• PINS Chapter 3 PINS Chapter 3 Minimum capital requirement

    Editorial changes (as from 1 January 2015).

    • PINS Part 3.1 PINS Part 3.1 Application and purpose

      Editorial changes (as from 1 January 2015).

      • PINS 3.1.1 PINS 3.1.1 Application of Chapter 3

        This Chapter applies to every insurer (other than a QFC captive insurer) incorporated in the QFC.

        Amended by QFCRA RM/2015-3 (as from 1st January 2016).

        • PINS 3.1.1 Guidance

          1. The amount of capital is fundamental to the financial strength of an insurer. It provides a buffer against losses that have not been anticipated and, in the event of problems, enables the insurer to continue operating while those problems are addressed or resolved. In this way, the maintenance of adequate financial resources can engender confidence on the part of policyholders, creditors and the market more generally in the financial soundness and stability of the insurer. An insurer's financial resources must be adequate for the nature, scale and complexity of its business.
          2. The purpose of this Chapter is to require QFC incorporated insurers to meet at all times a minimum capital requirement that is responsive to the risk profile of each insurer and is calculated in accordance with the Rules of this Chapter.

          Note This Chapter does not apply to an insurer authorised to conduct insurance business in or from the QFC as a branch. Such an insurer will be subject to the regulatory capital requirements in the jurisdiction where it is incorporated.

          Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

      • PINS 3.1.2 [Deleted]

        Deleted by QFCRA RM/2011-2 (as from 1st July 2011).

    • PINS Part 3.2 PINS Part 3.2 General requirement

      Editorial changes (as from 1 January 2015).

      • PINS 3.2.1 Insurers' eligible capital

        An insurer must at all times have eligible capital equal to or higher than the amount of its minimum capital requirement as determined by PINS Rule 3.3.1.

        Amended by QFCRA RM/2015-3 (as from 1st January 2016).

      • PINS 3.2.2 PINS 3.2.2 Insurers to have appropriate systems and controls

        For the purposes of rule 1.2.2 and rule 3.2.1, the Governing Body of an insurer must ensure suitable systems and controls are in place to allow it to identify, manage and monitor the risks associated with the insurer's business activities to ensure the insurer holds capital commensurate with its overall risk profile.

        Amended by QFCRA RM/2015-3 (as from 1st January 2016).

        • PINS 3.2.2 Guidance

          Rules for determining eligible capital are contained in Chapter 4.

          Editorial changes (as from 1 January 2015).

      • PINS 3.2.3 PINS 3.2.3 [Deleted]

        Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

        • PINS 3.2.3 Guidance [Deleted]

          Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.2.4 PINS 3.2.4 Insurers to be able to demonstrate compliance

        An insurer's systems and controls for the purposes of PINS Rule 3.2.2 must allow the insurer to demonstrate to the Regulatory Authority, if at any time it is asked to do so by the Regulatory Authority, the insurer's compliance with rule 1.2.2 and rule 3.2.1.

        Amended by QFCRA RM/2015-3 (as from 1st January 2016).

        • PINS 3.2.4 Guidance

          As an insurer is required to maintain adequate financial resources at all times, its systems and controls need to enable the governing body to determine and monitor the capital requirements of the insurer and the financial resources it has available, and to identify occurrences where the financial resources fall short of the capital requirements of the insurer, or where they may fall short in the future.

          Amended by QFCRA RM/2012-5 (as from 1st July 2013).

      • PINS 3.2.5 References to particular currencies

        In these rules, the specification of an amount of money in a particular currency is also taken to specify the equivalent sum in any other currency at the relevant time.

        Inserted by QFCRA RM/2015-1 (as from 1st July 2015).

    • PINS Part 3.3 PINS Part 3.3 Minimum capital requirement

      Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

      • PINS 3.3.1 PINS 3.3.1 What is an insurer's MCR?

        The minimum capital requirement or MCR for an insurer is the higher of:

        (a) QR36 million; and
        (b) the insurer's risk-based capital requirement.

        Note 1 The MCR is the lowest acceptable level of eligible capital below which policyholders would be exposed to unacceptable risks if the insurer were allowed to continue to operate.

        Note 2 If the Regulatory Authority considers that a higher MCR is appropriate for an insurer, the authority may impose the higher requirement as a condition to the insurer's authorisation under FSR, art 31.

