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Location: Central Bank of Bahrain Volume 3—Insurance > Part A > Business Standards > CA Capital Adequacy > CA-2 Solvency Margin Requirements > CA-2.1 Solvency Margin Requirements > CA-2.1.1
  • CA-2.1 Solvency Margin Requirements

    • CA-2.1.1

      Every Bahraini insurance firmG must calculate a required solvency marginG in accordance with the requirements in this Chapter. The solvency margin must include the operations of all branchesG of the insurance firmG , whether these undertake operations within Bahrain or in another jurisdiction.

      Amended: January 2007
      Amended: October 2007

    • CA-2.1.2

      Every overseas insurance firmG , other than a pure reinsurerG , must calculate a 'Bahrain Required Solvency MarginG ' in accordance with the requirements in this Chapter.

      Amended: October 2007

    • CA-2.1.3

      All overseas insurance firmsG , including pure reinsurersG , must provide an equivalent or substantially equivalent solvency margin calculation, submitted to a supervisor in another jurisdiction for the company as a whole, in accordance with Chapter CA-7. In instances where pure reinsurersG are not subject to supervisory requirements in another jurisdiction, they must calculate a Required Solvency MarginG in accordance with this Chapter for the company as a whole.

      Amended: January 2007
      Amended: October 2007

    • CA-2.1.4

      For insurance firmsG licensed prior to 1 April 2005 and allowed to carry on both long-term insurance businessG and general insurance businessG (refer to Paragraph AU-1.1.15), the insurance firmG must calculate a separate Required Solvency MarginG or a Bahrain Required Solvency MarginG in respect of the two different types of insurance business and maintain separate solvency margins.

      Amended: January 2007
      Amended: October 2007

    • Minimum Fund

      • CA-2.1.5

        For the purposes of this Module 'minimum fund' means for:

        (a) Category 1 InsurerG : BD 300,000;
        (b) Category 2 InsurerG : BD 500,000;
        (c) Category 3 InsurerG : BD 400,000;
        (d) Category 4 InsurerG : The relevant minimum fund for Category 1 or 2 (depending on the type of general business underwritten) PLUS the Category 3 minimum. These amounts are to be maintained separately by the insurance firmG ;.
        (e) Category C1G Insurer: BD 75,000; and
        (f) Category C2G Insurer: BD 300,000.
        Amended: January 2007

      • CA-2.1.6

        For purposes of Paragraph CA-2.1.5, the following definitions apply:

        (a) Category 1 insurerG : an insurance firmG whose license is limited to any of the following types of insurance: fire; damage to property; and miscellaneous financial loss;
        (b) Category 2 insurerG : an insurance firmG whose license includes any of the following types of insurance: marine cargo and marine hull; aviation; motor; engineering; liability; and any other general insurance class not specifically mentioned. These may only be in addition to any Category 1 activities;
        (c) Category 3 insurerG : an insurance firmG whose license includes any of the following types of insurance: life insurance of all types; personal accident whose term is over 1 year; and savings fund accumulation insurance;
        (d) Category 4 insurerG : an insurance firmG , licensed prior to 1 April 2005 and whose license includes any of the types of insurance specified in Category 3 and in Category 1 or 2, or both;
        (e) Category C1G insurer: anG insurance firmG whose business is restricted to insuring only the insurance risks (other than liability riskG ) of its shareholder(s)G or those of subsidiaryG or associatedG companies of its shareholder(s)G ; and
        (f) Category C2G insurer: an insurance firmG whose business is restricted to insuring only the risks of its shareholder(s)G or of subsidiaryG or associatedG companies of its shareholder(s)G and whose business may include liability risksG , subject to the CBB being satisfied that the activity, capital structure and management provide sufficient protection to potential third party claimants.
        Amended: January 2007

    • Calculation of Solvency Margin

      • CA-2.1.7

        The Required Solvency MarginG to be calculated by an insurance firmG subject to any of the requirements in Paragraphs CA-2.1.1 to CA-2.1.4 must be determined:

        (a) As regards long-term insurance businessG , in accordance with Paragraph CA-2.1.9, and
        (b) As regards general insurance businessG , in accordance with Paragraph CA-2.1.12.
        Amended: January 2007

      • CA-2.1.8

        The Bahrain Required Solvency MarginG for overseas insurance firmsG must be calculated by applying Paragraph CA-2.1.7, but only to business booked in the Bahrain overseas insurance firmG .

        Amended: January 2007

      • CA-2.1.8A

        The Required Solvency MarginG for companies whose business is limited to reinsuranceG , except for reinsuranceG of linked business, is to be calculated in accordance with Paragraph CA-2.1.12.

