AIFC INSURANCE AND REINSURANCE PRUDENTIAL RULES
AIFC RULES NO. FR0030 OF 2018
(with amendments as of 13 December 2020, which commence on 13 December 2020)
Approval Date: 2 December 2018 Commencement Date: 2 December 2018
CONTENTS
1 General provisions
1.1 Introduction
1.2 Insurance Business
1.3 Classification of Contracts of Insurance
1.4 Restrictions in respect of Insurance Business
1.5 Core obligations of Insurers
2 Systems and Controls
2.1 Systems for risk management and internal controls
2.2 Controlled Functions
2.3 Outsourcing
3 Risk Management Strategy
3.1 Risk Management Strategy
4 Own Risk and Solvency Assessment (ORSA)
4.1 The ORSA
4.2 The ORSA Report
5 Capital adequacy requirements
5.1 Application
5.2 Calculation of Eligible Capital and capital requirements
5.3 Use of Internal models to calculate capital requirements
5.4 Solvency control levels
5.5 Reduction of Eligible Capital
5.6 Notification of dividends and distributions
6 Investment
6.1 Admissible assets
6.2 Investment restrictions
6.3 Investment policy and procedures
7 Segregation of Long-Term Insurance assets and liabilities
7.1 Establishment of Long-Term Insurance Funds
7.2 Attribution of contracts to a Long-Term Insurance Fund
7.3 Segregation of assets and liabilities
7.4 Recordkeeping: attribution of assets and liabilities to Long-Term Insurance Fund
7.5 Limitation on use of assets in Long-Term Insurance Fund
8 Valuation
8.1 Matching assets and liabilities
8.2 Recognition and measurement of assets and liabilities
8.3 Treatment of particular assets and liabilities - General Insurance Business
8.4 Treatment of particular assets and liabilities - Long-Term Insurance
9 Actuarial reporting
9.1 Insurers that are required to have Approved Actuaries
9.2 Insurers that are not required to have an Approved Actuary
10 Insurers that are members of Groups
11 Transfer of insurance business
11.1 Introduction
11.2 Sanction Order
11.3 The Scheme Report
11.4 Notice requirements
12 Insurers in run-off
12.1 Application and purpose
12.2 Insurers ceasing to effect Contracts of Insurance in a category
12.3 Run-off plans
12.4 Provisions in respect of contracts relating to Insurance Business in run-off
12.5 Limitations on distributions by AIFC-incorporated Insurers in run-off
13 Prudential returns
14 Captive Insurers
14.1 Introduction
14.2 Protected Cell Companies
14.3 Application of PINS to Captive Insurers
14.4 Capital adequacy requirements for Captive Insurers
SCHEDULE 1 Categories of General Insurance
SCHEDULE 2 Categories of Long-Term Insurance
SCHEDULE 3 Calculation of Eligible capital
SCHEDULE 4 Calculation of Minimum Capital Requirement (MCR)
SCHEDULE 5 Calculation of Prescribed Capital Requirement (PCR)
SCHEDULE 6 Prudential returns by Insurers
WORKING SCHEDULE 1 - List of Defined Terms for PINS and associated rulebooks
1 General provisions
1.1 Introduction
1.1.1 Name of rules
These rules are the AIFC Insurance and Reinsurance Prudential Rules (or PINS).
1.1.2 Application of PINS
These rules apply to every Insurer except where otherwise provided.
1.1.3 Key Definitions
(1) An Insurer is an Authorised Firm with a Licence to conduct Insurance Business.
(2) Insurance Business is the business of conducting either or both of the following Regulated Activities: (a) Effecting Contracts of Insurance; (b) Carrying out Contracts of Insurance.
(3) An AIFC-Incorporated Insurer is an Insurer that is incorporated as a legal entity under the laws of the AIFC.
Guidance: Branches
Note that certain of the obligations set out in this rulebook do not apply to Insurers that are Branches of entities established and regulated outside the AIFC. The term AIFC-Incorporated Insurer is used to refer to an Insurer that is incorporated as a legal entity under the laws of the AIFC and thus excludes Branches of legal entities incorporated outside the AIFC.
