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Location: Central Bank of Bahrain Volume 3—Insurance > Part A > Business Standards > CA Capital Adequacy > CA-1 Capital Requirements
  • CA-1 Capital Requirements

    • CA-1.1 General Requirements

      • CA-1.1.1

        In accordance with Principle of Business 9, insurance licenseesG must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner.

      • CA-1.1.2

        In the event that an insurance licenseeG fails to meet the capital and solvency margin requirements outlined in this Module, it must, on becoming aware that it has breached these Rules, notify the CBB immediately and within 25 calendar days submit a plan to the CBB demonstrating how its capital availableG will be restored and the timeframe for that restoration to occur.

        Amended: January 2007

      • CA-1.1.3

        Should the insurance licenseeG fail to meet the requirements of this Module, the CBB may impose enforcement measures outlined in Module EN.

        Amended: January 2007

      • CA-1.1.4

        Unless otherwise indicated, all insurance licenseesG must implement the requirements of Module CA, effective 31 December 2005 (Refer to ES-2.5.1).

        Amended: January 2007

    • CA-1.2 Calculation of Capital Available for Insurance Firms

      • CA-1.2.1

        A Bahraini insurance firmG must maintain sufficient capital to enable it to meet at all times its insurance and other obligations. The minimum Tier 1 capital for Bahraini insurance firmsG is BD 5 million, except for those firms whose business is limited to reinsuranceG . Bahraini insurance firmsG whose business is limited to reinsuranceG must have minimum Tier 1 capital of BD 10 million. Overseas insurance firmsG and captive insurersG are not subject to a minimum Tier 1 capital but must comply with the Required Solvency MarginG and minimum fundG , as defined in Chapter CA-2. In addition, all insurance firmsG must at all times maintain a capital availableG in excess of the greater of the Required Solvency MarginG and the minimum fundG , as defined in Chapter CA-2.

        Amended: January 2007
        Amended: October 2007

      • CA-1.2.2

        Bahraini insurance firmsG licensed prior to 1 April 2005 that do not meet the requirements of Paragraph CA-1.2.1, will be required to meet the requirements for minimum Tier 1 capital by 31 December 2007. In addition, the requirements to maintain a capital availableG in excess of the greater of the Required Solvency MarginG and minimum fundG must be met by insurance firmsG by 31 December 2005. Insurance firmsG who are in run-off and whose license is restricted from entering into new contracts of insurance as per Paragraph GR-8.1.8, are grandfathered and not required to apply the requirements of Paragraph CA-1.2.1 (refer to ES-2.6.2).

        Amended: January 2007
        Amended: October 2007

      • CA-1.2.3

        An insurance firmG must ensure that at all times its capital availableG does not fall below the minimum fundG . In the event that an insurance firm'sG capital availableG does fall below the minimum fundG , the insurance firmG must inject capital and must notify the CBB immediately. Further, the insurance firmG must cease to effect any new contracts of insuranceG , including renewals of existing contracts unless explicitly permitted to do so by the CBB.

        Amended: April 2014
        Amended: October 2007
        Amended: January 2007

      • Limitation on Valuation of Capital Instruments

        • CA-1.2.4

          For the purposes of determining an insurance firm'sG capital availableG , no value is attributed to any other instrument or resource of an insurance firmG other than those identified in Paragraphs CA-1.2.8, CA-1.2.12 and CA-5.1.24 without the consent in writing of the CBB. Without limiting the generality of this Rule, no value is attributed to any of the following:

          (a) Any implicit items (which relate to future profits, zillmerisingG and hidden reserves); and
          (b) The unpaid element of any issued shares some or all of which are not 'fully paid' shares.
          Amended: October 2009
          Amended: January 2007

      • Capital Available: Tier 1 and Tier 2

        • CA-1.2.5

          An insurance firm'sG capital availableG , for the purposes of this Module, comprises two tiers. Tier 1, or core capital, comprises the highest quality capital elements that fully meet all the essential characteristics of capital. Tier 2, or supplementary capital, comprises other instruments that, to varying degrees, fall short of the quality of Tier 1 capitalG but nonetheless contribute to the overall financial strength of the insurance firmG . Insurance firmsG may hold Tier 2 capitalG in excess of the limits in Paragraph CA-1.2.7, but any such excess is not counted as capital availableG for the purposes of the requirements in this Module.

