1.1. Calculation of the PCR

The PCR for an AIFC-Incorporated Insurer is the higher of:

• (a) 150% of the AIFC-Incorporated Insurer’s MCR; and
• (b) the AIFC-Incorporated Insurer’s Risk-Based Capital Requirement.

2.1. Risk-Based Capital Requirement

(1) The Risk-Based Capital Requirement for an AIFC-Incorporated Insurer that, under PINS 5.3.1 (Approval by AFSA), has been approved to use its own internal model to calculate its Risk-Based Capital Requirement is the amount calculated using that model.

(2) The Risk-Based Capital Requirement for an AIFC-Incorporated Insurer that, under PINS 5.3.1 (Approval by AFSA), has been approved to use its own internal model to replace 1 or more components of its Investment, Insurance and Operational Risk Requirements is the amount calculated using those components as replaced and the other components of the AIFC-Incorporated Insurer’s Investment, Insurance and Operational Risk Requirements.

(3) The Risk-Based Capital Requirement for any other AIFC-Incorporated Insurer is the sum of the AIFC-Incorporated Insurer’s:

• (a) Investment Risk Requirement;
• (b) Insurance Risk Requirement; and
• (c) Operational Risk Requirement.

2.2. Investment Risk Requirement

An AIFC-Incorporated Insurer’s Investment Risk Requirement is the sum of its:

• (a) Asset Risk Component;
• (b) Off-Balance Sheet Asset Risk Component; and
• (c) Off-Balance Sheet Liability Risk Component.

2.3. Insurance Risk Requirement

An AIFC-Incorporated Insurer’s Insurance Risk Requirement is the sum of its:

• (a) Premium Risk Component;
• (b) Outstanding Claims Risk Component;
• (c) Long-Term Insurance Risk Component; and
• (d) Insurance Concentration Risk Component.

2.4. Operational Risk Requirement

(1) The amount of an AIFC-Incorporated Insurer’s Operational Risk Requirement is 2% of whichever is the higher of:

1. (a) the AIFC-Incorporated Insurer’s gross written premiums in the 12 months ending on the Solvency Reference Date; and
2. (b) its technical provisions (without deduction for reinsurance) as at the Solvency Reference Date.

(2) However, if the amount calculated under subrule (1) is more than a ceiling, calculated as: then the AIFC-Incorporated Insurer’s Operational Risk Requirement is the amount of the ceiling.

then the AIFC-Incorporated Insurer’s Operational Risk Requirement is the amount of the ceiling.

3.1. Meaning of Counterparty Grade

(1) In this Schedule:

1. (a) Counterparty Grade (or Grade) has the meaning given by subrule (2); and
2. (b) Invested Asset means an asset, right or interest held by an Insurer for the primary purpose of generating revenue or for directly providing funds to meet the Insurer’s cash outflows in the future.

(2) For this Schedule, the Grade of an asset is its Grade according to the rating of its counterparty, in accordance with table A. Table A Grade of assets according to counterparty ratings

Table A Grade of assets according to counterparty ratings

(3) Unrated assets, exposures and counterparties must be classified as Grade 5.

3.2. Using different credit rating agencies

(1) An AIFC-Incorporated Insurer must rely on the ratings issued by the same credit rating agency for determining Counterparty Grades unless the AIFC-Incorporated Insurer has good reason to use a different credit rating agency or agencies.

(2) If a counterparty or debt obligation has been rated by more than 1 rating agency and there are 2 or more ratings that lead to different capital charges, the AIFC-Incorporated Insurer must use the credit rating that results in the highest capital charge.

(3) An AIFC-Incorporated Insurer must not use the rating of an agency that is not in table A unless the AIFC-Incorporated Insurer has the written permission of the AFSA.