Guidance: Reinsurance
Note that the term Insurer includes any reinsurer and the term Contract of Insurance includes any Contract of Reinsurance.
1.2 Insurance Business
1.2.1 Types of Insurance Business
(1) General Insurance Business is Insurance Business in relation to General Insurance Contracts.
(2) Long-Term Insurance Business is Insurance Business in relation to Long-Term Insurance Contracts.
1.2.2 Types of Insurance Contracts
(1) A General Insurance Contract is a Contract of Insurance that falls within one of the categories set out in Schedule 1.
(2) A Long-Term Insurance Contract is a Contract of Insurance that falls within one of the categories set out in Schedule 2.
1.3 Classification of Contracts of Insurance
1.3.1 Classification of contracts
An Insurer must, in its own records, classify all Contracts of Insurance carried out by it as Insurer, including all Contracts of Reinsurance entered into by it as cedant, according to the category to which the Contracts of Insurance relate.
1.3.2 Classification of contracts falling into two or more categories
Where a Contract of Insurance relates to more than one category, the Insurer must record separately the portions of the Contract of Insurance that relate to each category, except that immaterial portions need not be separately recorded.
1.4 Restrictions in respect of Insurance Business
1.4.1 Restriction on combining certain kinds of Insurance Business
An Insurer must not carry on, in or from the AIFC, both Long-Term Insurance Business and General Insurance Business unless the General Insurance Business is restricted to General Insurance Categories 1 (accident) and 2 (sickness).
1.4.2 Restriction on Insurers carrying on non-insurance business
(1) An Insurer must not carry on any activity other than Insurance Business unless the activity is directly connected with, or carried on for the purposes of, Insurance Business.
(2) For the avoidance of doubt, Managing Investments is not an activity directly connected with, or carried on for the purposes of, Insurance Business.
1.5 Core obligations of Insurers
1.5.1 Obligation to establish and maintain systems and controls
An Insurer must establish and maintain systems and controls in accordance with the requirements of PINS 2 (Systems and Controls) and GEN 5 (Systems and Controls).
1.5.2 Obligation to maintain a risk management strategy
An Insurer must establish and implement a Risk Management Strategy in accordance with the requirements of PINS 3 (Risk Management Strategy).
1.5.3 Obligation to conduct Own Risk and Solvency Assessment
An AIFC-Incorporated Insurer must conduct an Own Risk and Solvency Assessment and submit a report thereon to AFSA in accordance with the requirements of PINS 4 (Own Risk and Solvency Assessment (ORSA)).
1.5.4 Obligation to maintain Eligible Capital
An AIFC-Incorporated Insurer must at all times maintain Eligible Capital in an amount and of a quality required by PINS 5 (Capital adequacy requirements).
1.5.5 Obligations in respect of Investments
An Insurer must make investments in accordance with the requirements of PINS 6 (Investment).
1.5.6 Obligation to maintain Long-Term Insurance Funds
An Insurer carrying on Long-Term Insurance Business must segregate its Long-Term Insurance assets and liabilities in accordance with PINS 7 (Segregation of Long-Term Insurance assets and liabilities)
1.5.7 Obligations in respect of Assets and Liabilities
An AIFC-Incorporated Insurer must value its assets and liabilities in accordance with the requirements of PINS 8 (Valuation).
1.5.8 Obligation to produce actuarial reports
An Insurer must prepare and submit to the AFSA the actuarial reports that it is required to produce pursuant to the requirements of PINS 9 (Actuarial reporting).
1.5.9 Obligations in respect of groups
An Insurer that is a member of a group must comply with the requirements of PINS 10 (Insurers that are members of Groups).
1.5.10 Obligations in respect of Insurance Business Transfers
An Insurer that is party to an Insurance Business Transfer must comply with the requirements of PINS 11 (Transfer of insurance business).