          Amended: January 2007

        • CA-1.2.6

          The capital availableG of an insurance firmG comprises the sum of its Tier 1 and Tier 2 capital resources, subject to the limits in Paragraph CA-1.2.7.

          Amended: January 2007

        • CA-1.2.7

          Total Tier 2 capitalG cannot exceed 100% of total Tier 1 capitalG . Lower Tier 2 capitalG of the type identified in Paragraph CA-1.2.12 (f), (g) and (h) cannot exceed more than 50% of total Tier 1 capitalG .

          Amended: January 2007

      • Tier 1 Capital

        • CA-1.2.8

          Tier 1 capitalG comprises:

          (a) Paid-up ordinary shares (net of treasury shares);
          (b) Share premium reserveG ;
          (c) Perpetual non-cumulative preference shares.
          (d) All disclosed reserves brought forward, that are audited and approved by the shareholdersG , in the form of legal, general and other reserves created by appropriations of retained earnings, excluding fair value reserve;
          (e) Unappropriated retained earnings, excluding cumulative unrealised fair value gains, brought forward;
          (f) Audited current year's earnings net of unrealised fair value gains and before taxes; and
          (g) In the case of an overseas insurance firmG , the audited net assetsG (excluding any unrealised fair value gains and the surplus assetsG of long-term funds), determined in accordance with accounting standards that would be applicable if it were a joint stock company incorporated in Bahrain.
          Amended: January 2007

        • CA-1.2.9

          Tier 1 capital elements included in Subparagraph CA-1.2.8 (a) to (c) can only be so included if:

          (a) It is issued by the insurance firmG ;
          (b) It is fully paid, and only that portion of the shares for which payment has been received is otherwise included; and
          (c) It:
          (i) Cannot be redeemed at all or can only be redeemed on a winding up of the insurance firmG ; or
          (ii) Is only redeemable at the option of the insurance firmG and complies with any conditions applicable to joint stock companies in Bahrain;
          (d) Any coupon is non-cumulative;
          (e) It is able to absorb losses;
          (f) It ranks for repayment upon winding up no higher than a share of a company incorporated under the Joint Stock companies law of Bahrain;
          (g) Coupons on it can only be paid out of accumulated realised profits;
          (h) No coupon is payable at a time when the insurer is in breach of Paragraph CA-1.2.1 and no coupon is payable to the extent that, after paying it, the insurance firmG would breach that Rule; and
          (i) The proceeds of issue are immediately and fully available to the insurance firmG .
          Amended: January 2007

        • CA-1.2.10

          Tier 1 capitalG has the following characteristics:

          (a) It is able to absorb losses;
          (b) It is permanent;
          (c) It ranks for repayment upon winding up after all other debts and liabilities; and
          (d) It has no fixed costs, that is, there is no inescapable obligation to pay dividends or interest.
          Amended: January 2007

        • CA-1.2.11

          An insurance firmG must not redeem any tier 1 instrument that it has included in its Tier 1 capitalG resources for the purpose of Chapter CA-1 unless it has notified the CBB of its intention at least one month before it does so.

