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Location: Central Bank of Bahrain Volume 3—Insurance > Part A > High Level Standards > AA Auditors and Actuaries > AA-4 Actuarial Reports
  • AA-4 Actuarial Reports

    • AA-4.1 General Requirements

      • Obligation to Appoint an Actuary for Long-Term Insurance Business

        • AA-4.1.1

          In accordance with Article 72(a) of the CBB Law, all insurance firmsG planning to undertake long-term insurance businessG must, no later than the date on which they start to carry out such business, appoint a Registered ActuaryG or Signing ActuaryG , subject to CBB approval.

          Amended: January 2007
          Amended: October 2007

        • AA-4.1.2

          For insurance firmsG whose long-term insurance businessG is restricted to group life policies, having a term of less than or equal to 1 year, and where this long-term insurance businessG represents less than 5% of the insurance firm'sG total gross premiums written, this business will be treated as general insurance businessG and is subject to actuarial requirements as outlined in Paragraph AA-4.1.4.

          Amended: January 2007
          Amended: October 2007

        • AA-4.1.3

          To secure CBB approval, the actuaryG must satisfy the CBB's criteria for Registered ActuaryG or Signing ActuaryG , contained in Paragraphs AA-4.2.1 to AA-4.2.12. The actuaryG of an insurance firmG undertaking long-term insurance businessG , except as provided for under Paragraph AA-4.1.2, must, on an annual basis, undertake an investigation to enable the preparation of the Financial Condition Report (FCR), as specified in Section AA-4.3.

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

      • Obligation to Appoint an Actuary for General Insurance Business

        • AA-4.1.4

          An insurance firmG that carries on general insurance businessG must commission an actuarial opinion, once every two years, from a Registered ActuaryG or Signing ActuaryG . The actuaryG must satisfy the criteria in Paragraphs AA-4.2.1 to AA-4.2.12.

          Amended: April 2014
          Amended: October 2007

        • AA-4.1.5

          The Board of the insurance firm carrying out long-term insurance business must commission annually an FCR and an insurance firm carrying out general insurance business must commission an FCR once every two years. A copy of this report must be provided to the CBB.

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

        • AA-4.1.6

          [This Paragraph was deleted in April 2014.]

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

        • AA-4.1.7

          [This Paragraph was deleted in April 2014.]

          Deleted: April 2014
          Adopted: January 2007

    • AA-4.2 Types of Actuaries

      • AA-4.2.1

        For purposes of Chapter AA-4, the CBB recognises two types of actuaries:

        (a) Registered ActuariesG as per Article 74 of the CBB Law; and
        (b) Signing ActuariesG that are DirectorsG or employeesG of the insurance firmG for which an actuarial report is prepared.
        Added: October 2007

      • AA-4.2.2

        The CBB’s authorisation requirements for Registered ActuariesG are contained in Module AU (Authorisation).

        Added: October 2007

      • AA-4.2.3

        A Signing ActuaryG is a controlled functionG and is subject to the CBB’s approval, as per Section AU-1.2, as an approved personG .

        Added: October 2007

      • AA-4.2.4

        All actuariesG authorised or approved by the CBB must hold appropriate professional qualifications from a relevant, recognised professional body.

        Added: October 2007

      • AA-4.2.5

        Fellows (or members of equivalent status) in good standing of the Society of Actuaries (USA), the Institute and Faculty of Actuaries (UK) or the American Academy of Actuaries, or any other similar body with mutually reciprocal licensing arrangements with any of these bodies, will satisfy the requirement in Paragraph AA-4.2.4.

        Added: October 2007

      • CBB Approval Criteria for Registered Actuaries

        • AA-4.2.6

          The Registered ActuaryG must not be a DirectorG or employeeG of the insurance firmG for which he/she is providing the FCR and must be authorised by the CBB in accordance with Article 74 of the CBB Law, to carry on the business of an actuaryG within the Kingdom of Bahrain.

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

        • AA-4.2.7

          The Registered ActuaryG must be independent of the insurance firmG .

