Annex 1
Proposed amendments to the AIFC Insurance and Reinsurance Prudential Rule
In these Rules the underlying indicates a new text and the strikethrough indicates a removed texT
14Captive Insurers
14.1 Introduction
14.1.1Definition of Captive Insurer
A Captive Insurer is an Authorised Firm with a Licence to carry on Insurance Business as a Class 1, Class 2 or Class 3 Captive Insurer only for the business or operations of the Group to which it belongs.
14.1.1-1. Classification of Captive Insurer
(1) A class 1 Captive Insurer is an AIFC Captive Insurer that is permitted under the conditions of its authorisation to effect or carry out Contracts of Insurance only for risks related to or arising out of the business or operations of the group to which the Insurer belongs.
(2) A class 2 Captive Insurer is an AIFC Captive Insurer that is permitted under the conditions of its authorisation to obtain no more than 20% of its gross written premium from third-party risks arising from business or operations that are closely linked to the business or operations of the group to which the Insurer belongs.
(3)A class 3 Captive Insurer is an AIFC Captive Insurer that:
(a)is permitted under the conditions of its authorisation to effect or carry out Contracts of Insurance only for risks related to or arising out of the business or operations of persons who engage in similar, related or common:
i.businesses; or
ii.activities; or
iii.trade; or
iv.services; or
v.operations; and
(b)is owned by the persons mentioned in paragraph (i) or by a body corporate of which all such persons are members such as group captives.
14.1.2Definition of Captive Insurance Business
(1) Captive Insurance Business is the business of Effecting or Carrying out Contracts of Insurance as a Class 1, Class 2 or Class 3 Captive Insurer only for the business or operations of the Group to which the Captive Insurer belongs.
(2) General Captive Insurance Business is Captive Insurance Business in relation to General Insurance Contracts
(3) Long-Term Captive Insurance Business is Captive Insurance Business in relation to Long-Term Insurance Contracts.
14.1.3 Captive Insurer to be incorporated in the AIFC
(1) Only an Authorised Firm which is incorporated under the laws of the AIFC may apply to the AFSA for a Licence to conduct Captive Insurance Business.
(2) A Captive Insurer may either be self-managed or managed by an Insurance Manager authorised by AFSA.
14.3 Application of PINS to Captive Insurers
14.3.1Application of PINS 2 (Systems and Controls)
(1) A Captive Insurer must comply with the requirements of PINS 2 (Systems and Controls) in full subject to (2).
(2) A Captive Insurer may appoint an Insurance Manager authorised by AFSA to perform the Controlled Function of Senior Executive Officer provided that such Employee is an Approved Individual and the Designated Function of Money Laundering Reporting Officer.
14.3.2 (…)
14.3.3 (…)
14.3.4 (…)
14.3.5 (…)
14.3.6 (…)
14.3.7 (…)
14.3.8 (…)
14.3.9 (…)
14.3.10 (…)
14.3.11 (…)
14.3.12 Application of PINS 13 (Prudential Returns)
(1) A Captive Insurer must comply with PINS 13 (Prudential returns) in full.
(2)Unless required otherwise by AFSA in writing, Class 1 Captive Insurer may submit Prudential Returns semi-annually instead of quarterly as stated in Schedule 6.
14.4Capital adequacy requirements for Captive Insurers
14.4.1Minimum Capital Requirement (MCR) for a Captive Insurer
(1)For the purposes of Schedule 4 of PINS, the Capital Floor for a Captive Insurer is the highest of the following:
(a) US$150,000 for a Captive Insurer carrying on General Captive Insurance Business;
(b) US$150,000 for a Captive Insurer carrying on Long-term Captive Insurance Business; or
(c)an amount specified in writing by the AFSA. (d) the Base Capital Requirement;
(e)he Premium Risk Component;
(f)the Technical Provision Risk Component.
(2) Base Capital Requirement (BCR) for a Captive Insurer is
(a)US$100,000 for a Class 1 Captive Insurer;
(b)US$200,000 for a Class 2 Captive Insurer;
(c)US$300,000 for a Class 3 Captive Insurer.
(3) Premium Risk Component for a Captive Insurer
(a) The Premium Risk Component for a Class 1, Class 2 or Class 3 Captive Insurers conducting general insurance business or life insurance business is the amount calculated in accordance with the following formula:
[18% ´ firm’s net written premium up to US$ 5 million]+
[16% ´ firm’s net written premium in excess of US$ 5 million]
(4) Technical Provision Risk Component for a Captive Insurer
(a)The Technical Provision Risk Component for a Class 1, Class 2 or Class 3 Captive Insurers conducting general insurance business is the amount calculated in accordance with the following formula:
[5% ´ firm’s net claims reserve under general Contracts of Insurance]-
[15% ´ the amount of firm’s reinsurance and other recoveries expected to be received in respect of those claims]
(b)The technical provision risk component for a Class 1, Class 2 or Class 3 Captive Insurers conducting long-term insurance business is the amount calculated in accordance with the following formula:
[2.5% ´ Policyholder liabilities calculated using actuarial methods for long-term insurance]
14.4.2 (…)
14.4.3Prescribed Capital Requirement for a Protected Cell Company
(1) Class 1, Class 2 and Class 3 Captive Insurers are not required to calculate Prescribed Capital Requirement;
(2) For a Protected Cell Company each Cell of a Protected Cell Company must calculate its Prescribed Capital Requirement in accordance with PINS 5.2.3 (Obligation to calculate PCR) as if it were a stand-alone Insurer.
14.4.4 (…).