1.5.11 Obligations in respect of Run-off
An Insurer that is in Run-off must comply with the requirements of PINS 12 (Insurers in run-off).
1.5.12 Obligation to prepare prudential returns
An Insurer must prepare the prudential returns that it is required to produce pursuant to PINS 13 (Prudential returns).
2 Systems and Controls
Guidance: systems and controls requirements in GEN
As an Authorised Person, an Insurer is required to comply with the Systems and Controls requirements in GEN 5. The requirements of this Chapter are in addition to the requirements of GEN 5.
2.1 Systems for risk management and internal controls
2.1.1 Risk management function
An Insurer must establish and maintain an effective risk management function capable of assisting the Insurer to identify, assess, monitor, mitigate and report on its key risks in a timely way; and to promote and sustain a sound risk culture.
Guidance: additional requirements in GEN
An Insurer is also subject to obligations in respect of operational risk, legal risk and fraud risk pursuant to GEN 5.8 (Management of risks).
2.1.2 Actuarial function
An Insurer must establish and maintain an effective actuarial function capable of evaluating and providing advice regarding, at a minimum, technical provisions, premium and pricing activities, capital adequacy, reinsurance and compliance with related statutory and regulatory requirements.
2.2 Controlled Functions
2.2.1 Designation of roles as Controlled Functions
The following functions are prescribed as Controlled Functions within the meaning of section 20 of the FSFR:
(a) Insurance Risk Manager;
(b) Insurance Internal Audit Manager; and
(c) Approved Actuary.
2.2.2 Mandatory appointments
(1) An Insurer must make the following appointments and ensure that they are held by one or more Approved Individuals at all times:
(a) Insurance Risk Manager; and
(b) Insurance Internal Audit Manager.
(2) An Insurer must also appoint an Approved Actuary and ensure that such role is held at all times by an Approved Individual if:
(a) it conducts Long-Term Insurance Business; or
(b) it conducts General Insurance Business and;
(і) more than 15% of its gross outstanding liabilities are attributable to Contracts of Insurance for General Insurance Business in General Insurance Categories 1 (Accident) or 2 (Sickness); or
(ii) more than 20% of its gross outstanding liabilities are attributable to Contracts of Insurance for General Insurance Business in General Insurance Categories 10 (Motor vehicle liability), 11 (Aircraft liability), 12 (Liability of ships), 13 (General liability), 14 (Credit) or 15 (Suretyship).
2.2.3 Insurance Risk Manager
The Insurance Risk Manager is an individual who has responsibility for the Insurer’s risk management function.
2.2.4 Insurance Internal Audit Manager
The Insurance Internal Audit Manager is an individual who has responsibility:
(a) for the Insurer’s internal audit policies, procedures and controls; and
(b) for taking appropriate steps to ensure the implementation of and compliance with those policies, procedures and controls.
2.2.5 Approved Actuary
(1) The Approved Actuary is an individual who has responsibility:
(a) for the Insurer’s actuarial policies, procedures and controls; and
(b) for taking appropriate steps to ensure the implementation of and compliance with those policies, procedures and controls.
(2) The Approved Actuary must not be an individual who:
(a) exercises the Senior Executive Function for the Insurer or a related body corporate (except a related body corporate that is a subsidiary of the Insurer); or
(b) is an Employee or Director of an auditor for the Insurer.
2.3 Outsourcing
2.3.1 Outsourcing of risk management function (PINS 2.1.1)
An Insurer may only outsource its risk management function to an Insurance Manager, subject to the rules relating to outsourcing in GEN 5.2 (Outsourcing).
2.3.2 Outsourcing of actuarial function (PINS 2.1.2)
An Insurer may only outsource its actuarial function to an Insurance Manager, subject to the rules relating to outsourcing in GEN 5.2 (Outsourcing).
2.3.3 Outsourcing of Controlled Functions (PINS 2.2 and GEN 2.2)
An Insurer may appoint an Employee of an Insurance Manager to perform the Controlled Function of Insurance Risk Manager, Insurance Internal Audit Manager, Approved Actuary, Finance Officer and/or Compliance Officer, provided that such Employee is an Approved Individual.