          Amended: October 2007

        • AA-4.2.8

          For a Registered ActuaryG to be considered independent, he, his spouse and dependant children must not be a related party to the insurance firmG .

          Amended: January 2007
          Amended: October 2007

        • AA-4.2.9

          For the purpose of this Section, a related party of an insurance firmG includes:

          (a) A controllerG of the insurance firmG as defined in Section GR-5.2;
          (b) A close linkG of the insurance firmG as defined in Section GR-6.2;
          (c) An associate of a controllerG as defined in Paragraph GR-5.2.2;
          (d) The extended family of a controllerG including a father, mother, father-in-law, mother-in-law, brother, sister, brother-in-law, sister-in-law, or grandparent;
          (e) A corporate entity, whether or not licensed or incorporated in Bahrain, where any of the persons identified in Subparagraphs (c) and (d) is a DirectorG or would be considered a controllerG were the definition of controllerG set out in Paragraph GR-5.2.1 applied to that corporate entity; and
          (f) An employeeG of an insurance firmG that is related to the insurance firmG submitting the FCR required under this Chapter.
          Amended: April 2014
          Added: October 2007

        • CBB Approval Criteria for Signing Actuary

          • AA-4.2.10

            The Signing ActuaryG may be a DirectorG or employeeG of the licensee concerned.

            Added: October 2007

          • AA-4.2.11

            Where the Signing ActuaryG is a DirectorG or employeeG of the licensee concerned, he occupies a controlled functionG , and is subject to CBB approval as per Section AU-1.2.

            Added: October 2007

          • AA-4.2.12

            The Signing ActuaryG must act independently of the insurance firmG in providing the FCR.

            Amended: April 2014
            Added: October 2007

    • AA-4.3 Content of Financial Condition Report (FCR)

      • AA-4.3.1

        The FCR must provide an objective assessment of the overall financial condition of the insurance firmG . The report must also comply with the following conditions:

        (a) The actuary responsible for the FCR must comply with the relevant professional standards;
        (b) Where relevant, the FCR must include:
        (i) A business overview;
        (ii) An assessment of the insurance firmG 's recent experience and profitability, including as a minimum the experience for the year ending on the valuation date;
        (iii) An assessment of all insurance liabilities outlined under Chapter CA-5;
        (iv) An assessment of the adequacy of past estimates for all insurance liabilities, particularly where there has been a change in assumptions or in the valuation method adopted for previous valuations;
        (v) Where there has been a change in assumptions or in the valuation method from that adopted previously, the effect of those changes on the insurance liabilities and assets arising in respect of those liabilities;
        (vi) An explanation of the assumptions used in the valuation process including, without limitation, assumptions made as to inflation and discount rates, future expense rates and ,where relevant, future investment income;
        (vii) An assessment of the adequacy and appropriateness of data made available to the actuary by the insurance firmG ;
        (viii) A description of the procedures undertaken by the actuary to assess the reliability of the data provided;
        (ix) The model(s) used by the actuary;
        (x) The approach taken to estimate the variability of the estimate; and
        (xi) The nature and findings of the sensitivity analyses undertaken;
        (c) The establishment of the surplus or deficit on any conventional long-term insurance fund and in the case of a surplus, the amount that is proposed to be transferred to the shareholder fund and available for distribution;
        (d) The establishment of the surplus or deficit, if any, for all participants' funds for Takaful firmsG . In the case of surplus, the amount available for distribution must be specified;
        (e) For long-term insurance and Family Takaful, include an assessment of asset and liability management, including the insurance firmG 's investment strategy;
        (f) An assessment of current and future capital adequacy and a discussion of the insurance firmG 's approach to capital management;
        (g) An assessment of pricing, including adequacy of premiums;
        (h) An assessment of the suitability and adequacy of reinsurance/retakaful arrangements, including documentation of reinsurance/retakaful arrangements and the existence and impact of any limited risk transfer/sharing arrangements;
        (i) Where the implications of the report have an adverse impact on the financial condition of the insurance firmG , the report must include recommendations on how to address any shortcomings and eliminate any negative trends; and
        (j) For overseas insurance firmsG , the report must be prepared for Bahraini operations, but consideration must be given to the financial position of the head office.
        Amended: April 2014
        Amended: October 2007
        Amended: January 2007

      • AA-4.3.1A

        The signing actuary or registered actuary may rely on other expert opinions in order to address those matters required in the FCR that are outside of scope of the actuary's qualifications. Where such outside opinions are sought, these should be clearly identified in the report.

