The Saudi Arabian Monetary Agency distributed the FCR 2015 Circular on 18 September 2015.
Key changes in requirements are highlighted below.
Most new requirements align with the draft Circular that was circulated earlier in September, albeit with some relaxation in amounts to be held or in the timing for setting up new reserves.
Feel free to contact us for any further detail.
Asset Mismatch Reserve
This reserve is intended to penalise companies with lower Solvency cover ratios.
While it must be calculated by the Appointed Actuary as at 31 December 2015, it will only need to be booked in stages from 30 June 2016.
The Asset Mismatch Reserve is calculated as follows:
50% of equity-like assets (including shares, real estate funds and equity mutual funds) plus 20% of long bond-like assets (defined payments and outstanding term greater than 5 years) minus excess cover capital over 75% of the Solvency margin.
Example: if an insurance company has admissible assets of SAR 250m, fully consisting of shares, and a minimum capital requirement of SAR 200m, the Asset Mismatch Reserve is
50% * 250m – [250m – 75% * 200m] = SAR 25m.
Nothing to be held as at 31 December 2015; half of that amount will need to be held as at 30 June 2016; 75% of that amount will need to be held as at 31 December 2016; the full amount will need to be held as at 30 June 2017.
SAMA is introducing a catastrophe reserve for Flood & Earthquake risks across the Property, Engineering and Energy lines of business. Further risks are likely to be added in the future.
The catastrophe reserve is to be calculated as a proportion of sums insured:
0.02 per mille of net sums insured plus 0.002 per mille of sums reinsured with reinsurers rated A- to A+ plus 0.01 per mille of sums reinsured with reinsurers rated BBB- to BBB+ plus 0.02 per mille of sums reinsured with reinsurers rated lower than BBB-
no loading for sums reinsured with reinsurers licensed with SAMA
no loading for sums reinsured with reinsurers rated AA- or better.
The sums insured and sums reinsured to be considered are those in force as at 1 January 2016.
Motor Schedule Data – Data Deficiency Reserve
The Appointed Actuary has to check the data shown on the Schedule of the Unified Policy of Compulsory Motor Insurance for accuracy and completeness.
At year-end 2015, any data item less than 95% accurate or complete will trigger a Data Deficiency Reserve of 0.004% of Motor Gross Written Premiums – up to a maximum of 0.1% across all data items.
At year-end 2016, the Data Deficiency Reserve will amount to 0.2% of Motor GWP for each data item that is less than 95% accurate or complete – up to a maximum of 5% of Motor GWP.
Protection & Savings Insurance
The methodology used by Lux in preparing previous FCRs is in line with most new minimum requirements.
The only significant new obligation in terms of quantitative work relates to the requirement to consider the Asset Mismatch Reserve on equity-like and long bond-like assets.
Report as at 30 September 2015, including data quality and back-testing, to be submitted to SAMA by Sunday 13 December 2015.
Financial Condition Report for 2015 to be submitted by Sunday 13 March 2016.