3 Risk Management Strategy
3.1 Risk Management Strategy
3.1.1 Core obligations
(1) An Insurer must establish, document and implement a Risk Management Strategy that is appropriate to the nature, scale and complexity of its business.
(2) An Insurer must not intentionally deviate in a material way from its Risk Management Strategy unless such deviation has been
(a) approved by its Governing Body in accordance with PINS 3.1.5 (Approval of Risk Management Strategy) below; and
(b) notified to the AFSA in accordance with PINS 3.1.6 (Notification of the AFSA) below.
3.1.2 Contents of Risk Management Strategy
An Insurer’s Risk Management Strategy must:
(a) provide for the identification and quantification of material risks under a sufficiently wide range of outcomes using techniques which are appropriate to the nature, scale and complexity of the risks it bears;
(b) include a Risk Management Policy that complies with PINS 3.1.3 (Contents of Risk Management Policy);
(c) include a Risk Tolerance Statement that complies with the requirements of PINS 3.1.4 (Contents of Risk Tolerance Statement);
(d) be supported by accurate documentation;
(e) describe how the Insurer will:
(і) ensure that relevant staff have an awareness of risk issues and the accessibility of the Risk Management Strategy; and
(ii) instil an appropriate risk culture; and
(f) include a business continuity plan for ensuring that critical business operations can be maintained or recovered in a timely fashion in the event of disruption.
(g) be responsive to changes in its risk profile; and
(h) incorporate a feedback loop, based on appropriate and good quality information, management processes and objective assessment, which enables it to take the necessary action in a timely manner in response to changes in its risk profile.
3.1.3 Contents of Risk Management Policy
An Insurer’s Risk Management Policy must:
(a) describe how all relevant and material categories of financial and non-financial risk are monitored, measured and managed, both in the Insurer’s business strategy and its day-to-day operations, including at least the following risks:
(і) credit risk;
(ii) balance sheet and market risk (including investment, asset-liability management, liquidity and derivatives risks);
(iii) reserving risk;
(iv) insurance risk (including underwriting, product design, pricing and claims settlement risks);
(v) reinsurance risk;
(vi) operational risk (including business continuity, outsourcing, fraud, technology, legal and project management risks);
(vii) concentration risk;
(viii) group risk.
(b) describe the relationship between the Insurer’s tolerance limits, regulatory capital requirements, economic capital and the processes and methods for monitoring risk;
(c) include the following specific policies:
(і) a policy regarding investment that specifies the nature, role and extent of the Insurer’s investment activities and how the Insurer complies with the investment requirements under these rules;
(ii) a policy regarding asset-liability management that specifies the nature, role and extent of asset-liability management activities and their relationship with product development, pricing and investment management;
(iii) a policy regarding underwriting that specifies the risks to be accepted by the Insurer as part of its insurance business, the processes for underwriting, pricing and claims settlement;
(iv) a policy ensuring that any Contract of Reinsurance to which it is a party is finalised (and the material documents supporting the contract are completed) before the start of reinsurance cover (the start date), or as soon as possible after the start date (but in no case later than 60 calendar days after the start date);
(v) a policy regarding procedures for business continuity that enable the Insurer to manage any initial disruption of business and to recover critical business operations following such a disruption.
3.1.4 Contents of Risk Tolerance Statement
An Insurer’s Risk Tolerance Statement must:
(a) set out its overall quantitative and qualitative risk tolerance levels;
(b) define risk tolerance limits which take into account all relevant and material categories of risk and the relationships between them.
3.1.5 Approval of Risk Management Strategy
(1) An Insurer’s Risk Management Strategy must be approved by its Governing Body.
(2) Any material change to or deviation from an Insurer’s Risk Management Strategy must be approved by its Governing Body.