          Amended: January 2007
          Amended: October 2007

      • Tier 2 Capital

        • CA-1.2.12

          Tier 2 capitalG includes the following liabilities of an insurance firmG , to the extent permissible by Paragraph CA-1.2.7:

          (a) Interim net income, excluding 55% of any unrealised fair value gains arising from investments held to maturity as per IAS 39, reviewed by the external auditorsG in accordance with International Standards on Auditing (ISA);
          (b) Perpetual cumulative preference shares;
          (c) Mandatory convertible notes and similar capital instruments;
          (d) Perpetual subordinated debtG ;
          (e) Any other hybrid (debt/equity) capital instruments of a permanent nature;
          (f) Dated subordinated debtG with an original termG of at least 5 years;
          (g) Limited life redeemable preference shares with an original termG of at least 5 years;
          (h) Any other similar limited life capital instruments with an original termG of at least 5 years; and
          (i) Investment fair value reserve (IAS 39) on investments held available for sale, discounted to 45%.
          Amended: January 2007

        • CA-1.2.13

          Tier 2 capitalG includes forms of capital that do not meet the requirements for permanency and absence of fixed servicing costs that apply to Tier 1 capitalG . Tier 2 capitalG resources are split into upper and lower tiers, based on the permanency of the instruments. For example:

          (a) Capital which is perpetual (that is, has no fixed term) but cumulative (that is, servicing costs cannot be waived at the issuer's option, although they may be deferred — for example cumulative preference shares) may be included in upper Tier 2 capitalG ; and
          (b) Capital which is dated, i.e. not perpetual (that is, it has a fixed term) and which may also have fixed servicing costs that cannot generally be either waived or deferred, such as subordinated debt, are included in lower Tier 2 capitalG . Such capital should normally be of a medium to long-term maturity (that is, an original maturity of at least five years).
          Amended: January 2007

        • CA-1.2.14

          Lower Tier 2 capitalG instruments (ref CA-1.2.12 (f) to (h)), must have a minimum fixed term to maturity in excess of 5 years. During the last 5 years to maturity, a cumulative discount (or amortisation) factor of 20% per year must be applied to reflect the diminishing value of these instruments as a continuing source of strength.

          Amended: January 2007

      • Tier 2: Hybrid Capital Instruments

        • CA-1.2.15

          Hybrid capital instruments are instruments that combine the features of debt and equity in that they are structured like debt, but exhibit some of the loss absorption and funding flexibility features of equity.

        • CA-1.2.16

          A hybrid capital instrument must meet the following conditions before it can be included in an insurance firm'sG upper Tier 2 capitalG resources:

          (a) It must meet the general conditions described in Paragraph CA-1.2.17;
          (b) It must have no fixed maturity date;
          (c) The contractual terms of the debt agreement must provide for the insurance firmG to have the option to defer any interest payment on the debt; and
          (d) The contractual terms of the debt agreement must provide for the loss-absorption capacity of the debt and unpaid interest, whilst enabling the insurance firmG to continue its business.
          Amended: January 2007

        • CA-1.2.17

          A hybrid capital instrument cannot form part of the capital resources of an insurance firmG unless it meets the following conditions:

          (a) The claims of the creditors must rank behind those of all unsubordinated creditors;
          (b) No amounts due may be payable:
          (i) At a time when the insurance firmG is in breach of Paragraph CA-1.2.1; or
          (ii) If the payment would mean that the insurance firmG would be in breach of Paragraph CA-1.2.1;
          (c) The only events of default must be non-payment of any amount falling due under the terms of the instrument or the winding-up of the insurance firmG ;
          (d) The remedies available to the subordinated creditor in the event of non-payment or other breach of the written agreement or instrument must be limited to petitioning for the winding up of the insurance firmG or proving the debt in a liquidationG of the insurance firmG ;
          (e) Any events of default and any remedy described in (d) must not prejudice the matters in (a) and (b);
          (f) In addition to the requirements about repayment in (a) and (b), the debt must not become due and payable before its stated final maturity date (if any) except on an event of default complying with (c);
          (g) The debt agreement or terms of the instrument are governed by the laws of Bahrain;
          (h) To the fullest extent permitted under the laws of the relevant jurisdictions, creditors must waive their right to set off amounts they owe the insurance firmG against subordinated amounts included in the insurance firm'sG capital resources owed to them by the insurance firmG ;
          (i) The terms of the instrument must be set out in a written agreement that contains terms that provide for the conditions set out in (a) to (h);
          (j) The debt must be unsecured and fully paid up; and
          (k) The insurance firmG has obtained an external legal opinion stating that the requirements in (a) to (j) have been met.
          Amended: January 2007