        Added: April 2014

      • AA-4.3.2

        The report required under Article 72(a) of the CBB Law must accompany the Insurance Firm Return (Form IFR) submitted to the CBB and cover the period covered by that return, as required under Paragraph BR-1.1.22.

        Amended: January 2007
        Amended: October 2007

      • AA-4.3.2A

        The CBB may require a FCR on a more frequent basis than the requirement outlined. In addition, the CBB may appoint an actuary as an appointed expertG as outlined in Section BR-3.5 to conduct a special purpose review of the insurance firm's operations, risk management, financial affairs or other areas as specified by the CBB.

        Added: April 2014

      • AA-4.3.3

        In accordance with Article 73 of the CBB Law, the evaluation should include:

        (a) A valuation of the liabilities of the insurance firmG attributable to its long-term insurance businessG ;
        (b)The establishment of the surplus, if any, on any long-term insurance fundsG that it is proposed be transferred to shareholders'G funds and available for distribution; and
        (c) The establishment of the deficit, if any, on any long-term insurance fundsG established by the insurance firmG .
        Amended: January 2007
        Amended: October 2007

      • AA-4.3.4

        Where the Registered Actuary'sG or Signing Actuary'sG investigation establishes a deficit on any fund or part of any fund, the insurance firmG concerned must immediately notify the CBB and ensure that remedial action is taken to make good the deficit.

        Amended: January 2007
        Amended: October 2007

      • AA-4.3.5

        Possible remedial action to address the deficit noted in Paragraph AA-4.3.4 may include a transfer to be made from shareholders'G funds of sufficient assets to make good the deficit or a reduction in non-guaranteed bonuses.

        Amended: January 2007
        Amended: October 2007

      • AA-4.3.6

        [This Paragraph was deleted in April 2014.]

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

      • AA-4.3.7

        [This Paragraph was deleted in April 2014.]

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

      • General Insurance Business

        • AA-4.3.8

          [This Paragraph was deleted in April 2014.]

          Deleted: April 2014
          Amended: October 2007

      • Qualified FCR

        • AA-4.3.9

          While the actuaryG is not required to check the data on which the report is based, he should disclose any material concerns in respect of data accuracy, integrity and sufficiency in the context of the work undertaken.

          Amended: October 2007

        • AA-4.3.10

          If, for whatever reason, the actuaryG is unable to give an unqualified report, he must inform the CBB as soon as possible.

          Amended: January 2007
          Amended: October 2007

      • Duties of the Insurance Firm

        • AA-4.3.11

          The DirectorsG of the insurance firmG must provide the Registered ActuaryG or Signing ActuaryG with the data and information required for the preparation of the FCR. The insurance firmG must advise the Registered ActuaryG or Signing ActuaryG of all known changes in internal methods or procedures that could materially affect the determination of reserves and financial condition.

          Amended: April 2014
          Added: October 2007

        • AA-4.3.12

          For general insurance businessG , claims development data provided to the Registered ActuaryG or Signing ActuaryG must be reconciled to the accounting information forming the basis of the statutory accounts.

          Added: October 2007

    • AA-4.3A Role of Actuary in Takaful Firm

      • AA-4.3A.1

        In addition to the requirements under Section AA-4.3, all Family Takaful firmsG must submit to the CBB an annual FCR and all General Takaful firmsG must submit an FCR once every two years from their actuary which must comply with the requirements outlined in this Section as well as in other parts of this Chapter in carrying out their actuarial duties.

        Added: April 2014

      • Certification of Wakala Fees

        • AA-4.3A.2

          Takaful firmsG must ensure their actuary certifies the Wakala fees being charged by the shareholder fund to the participants fund(s). The certified Wakala fee must also be approved by the Shari'a Supervisory Board.

