• CIB 6 CIB 6 VALUATION OF ASSETS AND LIABILITIES

    • CIB 6.1 CIB 6.1 General provisions

      • CIB 6.1.1

        Subject to Rules 6.1.2, 6.1.3, and 6.1.4, a Captive Insurer must value its assets and liabilities in accordance with this Chapter.

      • CIB 6.1.2

        A Captive Insurer may value an asset at less than the value measured in accordance with this Chapter.

      • CIB 6.1.3

        A Captive Insurer may value a liability at more than the value measured in accordance with this Chapter.

      • CIB 6.1.4

        Notwithstanding any other provision of this Chapter, the Regulator may, by written notice, direct a Captive Insurer to measure an asset or a liability in accordance with principles specified by the Regulator in that written notice.

    • CIB 6.2 CIB 6.2 Classification of contracts

      • CIB 6.2.1

        A Captive Insurer must, in its own records, classify all Contracts of Insurance effected by it as Captive Insurer and all contracts of reinsurance entered into by it as Cedant, according to the Class of Business to which the contracts relate.

      • CIB 6.2.2

        Where a contract relates to more than one Class of Business, the Captive Insurer must record separately the portions of the contract that relate to each Class of Business, except that immaterial portions need not be separately recorded.

    • CIB 6.3 CIB 6.3 Accounting standards and principles

      • CIB 6.3.1

        Except where these Rules provide for a different method of recognition or valuation, whenever a Rule refers to an asset, liability, equity or income statement item, a Captive Insurer must, for the purpose of that Rule, recognise the asset, liability, equity or income statement item and measure its value in accordance with IFRS or any other accounting standards as applicable to the Captive Insurer for the purpose of its external financial reporting.

      • CIB 6.3.2

        Rule 6.3.1 applies whenever a Rule refers to the value or amount of an asset, liability, equity or income statement item, including:

        (a) whether, and when, to recognise or de-recognise an asset or liability;
        (b) the amount at which to value an asset, liability, equity or income statement item; and
        (c) which description to place on an asset, liability, equity or income statement item.

    • CIB 6.4 CIB 6.4 Adjustments to accounting values

      • CIB 6.4.1

        For the purpose of these Rules, except where a Rule provides for a different method of recognition or valuation, when a Captive Insurer, upon initial recognition, designates its liabilities as at fair value through profit or loss, it must always adjust any value calculated in accordance with Rule 6.3 by subtracting any unrealised gains or adding back in any unrealised losses which are not attributable to changes in a benchmark interest rate.

      • CIB 6.4.2

        The provisions of Rule 6.4.1 apply only to the extent that the items referred to in that paragraph would otherwise be recognised under the accounting requirements applicable to the Captive Insurer.

    • CIB 6.5 CIB 6.5 General requirements: methods of valuation and systems and controls

      • CIB 6.5.1

        A Captive Insurer must establish and maintain systems and controls sufficient to provide prudent and reliable valuation estimates.

      • CIB 6.5.2

        Systems and controls under Rule 6.5.1 must include documented policies and procedures for the process of valuation, including clearly defined responsibilities of the various areas involved in the determination of the valuation, sources of market information and a review of their appropriateness, frequency of independent valuation, timing of closing prices, procedures for adjusting valuations, month-end and ad-hoc verification procedures and, where relevant, guidelines for the use of unobservable inputs reflecting a Captive Insurer's assumptions of what market participants would use in pricing the position.

    • CIB 6.6 CIB 6.6 General requirements: marking to market

      • CIB 6.6.1

        Subject to the exceptions set out in this Chapter, Rule 6.6.2 applies in relation to the valuation of Investments that are, or amounts arising from the disposal of:

        (a) debt securities, bonds and other money-market and capital-market instruments;
        (b) loans;
        (c) shares and other variable yield participations;
        (d) units in Collective Investment Funds;
        (e) Derivatives; and
        (f) any balance sheet position measured at market value or fair value.

      • CIB 6.6.2

        Wherever possible, a Captive Insurer must mark-to-market in order to measure the value of the investments and positions to which this Rule applies under Rule 6.6.1. Marking to market is valuation at readily available close out prices from independent sources.

      • CIB 6.6.3

        For the purposes of Rule 6.6.2, examples of readily available close out prices include exchange prices, screen prices, or quotes from several independent reputable brokers.

      • CIB 6.6.4

        When marking to market, a Captive Insurer must use the more prudent side of bid/offer.

    • CIB 6.7 CIB 6.7 General requirements: independent price verification

      • CIB 6.7.1

        A Captive Insurer must perform independent price verification. This is the process by which market prices or model inputs are regularly verified for accuracy and independence.

      • CIB 6.7.2

        For independent price verification, where independent pricing sources are not available or pricing sources are more subjective (for example, only one available broker quote), prudent measures such as valuation adjustments may be appropriate.