        • CA-1.2.18

          Subparagraph CA-1.2.17 (g) does not apply if the insurance firmG has obtained an external legal opinion confirming that a degree of subordination has been achieved under the law that governs the debt and the agreement that is equivalent to that which would have been provided under the laws of Bahrain.

          Amended: January 2007

        • CA-1.2.19

          An insurance firmG must not amend the terms of the debt and the documents referred to in Subparagraph CA-1.2.17 (i) unless:

          (a) At least one month before the amendment is due to take effect, the insurance firmG has given the CBB notice in writing of the proposed amendment; and
          (b) That notice includes confirmation that the legal opinion referred to in Subparagraph CA-1.2.17 (k) continues in full force and effect in relation to the terms of the debt and the documents as proposed to be so amended.
          Amended: January 2007

        • CA-1.2.20

          An insurance firmG must notify the CBB of its intention to repay a hybrid capital instrument that is included in its capital resources before its contractual repayment date (if any) at least six months before the date of the proposed repayment, providing details of how it will meet its capital availableG requirement after such repayment.

          Amended: January 2007

      • Determination of Capital Available

        • CA-1.2.21

          Every insurance firmG must determine its capital availableG in accordance with this Rule:

          Determination of Insurance Firm's Capital Available
            Tier 1 Capital
            Paid-up ordinary shares (net of treasury shares)
            Share premium reserve
            Perpetual non-cumulative preference shares
            All disclosed reserves brought forward, that are audited and approved by the shareholdersG , in the form of legal, general and other reserves created by appropriations of retained earnings, excluding fair value reserve
            Unappropriated retained earnings, excluding cumulative unrealised fair value gains, brought forward
            Audited current year's earnings net of unrealised fair value gains and before tax expenses
            Overseas Insurance FirmsG Only: audited net assets, excluding any unrealised fair value gains and surplus assetsG in long-term funds.
          (A) Total Tier 1 Capital
            Tier 2 Capital — Upper Level
            Interim net income, excluding any unrealised fair value gains, reviewed by the external auditorsG in accordance with International Standards on Auditing (ISA)
            Perpetual cumulative preference shares
            Mandatory convertible notes and similar capital instruments
            Perpetual subordinated debtG
            Other hybrid (debt/equity) capital instruments of a permanent nature
            Investment fair value reserve (IAS 39) and any unrealised fair value gains included in retained earnings, both discounted to 45%.
          (B) Total Tier 2 Capital — Upper Level
            Tier 2 Capital — Lower Level
            Limited life redeemable preference shares with an original termG of at least 5 years.
            Dated subordinated debtG with an original termG of at least 5 years.
            Any other similar limited life capital instruments with an original termG of at least 5 years.
          (C) Total Tier 2 Capital — Lower Level: before excess deduction
          (D) Total Tier 2 Capital (B plus C)
          (E) Excess Tier 2 Capital — Lower Level = (C) − [(A) times 50%)] (if negative, excess is 0)
          (F) = (D) − (E) Total Tier 2 Capital — Lower Tier adjusted
          (G) Excess Tier 2 Capital = (F) − [(A) times 100%)] (if negative, excess is 0)
          (H) = (F) − (G) Total Tier 2 Capital
            Deductions from Capital
            Valuation asset differences
            Inadmissible assets by asset category
            Inadmissible assets in excess of counterparty limitsG
            Required margins of solvency for branchesG in other jurisdictions.
            Current year's losses, before any tax expenses
            Dividends paid and declared
            Assets pledged or provided as collateral where there is no offsetting liability.
            Tax expenses
            Other appropriations not included as charges to profit and loss statement (e.g. Directors' remuneration, donations)
            Other
          (I) Total Deductions from Capital
          (A)+(H)−(I) CAPITAL AVAILABLE
          Amended: January 2007