          Added: April 2014

        • AA-4.3A.3

          The actuary must ensure that the contributions charged to the participants, must, at a minimum, cover the claims costs and Wakala fees.

          Added: April 2014

      • Participants' Fund(s) Underwriting Loss

        • AA-4.3A.4

          Where a participants fund(s) incurs an underwriting loss, the Takaful firmG actuary must provide an explanation which outlines the reasons for such loss and the remedial steps being taken by the Takaful firmG to address any deficit in the participants' fund(s).

          Added: April 2014

      • Distribution of Surplus

        • AA-4.3A.5

          In accordance with Section CA-8.5, any distribution of surplus from a participants' fund(s) must be recommended by the Takaful firmG 's actuary and must be based on a full valuation of liabilities as certified by the actuary and in line with audited financial statements.

          Added: April 2014

      • Earmarked Assets

        • AA-4.3A.6

          As outlined in Paragraph CA-8.4.4 and Section CA-8.4A, earmarked assetsG are an integral component of the solvency and liquidity requirements of a Takaful firmG . A separate amount of earmarked assetsG must be allocated for each participants' fund, for each reporting period by estimating:

          (a) The likely impact of adjustments (deductions) of the participants' fund assets as per the admissibility rules (limits) under Chapter CA-4; and
          (b) The liquidity needs of the participants' fund.
          Added: April 2014

        • AA-4.3A.7

          The computed figure of the earmarked assetsG for each participants' fund are allocated to the insurance business amountG of the respective fund to reduce the effect of the admissibility deductions on the participants' funds available capital. As outlined in Chapter CA-4, the insurance business amountG is used in the calculation of the participants' fund available capital to meet the solvency requirements.

          Added: April 2014

        • AA-4.3A.8

          Earmarked assetsG , and in particular cash and those assets converted to cash, are also used to provide the necessary liquidity to the participants' fund(s) as outlined in Section CA-8.4A and are separately allocated to meet the liquidity needs.

          Added: April 2014

        • AA-4.3A.9

          In light of the critical role of earmarked assetsG in assessing solvency and addressing any liquidity shortfall in a Takaful firmG , the actuary must carry out quarterly, or more frequently as required, appraisals of the solvency and liquidity status of the participants' fund(s). The actuary must determine and document the level at which the reassessment of earmarked assets is triggered.

          Added: April 2014

        • AA-4.3A.10

          The actuary's appraisals required under Paragraph AA-4.3A.9 are required to determine the impact of the admissibility deductions and liquidity needs in case of a cash deficit and to ensure that the Takaful firmG maintains a sufficient level of earmarked assetsG to meet any solvency or liquidity requirements.

          Added: April 2014

        • AA-4.3A.11

          As a follow up to the required appraisals of solvency and liquidity requirements outlined under Paragraph AA-4.3A.9, the actuary must determine if the level of earmarked assetsG meets the solvency and liquidity requirements and recommend to the Takaful firmG any increase needed to the earmarked assetsG to comply with these requirements. The actuary's recommendation must also be approved by the Takaful firmG 's board of directors.

          Added: April 2014

    • AA-4.4 Removal or Resignation of an Actuary

      • AA-4.4.1

        An insurance firmG must notify the CBB as soon as it intends to remove its actuaryG , together with an explanation of its decision, or as soon as its actuaryG resigns.

        Added: October 2007

      • AA-4.4.2

        Insurance firmsG must ensure that a replacement actuaryG is appointed (subject to CBB approval as per Paragraph AA-4.1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

        Added: October 2007

      • AA-4.4.3

        If an insurance firmG fails to make a fresh appointment of an actuaryG in accordance with the provisions of Paragraph AA-4.4.2, the insurance firmG must not – until such an appointment is made – effect any new contract which constitutes long-term insurance businessG without the written permission of the CBB.

        Added: October 2007

      • AA-4.4.4

        An actuaryG who resigns or is otherwise removed from the office of actuaryG must, within 30 days of his resignation or removal, write to the CBB setting out the reasons for his resignation or removal.

        Added: October 2007

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