4.1. Asset Risk Component

(1) An AIFC-Incorporated Insurer’s Asset Risk Component is the sum of the amounts obtained by multiplying the value of each asset of the AIFC-Incorporated Insurer, Graded according to the Counterparty Grade of the asset, by the percentage applicable to that asset, under:

1. (a) for assets that are not reinsurance assets—table B1;
2. (b) for assets that are reinsurance assets where the reinsurer is subject to prudential supervision by a subrule (2) regulator—table B2; or
3. (c) for assets that are reinsurance assets where the reinsurer i

(2) A regulator is a subrule (2) regulator if it is located:

1. (a) in the AIFC or the Republic of Kazakhstan;
2. (b) in 1 of the member states of the European Union;
3. (c) in Australia, Canada, Hong Kong, Iceland, Japan, Norway, Singapore, Switzerland, the United States of America; or
4. (d) in any other jurisdiction that is a signatory to the Multilateral Memorandum of Understanding on Cooperation and Information Exchange initiated by the International Association of Insurance Supervisors.

Note 1: For the list of the member states of the European Union, see http://europa.eu/about-eu/countries/index_en.htm.

Note 2: For the list of signatories to the Multilateral Memorandum of Understanding on Cooperation and Information Exchange, see http://www.iaisweb.org/MMoU-signatories-605.s not subject to prudential supervision by a subrule (2) regulator—table B3.

Table B1: Percentage applicable to assets that are not reinsurance assets

Table B2: Percentage applicable to reinsurance assets—reinsurer supervised by subrule (2) regulator.

Table B3: Percentage applicable to reinsurance assets—reinsurer not by supervised by subrule (2) regulator.

4.2. Effect of guarantee or collateral

(1) Assets that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating in Grades 1, 2 or 3 who is not a related party to the AIFC-Incorporated Insurer may be assigned the asset risk charge that would apply to a debt instrument issued from the guarantor.

(2) Where an AIFC-Incorporated Insurer holds collateral against an asset, and this collateral takes the form of a charge, mortgage or other security interest in, or over, cash, or any debt security whose issuer has a counterparty rating of Grades 1, 2 or 3, the AIFCIncorporated Insurer may apply the asset risk charge relevant to the collateral (instead of applying the asset risk charge that would otherwise apply to the asset).

(3) The provisions in subrules (1) and (2) above apply only to so much of the asset that is covered by the guarantee or the collateral.

4.3. Assets subject to mortgage or charge

(1) Subject to (2), assets of the AIFC-Incorporated Insurer that are under a fixed or floating charge, mortgage or other security are subject to an asset risk charge of 100% to the extent of the indebtedness secured on those assets. This would replace the asset risk charge that would otherwise apply to the secured assets.

(2) Where the security supports an AIFC-Incorporated Insurer’s Insurance Liabilities, the asset risk charge of 100% is applicable only to the amount by which the market value of the charged assets exceeds the AIFC-Incorporated Insurer’s supported liabilities.

4.4. Excluded assets

An AIFC-Incorporated Insurer need not include an amount in the asset risk charge for any asset excluded from Eligible Capital in accordance with the table B1 in paragraph 4.1.

5.1. When Off-Balance Sheet Asset Risk Component must be calculated

An AIFC-Incorporated Insurer must calculate an Off-Balance Sheet Asset Risk Component, if the AIFC-Incorporated Insurer is, as of the Solvency Reference Date, a party to a Derivative contract, including a forward, future, swap, option or other similar contract, but not:

• (a) a put option serving as a guarantee;
• (b) a foreign exchange contract which has an original maturity of 14 calendar days or less; or
• (c) an instrument traded on a futures or options exchange which is subject to daily mark-tomarket and margin payments.

5.2. How to calculate Off-Balance Sheet Asset Risk Component

An AIFC-Incorporated Insurer must calculate its Off-Balance Sheet Asset Risk Component as the sum of the amounts obtained by applying the calculations set out in paragraph 5.3 in respect of each Derivative contract entered into by the AIFC-Incorporated Insurer that meets the description in paragraph 5.1.

5.3. Amount of Off-Balance Sheet Asset Risk Component for Derivative contract

To calculate the amount of the Off-Balance Sheet Asset Risk Component, the asset equivalent value of each Derivative (as determined in paragraph 5.4) is multiplied by the Asset Risk Component as though the asset equivalent value were a debt obligation due from the Derivative counterparty.

5.4. Asset equivalent value

(1) The asset equivalent value is the current mark-to-market exposure of the Derivative (where positive) and a potential exposure add-on.