    • CIB 6.8 CIB 6.8 General requirements: valuation adjustments

      • CIB 6.8.1

        A Captive Insurer must establish and maintain procedures for considering valuation reserves. These procedures must be compliant with the requirements set out in this Rule.

      • CIB 6.8.2

        A Captive Insurer using third party valuations, or marking to model, must consider whether valuation reserves are necessary.

      • CIB 6.8.3

        A Captive Insurer must consider the need for establishing reserves for less liquid positions and, on an on-going basis, review their continued appropriateness in accordance with the requirements set out in this Rule. Less liquid positions could arise from both market events and institution-related situations e.g. concentration positions and/or stale positions.

    • CIB 6.9 CIB 6.9 Recognition and measurement of Insurance Liabilities and establishment of technical provisions

      • CIB 6.9.1

        A Captive Insurer must establish technical provisions in respect of all of its insurance and reinsurance obligations to policyholders and beneficiaries of insurance and contracts of reinsurance.

      • CIB 6.9.2

        The value of technical provisions established by a Captive Insurer must:

        (a) correspond to the current amount the Captive Insurer would have to pay if it were to transfer its insurance and reinsurance obligations immediately to another entity; and
        (b) except where the alternative approach is permitted in accordance with Rule 6.9.10, be equal to the sum of a best estimate and a risk margin.

      • CIB 6.9.3

        A Captive Insurer must calculate its technical provisions:

        (a) making use of, and consistent with, information provided by the financial markets and generally available data on underwriting risks;
        (b) in a prudent, reliable and objective manner;
        (c) taking account of all expenses that will be incurred in servicing the obligations arising under the Captive Insurer's insurance and contracts of reinsurance;
        (d) taking account of inflation, including expenses and claims inflation in respect of the obligations arising under the Captive Insurer's insurance and contracts of reinsurance;
        (e) taking account of all payments to policyholders and beneficiaries, including future discretionary bonuses (if any), which the Captive Insurer expects to make, whether or not those payments are contractually guaranteed;
        (f) taking account of the value of financial guarantees and any contractual options included in the Captive Insurer's insurance and reinsurance policies; and
        (g) applying assumptions relating to the likelihood that policyholders will exercise contractual options, including lapses and surrenders, that are realistic and based on current and credible information and which take account, either explicitly or implicitly, of the impact that future changes in financial and non-financial conditions may have on the exercise of those options.

      • CIB 6.9.4

        The best estimate calculated by a Captive Insurer must correspond to the probability- weighted average of future cash-flows under the Captive Insurer's insurance and contracts of reinsurance, taking account of the time value of money using the relevant discount rate applying pursuant to Rule 6.12.

      • CIB 6.9.5

        A Captive Insurer must calculate the best estimate:

        (a) based upon up-to-date and credible information and realistic assumptions and using adequate, applicable and relevant actuarial and statistical methods;
        (b) taking account of all the cash in- and out-flows required to settle the obligations arising under the Insurer's insurance and contracts of reinsurance; and
        (c) gross, without deduction of the amounts recoverable from contracts of reinsurance entered into by the Captive Insurer as Cedant.

      • CIB 6.9.6

        A Captive Insurer must calculate the risk margin so as to ensure that the value of the technical provisions is equivalent to the amount that another entity would be expected to require in order to take over and meet the obligations arising under the Captive Insurer's insurance and contracts of reinsurance.

      • CIB 6.9.7

        A Captive Insurer must calculate the best estimate and the risk margin separately.

      • CIB 6.9.8

        A Captive Insurer must calculate the risk margin by determining the cost of providing an amount of Adjusted Capital Resources equal to the minimum capital requirement provided for in Rule 2.2 in respect of the obligations under the Captive Insurer's insurance and contracts of reinsurance over the lifetime thereof.

      • CIB 6.9.9

        The Regulator may specify the cost of capital that applies under Rule 6.9.8.

      • CIB 6.9.10

        Notwithstanding Rule 6.9.7 and Rule 6.9.2(b) where future cash flows associated with obligations under a Captive Insurer's insurance and contracts of reinsurance can be replicated reliably using Financial Instruments for which a reliable market value is observable, a Captive Insurer must determine the value of technical provisions associated with those future cash flows on the basis of the market value of those Financial Instruments. In this case, separate calculations of the best estimate and the risk margin are not required.

      • CIB 6.9.11

        The Regulator may specify actuarial principles to be used by a Captive Insurer in relation to the recognition and measurement of Insurance Liabilities and the establishment of technical provisions.

    • CIB 6.10 CIB 6.10 Recognition and measurement of insurance assets and incurred liabilities in respect of General Insurance

      • CIB 6.10.1

        This Rule applies to assets and liabilities in respect of general Contracts of Insurance.