        Note 3 An insurer will be in breach of r 1.2.2 if the insurer's eligible capital falls below its MCR. Under r 3.9.1 and r 3.9.2, an insurer must inform the Regulatory Authority of any possible breach or actual breach of r 1.2.2.

        Amended by QFCRA RM/2015-1 (as from 1st July 2015).

        • PINS 3.3.1 Guidance [Deleted]

          Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.3.2 PINS 3.3.2 Obligations relating to MCR

        (1) An insurer must immediately inform the Regulatory Authority if its eligible capital falls below its MCR.

        Note For the requirements regarding quarterly reporting, see r 1.4.1.
        (2) If an insurer's eligible capital falls below its MCR, the insurer must immediately stop effecting new contracts of insurance.
        Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

        • Guidance on intervention by Regulatory Authority

          1 As soon as the Regulatory Authority becomes aware that an insurer's eligible capital has fallen below its MCR, the authority will confer with the insurer about what needs to be done next.
          2 If the insurer's eligible capital falls below its MCR, the authority will intervene by, for example:
          (a) requiring the insurer to immediately increase its eligible capital;
          (b) suspending the insurer's business;
          (c) placing the insurer's business in run-off; or
          (d) withdrawing the insurer's authorisation.
          Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.3.3 Other action not prevented

        Nothing in this Chapter prevents the Regulatory Authority from taking any other action under the FSR or these or any other rules against the insurer in relation to its capital adequacy.

        Note Under FSR, art 31, the Regulatory Authority may take, on its own initiative, action against the insurer. The authority may also take disciplinary action under FSR, pt 9.

        Inserted by QFCRA RM/2013-1 and amended by Editorial changes (as from 1st January 2015).

    • PINS Part 3.4 PINS Part 3.4 Risk-based capital requirement

      Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

      • PINS 3.4.1 What is an insurer's risk-based capital requirement?

        (1) The risk-based capital requirement for an insurer that, under rule 3.8.1 (a), 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 insurer that, under rule 3.8.1 (b), 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 insurer's investment, insurance and operational risk requirements.
        (3) The risk-based capital requirement for any other insurer is the sum of the insurer's:
        (a) investment risk requirement;
        (b) insurance risk requirement; and
        (c) operational risk requirement.
        Amended by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS Part 3.5 PINS Part 3.5 Investment risk requirement

      Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

      • PINS 3.5.1 What is an insurer's investment risk requirement?

        An 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.

        Note Schedule 3 sets out the method for calculating each component of the investment risk requirement.

        Amended by QFCRA RM/2013-1 (as from 1st January 2015)
        Amended by QFCRA RM/2020-6 (as from 15th October 2020).

    • PINS Part 3.6 PINS Part 3.6 Insurance risk requirement

      Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

      • PINS 3.6 Guidance [Deleted]

        Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.6.1 What is an insurer's insurance risk requirement?

        An 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.

        Note Schedule 3 sets out the method for calculating each component of the insurance risk requirement.

        Amended by QFCRA RM/2015-1 (as from 1st July 2015)
        Amended by QFCRA RM/2020-6 (as from 15th October 2020).

    • PINS Part 3.7 PINS Part 3.7 Operational risk requirement

      Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

      • PINS 3.7 Guidance [Deleted]

        Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.7.1 What is an insurer's operational risk requirement?

        (1) The amount of an insurer's operational risk requirement (ORR) is 2% of whichever is the higher of:
        (a) the insurer's gross written premiums in the 12 months ending on the solvency reference date; and
        (b) its technical provisions (without deduction for reinsurance) as at the solvency reference date.

        Note Technical provisions must cover all insurance liabilities of the insurer, including outstanding claims liabilities (whether or not reported), future claims (premium liabilities) and any reserves held by the insurer for the purpose of meeting insurance liabilities.
        (2) However, if the amount calculated under subrule (1) is more than the amount of the ceiling calculated by means of the formula in subrule (3), the insurer’s ORR is the amount of the ceiling.
        (3) The formula is:



        where:
        IRR is the insurer’s investment risk requirement.
        InsRR is the insurer’s insurance risk requirement.  
        Amended by QFCRA RM/2015-1 (as from 1st July 2015)
        Amended by QFCRA RM/2020-6 (as from 15th October 2020).

    • PINS Part 3.8 PINS Part 3.8 Internal modelling

      Editorial changes (as from 1 January 2015).

