10. The principal Regulations are amended by inserting, immediately after the Sixth Schedule, the following Schedule:
“SEVENTH SCHEDULE
Regulation 22A
Contingency Reserves
Definitions
1. In this Schedule —
“net claims incurred” means the sum of —
(a)
the net claims settled in an accounting period; and
(b)
the claim liabilities at the end of the accounting period less the claim liabilities at the beginning of the accounting period;
“net premiums earned” means the sum of —
(a)
the net premiums written in an accounting period; and
(b)
the premium liabilities at the beginning of the accounting period less the premium liabilities at the end of the accounting period;
“threshold amount”, in relation to the contingency reserves for an accounting period, means 400% of the highest of the following amounts:
(a)
the amount of the net premiums written for that accounting period;
(b)
the amount of the net premiums written for the preceding accounting period; and
(c)
the amount of the net premiums written for the accounting period which precedes the accounting period referred to in paragraph (b).
Contingency reserves requirement for mortgage insurer
2.—(1) At the end of each accounting period and subject to sub-paragraphs (6) and (7), a mortgage insurer shall transfer to the contingency reserves 50% of the net premiums earned in that period in respect of mortgage insurance policies.
(2) Subject to sub-paragraphs (3) and (4), any transfer to the contingency reserves may be withdrawn —
(a)
at the end of an accounting period; and
(b)
to the extent that the net claims incurred by the insurer in respect of mortgage insurance policies exceed 35% of the net premiums earned by the insurer in respect of mortgage insurance policies during that accounting period.
(3) Any withdrawal under sub-paragraph (2) shall be attributed to transfers made to the contingency reserves on a first-in, first-out basis such that all withdrawals under sub-paragraph (2) are attributed to transfers in the order that they have been made to the contingency reserves, beginning with the earliest transfer.
(4) Where the amount to be withdrawn under sub-paragraph (2) exceeds the outstanding value of the transfer that it is to be attributed to under sub-paragraph (3) (being the balance remaining after deducting withdrawals which had been attributed to that transfer previously), the excess amount shall be attributed to the transfer immediately following the aforementioned transfer, and so on until the withdrawal has been fully attributed to one or more transfers.
(5) Where a mortgage insurer has made a transfer to the contingency reserves under sub-paragraph (1) in respect of an accounting period (the particular accounting period), the mortgage insurer shall, at the end of 10 contiguous accounting periods following the particular accounting period, withdraw from the contingency reserves an amount which is equal to the difference between —
(a)
the transfer to the contingency reserves made in respect of the particular accounting period; and
(b)
the aggregate of the amounts withdrawn under sub-paragraph (2) and attributable to the transfer in respect of the particular accounting period in accordance with sub-paragraphs (3) and (4),
and such withdrawal shall be regarded as attributed to that transfer for the purpose of sub-paragraph (3).
(6) Where the amount of contingency reserves maintained by a mortgage insurer at the end of an accounting period is equal to or above the threshold amount for that accounting period after taking into account any withdrawal to be made under sub-paragraphs (2) and (5) only, a mortgage insurer shall not be required to make the transfer under sub-paragraph (1).
(7) Where, in respect of any accounting period, after taking into account —
(a)
any withdrawal to be made under sub-paragraphs (2) and (5) in respect of that accounting period; and
(b)
any transfer to be made under sub-paragraph (1) in respect of that accounting period,
the amount of contingency reserves maintained by a mortgage insurer would exceed the threshold amount for that accounting period, the amount which the insurer shall transfer for the purpose of sub-paragraph (1) shall be reduced by an amount which is equal to the extent by which the contingency reserves would exceed the threshold amount.
Contingency reserves requirement for trade credit and political risk insurer
3.—(1) Subject to sub-paragraphs (3) and (4), at the end of each accounting period, a trade credit and political risk insurer shall transfer to the contingency reserves —
(a)
12% of the net premiums written in that period in respect of trade credit insurance policies and political risk insurance policies; or
(b)
50% of underwriting profit earned during that period in respect of trade credit insurance policies and political risk insurance policies,
whichever is the higher.
(2) Any transfer to the contingency reserves may be withdrawn at the end of an accounting period and to the extent that the net claims incurred by the insurer in respect of trade credit insurance policies and political risk insurance policies exceed the net premiums earned by the insurer in respect of trade credit insurance policies and political risk insurance policies during that accounting period.
(3) Where the amount of contingency reserves maintained by a trade credit and political risk insurer at the end of an accounting period is equal to or above the threshold amount for that accounting period after taking into account any withdrawal to be made under sub-paragraph (2), a trade credit and political risk insurer shall not be required to make the transfer under sub-paragraph (1).
(4) Where, in respect of any accounting period, after taking into account —
(a)
any withdrawal to be made under sub-paragraph (2) in respect of that accounting period; and
(b)
any transfer to be made under sub-paragraph (1) in respect of that accounting period,
the amount of contingency reserves maintained by a trade credit and political risk insurer would exceed the threshold amount for the accounting period, the amount which the insurer shall transfer for the purpose of sub-paragraph (1) shall be reduced by an amount which is equal to the extent by which the contingency reserves would exceed the threshold amount.”.