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.