      • CIB 6.10.2

        Premiums in respect of direct Contracts of Insurance, facultative contracts of reinsurance and non-proportional treaty contracts of reinsurance entered into by a Captive Insurer as insurer must be treated as receivable from the date of entering into the insurance contract.

      • CIB 6.10.3

        Premiums in respect of proportional treaty contracts of reinsurance entered into by a Captive Insurer as reinsurer must be treated as receivable in accordance with the pattern of the Cedant entering into the underlying Contracts of Insurance.

      • CIB 6.10.4

        Premiums in respect of facultative contracts of reinsurance and non-proportional treaty contracts entered into by a Captive Insurer as Cedant must be treated as payable from the date of entering into the reinsurance contract.

      • CIB 6.10.5

        Premiums in respect of proportional treaty contracts of reinsurance entered into by a Captive Insurer as Cedant must be treated as payable in accordance with the pattern of effecting the underlying Contracts of Insurance.

      • CIB 6.10.6

        A Captive Insurer must treat as a liability the value of future claims payments and associated direct and indirect settlement costs, arising from insured events that have occurred as at the Solvency Reference Date.

      • CIB 6.10.7

        A Captive Insurer may treat as an asset the value of reinsurance receivables and other recoveries expected to be received in respect of claims.

      • CIB 6.10.8

        Where this Rule requires a Captive Insurer to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.

    • CIB 6.11 CIB 6.11 Recognition and measurement of assets and incurred liabilities in respect of Long-Term Insurance

      • CIB 6.11.1

        This Rule applies to assets and liabilities in respect of Long-Term Insurance contracts.

      • CIB 6.11.2

        Premiums in respect of contracts of reinsurance entered into by a Captive Insurer as insurer must be treated as receivable from the date on which they are due and receivable.

      • CIB 6.11.3

        Premiums in respect of contracts of reinsurance entered into by a Captive Insurer as Cedant must be treated as payable from the date on which they are due and payable.

      • CIB 6.11.4

        Acquisition costs incurred in respect of Contracts of Insurance entered into by a Captive Insurer must be treated as payable:

        (a) in the case of expenses directly related to the premiums in respect of the contract, at the same time as the premium is treated as receivable; and
        (b) in the case of expenses not directly related to the premiums in respect of the contract, at the time the contract is effected.

      • CIB 6.11.5

        A Captive Insurer must treat as a liability the amount of Policy Benefits that are due for payment on or before the Solvency Reference Date.

      • CIB 6.11.6

        A Captive Insurer may treat as an asset the value of reinsurance receivables and other recoveries expected to be received in respect of claims.

      • CIB 6.11.7

        Where this Rule requires a Captive Insurer to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.

    • CIB 6.12 CIB 6.12 Discount rates

      • CIB 6.12.1

        The Regulator may specify actuarial principles to be used by a Captive Insurer in determining the discount rate.

      • CIB 6.12.2

        For the purposes of determining the net present value of expected future payments in accordance with Rule 6.10 or 6.11, a Captive Insurer must use as a discount rate the gross redemption yield of a portfolio of sovereign risk securities which:

        (a) are AAA-rated by Standard & Poor's (or the equivalent by another Approved Rating Agency); and
        (b) have a similar expected payment profile to the liability being measured.

      • CIB 6.12.3

        For the purposes of determining the net present value of expected future receipts in accordance with Rule 6.10.8, a Captive Insurer must use as a discount rate the gross redemption yield of a portfolio of sovereign risk securities which:

        (a) are AAA-rated by Standard & Poor's (or the equivalent by another Approved Rating Agency); and
        (b) have a similar expected payment profile to the liability being measured.

      • CIB 6.12.4

        PIN 4.1.4 applies in respect of determination of ratings for the purposes of Rules 6.12.2 and 6.12.3.

    • CIB 6.13 CIB 6.13 Transfer of risk by a Captive Insurer to an ISPV

      • CIB 6.13.1

        A Captive Insurer may not:

        (a) treat amounts recoverable from an ISPV as:
        (a) an asset; or
        (b) reinsurance for the purposes of calculating its liabilities under Contracts of Insurance it has effected; or
        (b) otherwise ascribe a value to such amounts,

        unless it has first obtained a waiver from the Regulator.

    • CIB 6.14 Recognition of reinsurance receivables

      A Captive Insurer may only treat an expected receivable under a reinsurance contract in relation to which it is a Cedant as an asset or take account of it for the purposes of calculating its liabilities under Contracts of Insurance it has effected if the contractual arrangements and the transfer of risk are legally effective and enforceable in all relevant jurisdictions and either the relevant reinsurer is solvent or the Captive Insurer has the benefit of legally effective collateral having a value equal to or greater than the amount of the expected receivable.