(3) In giving its approval to a Risk Management Strategy, or to any amendment to or deviation from a Risk Management Strategy, the Governing Body of an Insurer must be satisfied that:
(a) the strategy and any changes to it mitigate and control the risks included in the Insurer’s Risk Management Policy; and
(b) the Risk Management Policy is appropriate and gives reasonable assurance that all material risks facing the Insurer are prudently and soundly managed having regard to the nature, scale and complexity of the Insurer’s business.
3.1.6 Notification of the AFSA
(1) An Insurer must give to the AFSA a copy of its Risk Management Strategy, and any subsequently amended version of that strategy, within 10 business days after its approval.
(2) An Insurer must notify the AFSA of any material deviation from its Risk Management Strategy at least 10 business days before the deviation.
4 Own Risk and Solvency Assessment (ORSA)
4.1 The ORSA
4.1.1 Obligation to conduct an Own Risk and Solvency Assessment
(1) An AIFC-Incorporated Insurer must:
(a) conduct an Own Risk and Solvency Assessment (ORSA) in accordance with PINS 4.1.2 (ORSA – requirements) at least annually; and
(b) submit a report to the AFSA on its ORSA (an ORSA Report) in accordance with PINS 4.2.1 (ORSA Report - requirements).
(2) An AIFC-Incorporated Insurer must conduct a fresh ORSA and submit a revised ORSA report to the AFSA if there is a change to its Risk Management Strategy, strategic plan or business plan and the change results, or there are reasonable grounds to believe that the change will result, in a material change in the capital adequacy or solvency of the AIFC-Incorporated Insurer.
4.1.2 ORSA – requirements
(1) In conducting an ORSA, an AIFC-Incorporated Insurer must assess:
(a) its overall solvency needs, including its own view of the adequacy of its capital resources to meet the regulatory capital requirements;
(b) the actions it has taken to manage the risks to which it is exposed;
(c) the financial resources needed:
(і) to manage its business prudently; and
(ii) to meet the capital adequacy requirements in PINS 5 (Capital adequacy requirements);
(d) the nature and quality of the capital resources needed, having regard to their loss-absorbing capacity and liquidity;
(e) the effect on the Insurer’s solvency position of all reasonably foreseeable and relevant changes in its risk profile (including group-specific risks); and
(f) its ability to meet its Minimum Capital Requirements and Prescribed Capital Requirement and continue in business, and the financial resources needed, over periods longer than those typically used for calculating its capital adequacy requirements under PINS 5 (Capital adequacy requirements).
(2) An AIFC-Incorporated Insurer must include as part of any quantitative evaluation in its ORSA:
(a) stress and scenario tests;
(b) the occurrence of extreme events to which the Insurer is exposed; and
(c) other unlikely but possible adverse scenarios that would render the Insurer’s business model unviable.
(3) The ORSA must be appropriate to the nature, scale and complexity of the AIFC-Incorporated Insurer’s business.
4.2 The ORSA Report
4.2.1 ORSA Report - requirements
An AIFC-Incorporated Insurer’s ORSA Report must present all of the following:
(a) the qualitative and quantitative results of the ORSA and the conclusions drawn by the AIFC-Incorporated Insurer from those results;
(b) the methods and main assumptions used in the ORSA;
(c) information on the AIFC-Incorporated Insurer's overall solvency needs and a comparison of those solvency needs with its capital adequacy requirements under PINS 5 (Capital adequacy requirements) and its Eligible Capital;
(d) qualitative and (if relevant) quantitative information on the extent to which quantifiable risks to which the AIFC-Incorporated Insurer is exposed are not reflected in the calculation of the Prescribed Capital Requirement.
4.2.2 ORSA Report – approval by the Governing Body
An ORSA Report must include a statement that the Governing Body of the AIFC-Incorporated Insurer participated in the ORSA and approved the ORSA Report.
5 Capital adequacy requirements
5.1 Application
5.1.1 Application
This Chapter applies to an AIFC-Incorporated Insurer.