      • PINS 3.8 Guidance

        Insurers around the world use internal models for assessing their capital requirements. From an internal perspective, risk models provide an opportunity for the management to identify and measure risks. It is also possible to quantify the minimum level of capital corresponding to a given risk appetite, which in turn guides capital allocation/management. Risk models offer the advantage of combining all relevant operations of an insurer (e.g. underwriting, investment, pricing, assets, and liabilities) into an integrated model which provides an insight into future operations and capital requirements. They can also be useful for evaluating alternative business strategies and focusing on major risk scenarios, including what might happen if more than 1 thing goes wrong. If the model is well developed, an insurer would have sufficient information for assessing its major risk areas and allocating resources accordingly.

        Editorial changes (as from 1 January 2015).

      • PINS 3.8.1 Approval by Regulatory Authority

        The Regulatory Authority may, by written notice, allow an insurer to use its own internal model:

        (a) to calculate its risk-based capital requirement; or
        (b) to replace a component or components of its investment risk requirement, insurance risk requirement and operational risk requirement.
        Amended by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.8.2 [Deleted]

        Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 3.8.3 [Deleted]

        Deleted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS Part 3.9 PINS Part 3.9 Failure to maintain appropriate financial resources or comply with capital requirements

      Editorial changes (as from 1 January 2015).

      • PINS Guidance for pt3.9

        In dealing with a breach, or possible breach, of this Chapter, the Regulatory Authority's primary concern will be the interests of policyholders, both existing and prospective. It recognises that there will be circumstances in which a problem may be resolved quickly, for example by support from a parent entity, without jeopardising the interests of policyholders. In such circumstances, it will be in the interests of all parties for there to be minimum disruption to the insurer's business. The authority's normal approach will be to seek to work cooperatively with insurers to deal with any problems. There will, however, be circumstances in which it is necessary to take firm action to avoid exposing further policyholders to the risk of the insurer's failure, and the authority will not hesitate to take disciplinary action if it considers this necessary.

        Amended by QFCRA RM/2015-1 (as from 1st July 2015).

      • PINS 3.9.1 Possible breach of r 1.2.2 or ch 3

        If an insurer becomes aware, or has reasonable grounds to believe, that it may be, or may be about to be, in breach of rule 1.2.1 or any provision of this Chapter, it must—

        (a) tell the Regulatory Authority orally about the matter immediately, but within 1 business day;
        (b) by notice given to the authority by no later than the next business day
        (i) confirm the oral notification;
        (ii) explain why the insurer considers it may be, or may be about to be, in breach of the provision; and
        (iii) set out the action that the insurer proposes to take to avoid the breach; and
        (c) not make any distribution to its shareholders or members, whether by way of dividends or otherwise, without the authority's written permission.
        Examples — meaning of 'within 1 business day'

        1 If, on a business day, the insurer becomes aware that it may be in breach of this Chapter or rule 1.2.2, the insurer must tell the authority immediately, but on that day
        2 If, on a day that is not a business day, the insurer becomes aware that it may be in breach of this Chapter or rule 1.2.2, the insurer must tell the authority immediately, but by no later than the next business day.
        Editorial changes (as from 1 January 2015).

      • PINS 3.9.2 PINS 3.9.2 Breach of r 1.2.2 or ch 3

        If an insurer becomes aware that it is in breach of rule 1.2.2 or any provision of this Chapter, it must—

        (a) tell the Regulatory Authority orally about the matter immediately, but within 1 business day;
        Examples

        See examples to rule 3.9.1 on the meaning of 'within 1 business day'.
        (b) by notice given to the authority by no later than the next business day
        (i) confirm the oral notification;
        (ii) explain the nature of the breach; and
        (iii) set out the action that the insurer proposes to take about the breach;
        (c) cease effecting contracts of insurance in or from the QFC until the authority gives it written permission to recommence; and
        (d) not make any distribution to its shareholders or members, whether by way of dividends or otherwise, without the authority's written permission.

        Note See also r 4.4.2(1) (b) (i) which prohibits the payment of interest or principal for subordinated debt included as part of the insurer's eligible capital if the insurer is in breach of its minimum capital requirement.

        Editorial changes (as from 1 January 2015).

        • PINS Guidance for pt3.9 [Deleted]

          Deleted by QFCRA RM/2015-1 (as from 1st July 2015).