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  • CA-1.2 Calculation of Capital Available for Insurance Firms

    • CA-1.2.1

      A Bahraini insurance firm 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 firms is BD 5 million, except for those firms whose business is limited to reinsurance. Bahraini insurance firms whose business is limited to reinsurance must have minimum Tier 1 capital of BD 10 million. Overseas insurance firms and captive insurers are not subject to a minimum Tier 1 capital but must comply with the Required Solvency Margin and minimum fund, as defined in Chapter CA-2. In addition, all insurance firms must at all times maintain a capital available in excess of the greater of the Required Solvency Margin and the minimum fund, as defined in Chapter CA-2.

      Amended: January 2007
      Amended: October 2007

    • CA-1.2.2

      Bahraini insurance firms 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 available in excess of the greater of the Required Solvency Margin and minimum fund must be met by insurance firms by 31 December 2005. Insurance firms 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 firm must ensure that at all times its capital available does not fall below the minimum fund. In the event that an insurance firm's capital available does fall below the minimum fund, the insurance firm must inject capital and must notify the CBB immediately. Further, the insurance firm must cease to effect any new contracts of insurance, 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's capital available, no value is attributed to any other instrument or resource of an insurance firm 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, zillmerising 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's capital available, 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 capital but nonetheless contribute to the overall financial strength of the insurance firm. Insurance firms may hold Tier 2 capital in excess of the limits in Paragraph CA-1.2.7, but any such excess is not counted as capital available for the purposes of the requirements in this Module.

        Amended: January 2007

      • CA-1.2.6

        The capital available of an insurance firm 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 capital cannot exceed 100% of total Tier 1 capital. Lower Tier 2 capital of the type identified in Paragraph CA-1.2.12 (f), (g) and (h) cannot exceed more than 50% of total Tier 1 capital.

        Amended: January 2007

    • Tier 1 Capital

      • CA-1.2.8

        Tier 1 capital comprises:

        (a) Paid-up ordinary shares (net of treasury shares);
        (b) Share premium reserve;
        (c) Perpetual non-cumulative preference shares.
        (d) All disclosed reserves brought forward, that are audited and approved by the shareholders, 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 firm, the audited net assets (excluding any unrealised fair value gains and the surplus assets 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 firm;
        (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 firm; or
        (ii) Is only redeemable at the option of the insurance firm 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 firm would breach that Rule; and
        (i) The proceeds of issue are immediately and fully available to the insurance firm.
        Amended: January 2007

      • CA-1.2.10

        Tier 1 capital 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 firm must not redeem any tier 1 instrument that it has included in its Tier 1 capital 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 capital includes the following liabilities of an insurance firm, 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 auditors in accordance with International Standards on Auditing (ISA);
        (b) Perpetual cumulative preference shares;
        (c) Mandatory convertible notes and similar capital instruments;
        (d) Perpetual subordinated debt;
        (e) Any other hybrid (debt/equity) capital instruments of a permanent nature;
        (f) Dated subordinated debt with an original term of at least 5 years;
        (g) Limited life redeemable preference shares with an original term of at least 5 years;
        (h) Any other similar limited life capital instruments with an original term 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 capital includes forms of capital that do not meet the requirements for permanency and absence of fixed servicing costs that apply to Tier 1 capital. Tier 2 capital 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 capital; 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 capital. 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 capital 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's upper Tier 2 capital 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 firm 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 firm 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 firm 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 firm is in breach of Paragraph CA-1.2.1; or
        (ii) If the payment would mean that the insurance firm 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 firm;
        (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 firm or proving the debt in a liquidation of the insurance firm;
        (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 firm against subordinated amounts included in the insurance firm's capital resources owed to them by the insurance firm;
        (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 firm 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 firm 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 firm 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 firm 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 firm 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 available requirement after such repayment.

        Amended: January 2007

    • Determination of Capital Available

      • CA-1.2.21

        Every insurance firm must determine its capital available 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 shareholders, 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 Firms Only: audited net assets, excluding any unrealised fair value gains and surplus assets 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 auditors in accordance with International Standards on Auditing (ISA)
          Perpetual cumulative preference shares
          Mandatory convertible notes and similar capital instruments
          Perpetual subordinated debt
          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 term of at least 5 years.
          Dated subordinated debt with an original term of at least 5 years.
          Any other similar limited life capital instruments with an original term 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 limits
          Required margins of solvency for branches 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 limits

        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

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