5.2 Calculation of Eligible Capital and capital requirements
5.2.1 Obligation to calculate Eligible Capital
An AIFC-Incorporated Insurer must calculate its Eligible Capital on an ongoing basis in accordance with the rules set out in Schedule 3 (Calculation of Eligible capital).
5.2.2 Obligation to calculate MCR
An AIFC-Incorporated Insurer must calculate its Minimum Capital Requirement (MCR) on an ongoing basis in accordance with the rules set out in Schedule 4 (Calculation of Minimum Capital Requirement (MCR)).
5.2.3 Obligation to calculate PCR
An AIFC-Incorporated Insurer must:
(a) calculate its Prescribed Capital Requirement (PCR) at least once a year in accordance with the rules set out in Schedule 5 (Calculation of Prescribed Capital Requirement (PCR)); and
(b) recalculate its PCR without delay if its risk profile deviates significantly from the risk profile detailed in its last reported PCR.
5.3 Use of Internal models to calculate capital requirements
5.3.1 Approval by AFSA
The AFSA may, by written notice, allow an AIFC-Incorporated Insurer to use its own internal model to calculate a component or components of its PCR.
Guidance
Note that the AFSA is not currently in a position to consider applications for the use of internal models. The AFSA will notify Insurers when this position changes.
5.3.2 Criteria for approving use of internal models
The AFSA will only consider allowing an AIFC-Incorporated Insurer to use its internal model if it is satisfied that the model:
(a) operates within a risk management environment that is conceptually sound and supported by adequate resources;
(b) addresses all material risks to which the AIFC-Incorporated Insurer could reasonably be expected to be exposed and is commensurate with the relative importance of those risks, based on the AIFC-Incorporated Insurer’s business mix;
(c) is closely integrated into the day-to-day management process of the AIFC-Incorporated Insurer;
(d) is supported by appropriate audit and compliance procedures;
(e) is subjected to, as a minimum, three tests: «statistical quality test», «calibration test» and «use test», the results of the which demonstrate that the model is appropriate for regulatory capital purposes; and
(f) is subject to adequate processes established by the AIFC-Incorporated Insurer to validate the accuracy of the calculations made using the internal model, as well as for monitoring and assessing its ongoing performance.
5.3.3 Statistical quality test
An AIFC-Incorporated Insurer seeking approval for its internal model must demonstrate:
(a) that the PCR or component(s) of the PCR calculated using the internal model addresses the overall risk position of the AIFC-Incorporated Insurer subject to the nature, scale and complexity of the AIFC-Incorporated Insurer and its risk exposures;
(b) the theoretical validity of the internal model including:
(і) the suitability of model structure, data (including completeness and accuracy), and estimation within the AIFC-Incorporated Insurer’s business context;
(ii) the appropriateness of the internal model basis within the industry context, including methodological benchmarking to alternatives and best practice;
(iii) the appropriateness of the parameter estimations. It should be demonstrated that the parameter estimations are appropriate within the market and industry context and parameter uncertainty is addressed to the extent possible; and
(iv) the consistency, soundness and justification of the methodologies, distributions, aggregation techniques and dependencies (within and among risk categories) adopted.
(c) the analytical validity of the internal model including:
(і) the statistical process for validating that the results of the model are fit for the purpose for which they are used;
(ii) the implementation of the model given the theoretical basis, goodness of fit, forecasting capability for out-of sample observations (backtesting), sensitivity to changes in key underlying assumptions and stability of outputs;
(iii) the backtesting applied at various levels of the business activity;
(iv) the sensitivity analysis undertaken, which should validate the parts of the internal model where expert judgement is used and should examine whether the model output is sensitive to changes in key assumptions;
(v) the convergence of the model to demonstrate that model outputs are statistically significant;
(vi) the processes of monitoring the model’s performance; and
(vii) where possible, benchmarking the model results and techniques with peers, available literature and research.
5.3.4 Calibration test
An AIFC-Incorporated Insurer must demonstrate that the PCR or component(s) of the PCR produced by its internal model is consistent with the specified modelling criteria.