(2) The potential exposure add-on is determined by multiplying the notional principal amount of the Derivative in accordance with the following table, according to the nature and residual maturity of the Derivative.

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6.1. How to calculate Off-Balance Sheet Liability Risk Component

(1) An AIFC-Incorporated Insurer must calculate its Off-Balance Sheet Liability Risk Component by applying, to the face value of any credit substitute it has issued (including letters of credit, guarantees and put options serving as guarantees) the asset risk component that would be applied to the obligation or asset over which the credit substitute has been written.

(2) Where the credit substitute is supported by collateral or a guarantee, the provisions of paragraph 4.2 (Effect of guarantee or collateral) may be applied by the AIFC-Incorporated Insurer.

7.1. Application

Paragraphs 7.2 to 7.4 apply to General Insurance Business.

7.2. Premium Risk Component

(1) An AIFC-Incorporated Insurer’s Premium Risk Component is the sum of the amounts obtained by multiplying the AIFC-Incorporated Insurer’s net premium liability that falls within each Category of General Insurance Business by the percentage applicable to that liability under table C.

Table C Percentage factor—Premium Risk Component

(2) In this rule: net premium liability means premium liability less any expected reinsurance and nonreinsurance recoveries in respect of that premium liability as at the Solvency Reference Date.

7.3. AIFC-Incorporated Insurer may apply for different percentages

(1) The AFSA may, on application of an AIFC-Incorporated Insurer conducting General Insurance Business in Category 1, give written consent to the use of percentages other than those in table C if the AFSA is satisfied that:

• (a) adequate mortality and morbidity information exists in respect of that business; and
• (b) the information provides a reasonable basis for reliance on actuarial principles.

(2) The percentages that may be used must be those stated in the notice but may not be lower than:

• (a) 12% in the case of direct insurance and proportional reinsurance; and
• (b) 16% in the case of non-proportional reinsurance.

7.4. Certain contracts not included

(1) If an AIFC-Incorporated Insurer underwrites Contracts of Insurance in General Insurance Categories 1 and 2 that are Long-Term Insurance Contracts, the AIFC-Incorporated Insurer need not calculate a Premium Risk component in respect of those contracts.

(2) For Contracts of Insurance in General Insurance Categories 1 and 2 that are Long-Term Insurance contracts, the AIFC-Incorporated Insurer must calculate a Long-Term Insurance Risk Component.

8.1. Application

Paragraphs 8.2 to 8.4 apply to General Insurance Business.

8.2. Outstanding Claims Risk Component

(1) An AIFC-Incorporated Insurer’s Outstanding Claims Risk Component is the sum of the amounts obtained by multiplying the AIFC-Incorporated Insurer’s net liability for outstanding claims that falls within each Category of Insurance Business by the percentage applicable to that liability under table D.

Table D Percentage factor— Outstanding Claims Risk Component

2) In this rule:

net liability for outstanding claims means the liability in respect of future claims referred in PINS 8.3.2 (Treatment of value of future claims payments), less any expected reinsurance and non-reinsurance recoveries in respect of that liability as at the Solvency Reference Date.

8.3. AIFC-Incorporated Insurer may apply for different percentages

(1) The AFSA may, by written notice, allow the AIFC-Incorporated Insurer to use percentages other than those in table D if the AFSA is satisfied that:

• (a) adequate mortality and morbidity information exists in respect of that business; and
• (b) the information provides a reasonable basis for reliance on actuarial principles.

(2) The percentages that may be used must be those stated in the notice but may not be lower than 8%.

8.4. Certain contracts not included

(1) If an AIFC-Incorporated Insurer underwrites Contracts of Insurance in Categories 1 and 2 that are Long-Term Insurance Contracts, the AIFC-Incorporated Insurer need not calculate an Outstanding Claims Risk Component in respect of those contracts.

(2) For Contracts of Insurance in Categories 1 and 2 that are Long-Term Insurance Contracts, the AIFC-Incorporated Insurer must calculate a Long-Term Insurance Risk Component.

9.1. Application

Paragraphs 9.2 and 9.3 apply to Long-Term Insurance Business.

