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 Insurers to which Rule 4.5 applies.
Guidance1. This appendix sets out the manner in which an Insurer is required to calculate the Adjusted Fund Capital Resources in respect of each Long-Term Insurance Fund it maintains. The calculation is analogous to that applicable to Insurers other than Cell Companies, so that (except where changes are necessary to reflect structural differences) the capital of a Long-Term Insurance Fund is determined as though it was an Insurer subject to APP3.2. The Adjusted Fund Capital Resources are 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
An Insurer must calculate the Adjusted Fund Capital Resources in respect of each Long-Term Insurance Fund maintained by it, according to the formula:
AFCR = AFE - FHCA
AFCR means the Adjusted Fund Capital Resources in 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 Fund maintained by an Insurer is the base fund capital.
Subject to Rules A7.3.3, A7.3.4 and A7.3.5, the base fund capital in respect of a Long-Term Insurance Fund must 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 Fund by the Insurer in accordance with Rule 3.4.1;(d) in the case of a Takaful Insurer, amounts provided from the Owners' Equity by loan to the Insurance Fund and not repaid as at the Solvency Reference Date;(e) current year's earnings after tax; and(f) hybrid capital (as defined in Rule A7.5.1).
Where an Insurer is not an ADGM Incorporated Insurer, base capital may include capital instruments and equity reserves that are approved in writing by the Regulator as equivalent to the capital instruments and equity reserves described in Rule A7.3.2.
Owners' Equity in 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 Insurer or the terms of insurance contracts or both, the owners do not participate in the surpluses and losses of Insurance Business; and(b) the Owners' Equity is available for loan to the Insurance Fund maintained within the Long-Term Insurance Fund of 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 Regulator.
PIN A7.4 PIN A7.4 Adjusted fund equity
PIN A7.4.1 PIN A7.4.1
An Insurer must calculate its adjusted fund equity in respect of each Long-Term Insurance Fund as set out in this section.
The purpose of these adjustments is to provide a consistent basis for the determination of the Insurer's Adjusted Fund Capital Resources and to exclude from those resources assets that may not be readily realisable for the purposes of meeting Insurance Liabilities of the Long-Term Insurance Fund.
The following items must be deducted from base fund capital, to the extent that the Insurer has not excluded them in determining its base fund capital:(a) any amounts in respect of appropriations to be made from the Long-Term Insurance Fund in respect of the current year, including dividends, distributions by Takaful Insurers of 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 Insurer for payment;(b) the amount of any investment by the Long-Term Insurance Fund or by a Subsidiary of the Long-Term Insurance Fund, in the Insurer's own 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 Liabilities attributable 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
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 Insurer may rely for its Adjusted Fund Capital Resources in respect of any Long-Term Insurance Fund on 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' Equity in a Takaful Insurer of the type described in Rule A7.3.4.
Subject to Rule A7.5.3, an Insurer must calculate its fund hybrid capital adjustment as the amount by which the total amount of hybrid capital exceeds 15% of adjusted fund equity.
The Regulator may at its discretion permit an Insurer to apply Rule A7.5.2 as though the figure of 15% was replaced with a higher figure approved in writing by the Regulator. 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%.