5.3.5 Use test
(1) An AIFC-Incorporated Insurer must demonstrate that the internal model (its methodologies and results) is fully integrated within its risk and capital management and system of governance processes and procedures.
(2) An AIFC-Incorporated Insurer’s Governing Body is required to:-
(a) have overall control of and responsibility for the construction and use of the internal model for risk management purposes;
(b) have sufficient understanding of the model’s construction at appropriate levels within the AIFC-Incorporated Insurer’s organisational structure;
(c) have an understanding of the consequences of the internal model’s outputs and limitations for risk and capital management decisions.
(3) An AIFC-Incorporated Insurer must have adequate governance and internal controls in place with respect to the internal model.
5.3.6 Documentation
(1) An AIFC-Incorporated Insurer must document, at a minimum:
(a) the design, construction, modelling criteria and governance of the internal model;
(b) the justification for and details of the underlying methodology, assumptions and quantitative and financial bases;
(c) if applicable, why it has chosen to only use a partial internal model for certain risks or business lines; and
(d) if applicable, the reliance on and appropriateness of the use of external vendors/suppliers.
(2) The documentation must be sufficiently detailed to demonstrate compliance with the statistical quality test, calibration test and use test.
(3) The documentation of the internal model must be timely and up to date.
5.3.7 Ongoing validation and supervisory approval of the internal model
An AIFC-Incorporated Insurer using an internal model must:
(a) monitor the performance of its internal model and regularly review and validate the ongoing appropriateness of the model’s specifications against the criteria set out in 5.3.2 to 5.3.5;
(b) notify the AFSA of material changes to the internal model made by it for review and continued approval of the use of the model for regulatory capital purposes;
(c) properly document internal model changes;
(d) report information necessary for supervisory review and ongoing approval of the internal model on a regular basis, as determined appropriate by the AFSA.
5.4 Solvency control levels
5.4.1 Obligation to maintain Eligible Capital at or above MCR
An AIFC-Incorporated Insurer must at all times have Eligible Capital equal to or higher than the amount of its MCR.
5.4.2 Obligation to maintain Eligible Capital at or above PCR
An AIFC-Incorporated Insurer must at all times have Eligible Capital equal to or higher than the amount of its PCR.
5.4.3 Non-Compliance with the PCR
If an AIFC-Incorporated Insurer becomes aware that it does not have, or there is a risk that within the following three months it will not have, Eligible Capital equal to or higher than the amount of its PCR, it must:
(1) immediately inform the AFSA;
(2) within one month, submit to the AFSA for its approval a short-term realistic finance scheme which complies with the requirements of PINS 5.4.6 (Contents of recovery plans and finance schemes);
(3) within six months (or such longer period as the AFSA may specify), take the measures necessary to achieve the re-establishment of Eligible Capital covering the PCR, or the reduction of its risk profile to ensure compliance with the PCR; and
(4) take such steps (if any) as the AFSA may require, which steps may be specified by the ASFA as in addition to, or instead of, the measures in (3).
5.4.4 Non-Compliance with the MCR
If an AIFC-Incorporated Insurer becomes aware that it does not have, or there is a risk that within the following three months it will not have, Eligible Capital equal to or higher than the amount of its MCR, it must
(1) immediately inform the AFSA;
(2) within two months, submit to the AFSA for its approval a short-term realistic finance scheme which complies with the requirements of PINS 5.4.6 (Contents of recovery plans and finance schemes);
(3) within six months (or such longer period as the AFSA may allow), take the measures necessary to achieve the re-establishment of the level of Eligible Capital covering the MCR, or the reduction of its risk profile to ensure compliance with the MCR; and
(4) take such steps (if any) as the AFSA may require, which steps may be specified by the ASFA as in addition to, or instead of, the measures in (3).
5.4.5 Other regulatory actions not precluded
The fact that an AIFC-Incorporated Insurer has Eligible Capital equal to or in excess of its PCR or its MCR does not preclude the AFSA from intervention, or from requiring action by the AIFC-Incorporated Insurer for other reasons, such as weaknesses in the risk management or governance of the Insurer.