9.2. Long-Term Insurance Risk Component

An AIFC-Incorporated Insurer’s Long-Term Insurance Risk Component is the sum of the following amounts, so far as they relate to the Long-Term insurance business of the AIFCIncorporated Insurer:

• (a) 1.25% of the amount of provisions in respect of Long-Term Insurance Business that is [investment-linked insurance, where the contracts are subject to a capital guarantee;]
• (b) 0.5% of the amount of provisions in respect of Long-Term Insurance Business that is investment-linked insurance, where the contracts are not subject to a capital guarantee;
• (c) 3% of the amount of provisions in respect of Long-Term Insurance Business other than business described in paragraphs (a) and (b);
• (d) the amount obtained by multiplying the amount of capital at risk under paragraph 9.3 by 0.1%;
• (e) if the AIFC-Incorporated Insurer issues policies that are contingent on mortality—the amount of anticipated claims cost arising from a 0.5 per thousand increase in the rate of lives insured dying over the following year.

9.3 Capital at risk

(1) Capital at risk of an AIFC-Incorporated Insurer means the total amount of sums assured on Long-Term Insurance Contracts issued by the AIFC-Incorporated Insurer, less:

• (a) the total amount of mathematical reserves for those contracts; and
• (b) any expected reinsurance and non-reinsurance recoveries as at the Solvency Reference Date.

(2) For an annuity, the sum assured must be taken to be the present value of the annuity payments.

(3) The contribution of each contract to capital at risk must be determined separately. If the capital at risk calculated for a contract is less than zero, the capital at risk for that contract is taken to be zero.

10.1. Application

Paragraphs 10.2 and 10.3 apply to General Insurance Business.

10.2. Insurance Concentration Risk Component

(1) The Insurance Concentration Risk Component for an AIFC-Incorporated Insurer is: MER + CoR (if any) – RP (if any) where:

MER has the meaning given in paragraph 10.3 (Maximum event retention). CoR or cost of reinstatement, in relation to an extreme event, means:

• (a) the rate that an AIFC-Incorporated Insurer has, under contract, agreed to pay the reinsurer concerned to reinstate the reinsurance cover relating to the extreme event; or
• (b) if the AIFC-Incorporated Insurer has not agreed on the rate for the reinsurance cover—the AIFC-Incorporated Insurer’s estimate of the cost of reinstating that cover based on current reinsurance market conditions (but no less than the original rate of reinsurance cover). RP or reinstatement premiums, for an AIFC-Incorporated Insurer that also writes reinsurance, means the amount of inward reinstatement premiums from cedants in respect of catastrophe reinsurance cover if the AIFC-Incorporated Insurer has a binding netting arrangement with the cedant.

(2) An AIFC-Incorporated Insurer must seek advice from its Approved Actuary about estimating its MER if the AIFC-Incorporated Insurer:

• (a) issues policies that do not have a maximum amount insured;
• (b) insures risks in multiple lines of business; or
• (c) has a complex portfolio of insurance risks.

10.3. Maximum event retention

(1) MER or maximum event retention, in relation to an extreme event, is the maximum amount of loss to which the AIFC-Incorporated Insurer will be exposed due to an accumulation of exposures, after netting out any potential reinsurance recoveries.

(2) In calculating its MER, an AIFC-Incorporated Insurer must:

• (a) set the amount based on the accumulation of exposures of the AIFC-Incorporated Insurer to a single extreme event;
• (b) assume a return period of 1 in 250 years (or greater), where the return period is the expected average period within which the extreme event will re-occur; and
• (c) take into account:
• (i) its risk profile and risk tolerance;
• (ii) its claims history (using available internal and external data);
• (iii) the capital resources available to it;
• (iv) its current and future solvency needs;
• (v) its reinsurance programme;
• (vi) the classes of insurance business underwritten by it; and
• (vii) the areas where it conducts business.

(3) If an AIFC-Incorporated Insurer is exposed to more than 1 extreme event, its MER is the largest of the MERs calculated by the AIFC-Incorporated Insurer for those events.

(4) Despite anything in this rule, the AFSA may require the AIFC-Incorporated Insurer to make adjustments in calculating its MER.