        Adopted: January 2007

    • Long-term Insurance Business

      • CA-2.1.9

        For long-term insurance businessG the solvency marginG must be determined by taking the aggregate of the results arrived at by applying the calculations described in Paragraph CA-2.1.10 ('the mathematical reserves basis calculationG ') and Paragraph CA-2.1.11 ('the capital sum at risk basis calculationG '). Where the aggregate falls below the minimum fundG , it must be substituted by the amount of the minimum fundG .

        Amended: January 2007

      • CA-2.1.10

        The mathematical reservesG are defined as the provision made by an insurer to cover liabilities (excluding liabilities which have fallen due) arising under or in connection with long-term insurance businessG . The mathematical reserves basis calculationG for:

        (a) Traditional long-term insurance businessG must be either 2% of mathematical reservesG before deduction for reinsurance cessions or 4% of mathematical reservesG after deduction for reinsurance cessions whichever produces the higher result;
        (b) The mathematical reservesG basis calculation for linked long-term insurance businessG where the company bears an investment risk must be as in Subparagraph CA-2.1.10 (a); and
        (c) The mathematical reservesG basis calculation for linked long-term insurance businessG where the company bears no investment risk must be either 0.5% of mathematical reservesG before deduction for reinsurance cessions or 1% of mathematical reservesG after deduction for reinsurance cessions whichever produces the higher result.

        No negative value can be used as the mathematical reserveG under any policy.

        Amended: January 2007

      • CA-2.1.11

        The capital sum at riskG is defined as the benefit amounts payable as a consequence of the happening of the contingency covered by the policy contract less the mathematical reservesG in respect of the relevant contract. The capital sum at riskG calculation is the greater of:

        (a) 0.15% of the capital sum at riskG before deduction for reinsurance cessions; or
        (b) 0.30% of the capital sum at riskG after deduction for reinsurance cessions.

        In either case no negative value can be used as the capital sum at risk under any policy.

        Amended: January 2007

    • General Insurance Business

      • CA-2.1.12

        For general insurance businessG , the solvency marginG must be determined by taking the higher of the two results arrived at by applying the calculations described in Paragraph CA-2.1.13 ('the premium basis calculationG ') and Paragraph CA-2.1.14 ('the claim basis calculationG '). Where the higher of the two results falls below the minimum fundG , it must be substituted by the amount of the minimum fundG .

        Amended: January 2007

      • CA-2.1.13

        The premium basis calculationG for general insurance businessG is determined by applying the following formula:

        Gross Premium Written X Reinsurance Allowance X Risk Factor (for each class of business)

        Where:

        Gross Premium Written =

        Premium written in the financial year (or annualised where the financial year is other than 12 months)

        Reinsurance Allowance (Premium basis) = (calculated on total business)

        the higher of 0.5 or (Total Net Premium Written /Total Gross Premium Written)

        Risk Factor =

        Class of insurance Risk Factor (general insurance) Risk Factor (Category C1 captive) Risk Factor (Category C2 captive)
        (a) Fire 15% 12% 12%
        (b) Damage to property 15% 12% 12%
        (c) Miscellaneous financial loss 15% 12% 12%
        (d) Marine cargo, marine hull 20% 20% 20%
        (e) Aviation 20% 20% 20%
        (f) Motor 20% 20% 20%
        (g) Engineering 20% 20% 20%
        (h) Liability 20% 20% (Category C2) 20%
        (i) Medical (short term ≤ 1 year) 20% 20% 20%
        (j) Other 20% 20% 20%
        Amended: January 2007

      • CA-2.1.14

        The claim basis calculationG for general insurance businessG is determined by applying the following formula:

        Average Gross Claims Incurred in the reference period X Reinsurance Allowance X Risk Factor (for each class of business)

        Where:

        Average Gross Claims Incurred =

        Gross Claims Incurred in the reference periodG (see CA-2.1.15) divided by the number of years covered by the reference periodG (or annualised where any financial year in the reference period is other than 12 months)

        Reinsurance Allowance (Claim basis) = (calculated on total business)

        the higher of 0.5 or (Total Average Net Claims Incurred in the reference periodG /Total Average Gross Claims Incurred in the reference periodG )

        Risk Factor =

        (a) Fire 20%
        (b) Damage to property 20%
        (c) Miscellaneous financial loss 20%
        (d) Marine cargo, marine hull 25%
        (e) Aviation 25%
        (f) Motor 25%
        (g) Engineering 25%
        (h) Liability 25%
        (i) Medical (short term ≤ 1 year) 25%
        (j) Other 25%
        Amended: January 2007

      • CA-2.1.15

        For the purposes of Paragraph CA-2.1.14 the reference periodG for all classes of business must be the three most recent financial years up to and including the current financial year.  In instances where the insurance firmG has been in business for less than three years, the claims basis calculation shall be equal to 0.

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