        • CA-1.2.22

          In Paragraph CA-1.2.21, under 'Deductions from Capital' the deductions for:

          (a) Inadmissible assets by asset type; and
          (b) Inadmissible assets in excess of counterparty limitsG

          only apply to those amounts in respect of assets, other than those assets from linked long-term insurance.

          Amended: January 2007

        • CA-1.2.23

          [This Paragraph was deleted in April 2014.]

          Deleted: April 2014
          Amended: January 2007

    • CA-1.3 Capital Requirements for Insurance Brokers

      • CA-1.3.1

        Bahrain insurance brokersG must maintain at all times the greater of:

        (a) A minimum net assetsG value of BD 50,000;
        (b) 4% of fiduciary liabilitiesG ; and
        (c) 4% of annual income from global insurance broking activitiesG .
        Amended: April 2012
        January 2007

      • CA-1.3.1A

        For semi-annual reporting under Form IBRS (see Section BR-1.4A), with regards to Subparagraph CA-1.3.1(c), the calculation of the annual income must be done on a moving average year basis. As an example, for the reporting period ending 30th June 2011, annual income from global insurance broking activities covers the period of 1st July 2010 to 30th June 2011.

        Added: April 2012

      • CA-1.3.2

        There are no minimum capital and net asset requirements for overseas insurance brokersG . However, for overseas insurance brokersG , financial statements of the parentG company must be submitted to the CBB for review, in order to assess the financial stability of the group on a global basis.

        Amended: January 2007

      • CA-1.3.3

        For purposes of Paragraph CA-1.3.1, global insurance broking activitiesG refers to annual income of a Bahrain incorporated brokerage firm including any income being generated by any of the firm's brokerage subsidiariesG and/or branchesG operating in other jurisdictions.

        Amended: January 2007

      • CA-1.3.4

        In respect of licensees who were carrying out activities that fall within the definition of the regulated activity of insurance brokerG prior to 1 April 2005, the requirements of Paragraph CA-1.3.1 will apply from 1 January 2007 (refer to ES-2.4.2 for transition rules).

        Amended: January 2007

      • CA-1.3.5

        For the purposes of this section, 'net assetsG ' means the excess of assets over liabilities. The minimum net assets value is to be determined by excluding all intangible assets and in accordance with accounting principles generally accepted in Bahrain.

        Amended: January 2007

      • CA-1.3.6

        The value of debtors taken into account as assets available to support financial requirements must not exceed the amount which the insurance brokerG expects to receive net of any significant costs associated with making the recovery.

      • CA-1.3.7

        Insurance brokersG must make adequate provisions for any debts which are unlikely to be received or recovered from the debtors.

    • CA-1.4 Capital Requirements for Insurance Consultants and Insurance Managers

      • CA-1.4.1

        Insurance consultantsG and insurance managersG must possess financial resources commensurate with the scale and nature of their insurance consultancy or management activities.

        Amended: January 2007

      • CA-1.4.2

        In determining the adequacy of the financial resources of insurance consultantsG and insurance managersG , the CBB will consider, amongst other things:

        (a) The volume of business undertaken by the licensee;
        (b) The licensee's capacity to meet its financial obligations towards all clientsG in a timely and professional manner; and
        (c) The licensee's future business plans considering the capital available to meet all obligations and additional sources of capital when and if required.
        Amended: January 2007

      • CA-1.4.3

        There are no minimum capital and net assets requirements applicable to insurance consultantsG and insurance managersG . However, Section AU-2.5 (Licensing Conditions: Financial Resources) requires all licensees to maintain adequate financial resources and to conduct their business in a prudent manner.

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