reinsurer is Rated 'BBB' or better.

      • PIN 4.6.4

        An Insurer subject to this section must demonstrate to the satisfaction of the Regulator compliance with Rule 4.6.2, when the Regulator makes a written request to do so.

    • PIN 4.7 PIN 4.7 Failure to comply

      • PIN 4.7.1

        An Insurer that becomes aware that it does not comply with the requirements in this Chapter:

        (a) must immediately notify the Regulator in writing;
        (b) must not effect any Contracts of Insurance until the Regulator has given it written permission to recommence business; and
        (c) must not make any distribution of profits or surplus however called or described, or return of capital, without the written permission of the Regulator.

      • PIN 4.7.2

        An Insurer that believes that it may not be in compliance with this Chapter or may not continue to comply with this Chapter in the future must immediately provide the Regulator with a written statement of:

        (a) the reasons for the Insurer's belief that it may not be in compliance or may not continue to comply; and
        (b) any remedial action that the Insurer is taking to avoid non-compliance.

      • PIN 4.7.3

        An Insurer to which Rule 4.7.2 applies must not make any distribution of profits or surplus, however called or described, or return of capital without the written permission of the Regulator.

    • PIN 4.8 PIN 4.8 Limitations on distributions by Insurers

      • PIN 4.8.1

        No Insurer may make any distribution of profits or surplus, however called or described, or return of capital if such distribution or return would cause the Insurer to fail to comply with any provision of this Chapter.