5.4.6 Contents of recovery plans and finance schemes
Any recovery plan or finance scheme must as a minimum include:
(a) estimates of management expenses, in particular current general expenses and commissions;
(c) estimates of income and expenditure in respect of direct business, reinsurance acceptances and reinsurance cessions;
(d) a forecast balance sheet;
(e) information about the AIFC-Incorporated Insurer’s overall policy regarding reinsurance; and
(f) such other information as the AFSA may specify in writing.
5.4.7 Eligible Capital below the level of the Capital Floor
If at any time an AIFC-Incorporated Insurer becomes aware that it does not have Eligible Capital in excess of the amount of the Capital Floor specified in Schedule 4 (Calculation of Minimum Capital Requirement (MCR)), it must immediately
(a) stop effecting new Contracts of Insurance; and
(b) inform the AFSA.
5.5 Reduction of Eligible Capital
5.5.1 Tier 1 Capital not to be reduced without approval
An AIFC-Incorporated Insurer must not reduce the Tier 1 Capital component of its Eligible Capital without the prior written approval of the AFSA.
5.5.2 Capital plan to be provided
When seeking approval for a reduction of its Tier 1 Capital under PINS 5.5.1 (Tier 1 Capital not to be reduced without approval), an AIFC-Incorporated Insurer must provide to the AFSA a capital plan that has incorporated the effects of the proposed reduction and:
(a) demonstrates that the AIFC-Incorporated Insurer will remain in excess of its MCR for 2 years without relying on new capital issues;
(b) is consistent with the AIFC-Incorporated Insurer’s business plan; and
(c) takes account of any possible acquisitions, locked-in capital in subsidiaries and the possibility of exceptional losses.
5.5.3 Notice to be given of proposed reduction of Tier 2 Capital
An AIFC-Incorporated Insurer must notify the AFSA of its intention to reduce its Tier 2 Capital at least 6 months before the actual date of the proposed reduction, providing details of how it will meet its MCR after the proposed reduction.
5.6 Notification of dividends and distributions
5.6.1 Dividends and distributions to be reported
An AIFC-Incorporated Insurer must report to the AFSA all dividends and other distributions to shareholders within 15 business days following the declaration of the dividend or distribution.
6 Investment
6.1 Admissible assets
6.1.1 Security, liquidity, location and diversification
An Insurer when, investing in assets, must consider whether, for the portfolio as a whole -
(a) its assets are sufficiently secure having regard to their capacity to protect their value and preserve their economic substance;
(b) its assets are sufficiently liquid to ensure that the Insurer is able to make payments to policyholders and creditors as they fall due
(c) its assets are held in the appropriate location for their availability; and
(d) its assets are sufficiently diversified subject to the nature, scale and complexity of the business.
6.1.2 Assets appropriate to liabilities
(1) An Insurer must invest in a manner that is appropriate to the nature of its liabilities.
(2) In particular, an Insurer must:
(a) consider the extent to which the cash flows from its investments match the liability cash flows in both timing and amount and how these changes in varying conditions;
(b) consider the investment guarantees and embedded options that are contained in its policies;
(c) consider the currency or currencies of its liabilities and the extent to which they are matched by the currencies of the assets;
(d) manage conflicts of interest (e.g. between the Insurer’s corporate objectives and disclosed insurance policy objectives) to ensure assets are invested appropriately;
(e) for with-profits liabilities, hold an appropriate mix of assets to meet policyholders’ reasonable expectations; and
(f) if it is part of an insurance group, hold investments tailored to the characteristics of its liabilities and its needs and not be subject to undue influence from the wider objectives of the group.
6.1.3 Ability to assess risks
(1) An Insurer must only invest in assets whose risks it can properly assess and manage.
(2) In particular, an Insurer must:
(a) ensure its investments, including those in collective investment funds, are sufficiently transparent and limit its investments to those where the associated risks of the asset can be properly managed by it
