1. When using ‘mark-to-market', the Company must use the more prudent side of bid/offer unless the Company is a significant market maker in a particular position type and it can close out at the mid-market price.
    
2. When calculating the current exposure value of a credit risk or exposure for counterparty credit risk purposes:
    
   1. The Company must use the more prudent side of bid/offer or the mid-market price and the Company must be consistent in applying the basis it chooses; and
       
   2. If the difference between the more prudent side of bid/offer and the midmarket price is material, the Company must consider making adjustments or establishing reserves.
       

1. When the model used is developed by the Company, that model must be:
    
   1. Based on appropriate assumptions which have been assessed and challenged by suitably qualified parties independent of the development process;
       
   2. Independently tested, including validation of the mathematics, assumptions, and software implementation;
       
   3. Independently certified by an Actuary; and
       
   4. Developed or approved independently by the Investment Committee.
       
2. The Company's senior management must ensure that the Investment Committee, or its equivalent in the governance structure of Foreign Insurance Companies, is aware of the positions which are subject to the ‘mark-to-model' valuation and understand the materiality of the uncertainty this creates in the reporting of the performance of the business of the Company and the risks to which it is subject.
    
3. The Company must source market inputs in line with market prices as far as possible and assess the appropriateness of the market inputs for the position being valued and the parameters of the model on a frequent basis.
    
4. The Company must use generally accepted valuation methodologies for particular products where these are available.
    
5. The Company must establish formal change control procedures, hold a secure copy of the model, and periodically use that model to check valuations.
    
6. The Company must ensure that its risk management function personnel are aware of the weaknesses of the models used and how best to reflect those in the valuation output.
    
7. The Company must periodically review the model to determine the accuracy of its performance. Examples of periodic review include assessing the continued appropriateness of the assumptions, analysis of profit and loss versus risk factors and comparison of actual close out values to model outputs.
    
8. The market valuation of the investment in real estate shall be performed as follows for the calculation of Admissible Assets:
    
   1. One independent real estate firm shall perform the revaluation of the investment in real estate for investments worth less than AED 30 million.
       
   2. Two independent real estate firms shall perform the revaluation of the investment in real estate for investment worth more than AED 30 million; the average of both valuations will be accounted for. If needed a third firm could be employed to perform the valuation in case the difference between the first two firms was more than 20% of the lowest valuation. Accordingly, the valuation will be calculated based on the average of the two firms negating the valuation with the largest of the three excluded.
       
   3. The independent real estate firms should be a technical expert for valuation of investment in real estate.
       
   4. The valuation of the real estate shall be performed by the Company at least annually or as required by the Authority.
       
   5. The same independent real estate firm shall not be appointed for two consecutive periods to perform the valuation of the same estate. This restriction doesn't apply to the government-based Land Department.
       
   6. For real estate valuation purposes, the Company shall hire real estate firms accredited by at least two banks operating in the State or real estate experts licensed for this matter or the government-based Land Department.
       
9. The discounted cash flow valuation of the investment in real estate shall be performed as follows for the purpose of calculating the Solvency Margin requirements:
    
   1. Estimate the value of annual rental income over the expected life of the property, not to exceed thirty (30) years.
       
   2. The total rental income per year shall be reduced to account for a reasonable vacancy rate for similar properties.
       
   3. The total rental income per year shall not be increased in future years for inflation.
       
   4. The annual rental income shall be discounted at the current risk free rate to determine the total cash flow valuation.

1. The investment objectives, both at Company and fund-specific levels;
2. The risk and liability profiles of the Company;
3. The strategic asset allocation, i.e., the long-term asset mix for the main investment categories, and their respective limits;
4. The extent to which the holding of certain types of assets is restricted or disallowed, such as illiquid or highly volatile assets; and
5. An overall policy on the usage of derivatives and structured products.
    

1. Establishing the investment strategy and policy for approval by the Board of Directors;
2. Setting the investment guidelines;
3. Reviewing / monitoring the investments;
4. In conjunction with the Audit Committee, determining the scope of the rigorous audit procedures that include full coverage of the investment activities to ensure timely identification of internal control weaknesses and operating system deficiencies; and
5. Assisting the Board of Directors in its evaluation of the adequacy and efficiency of the investment policies, procedures, practices and controls applied in the day-today management of its business through an audit report (either independent internal or external) that is to be submitted to the Audit Committee.
    

1. Manage and review the investment policies of the Company and reporting the same to the Investment Committee;
2. Ensure proper implementation of investment policies, procedures, practices and controls approved by the Investment Committee are applied in the day-to-day management of its business in accordance with the established levels of risk appetite;
3. Provide timely and regular reporting to the Investment Committee of the Company's investment activities;
4. Establish adequate internal controls to ensure that assets are managed in accordance with approved investment policies, and in compliance with legal, accounting and relevant risk management requirements. These controls shall ensure that investment procedures are documented and subject to effective oversight; and
5. Ensure adequate segregation of duties between execution, recording, authorization, reconciliation and related assurance activities.
    

1. Identification of personnel who are responsible and accountable for all transactions involving sales and purchase of assets;
2. Observations of restrictions on the empowerment of all parties to enter into any particular transaction. This will require close and regular communication with those responsible for compliance, legal and documentation issues in the Company;
3. Agreement from all parties of a given transaction with the terms of the deal. Procedures for sending, receiving and matching confirmations shall be independent from the issuance and marketing functions of the insurance policies;
4. Formal documentation is completed promptly;
5. Positions are properly settled and reported, and any late payments or late receipts are identified;
6. All transactions are carried out in conformity with prevailing market terms and conditions;
7. Authority limits are strictly enforced and all breaches are reported and remedial actions are taken promptly;
8. Independent checking of rates or prices and choice of rates shall not solely rely on dealers for rate/price information;
9. Set out the process for recommending, approving, and implementing decisions; and
10. Prescribe the frequency and format of reporting to relevant internal and external authorities.
     

1. The Company shall have access to sufficient liquidity to meet all cash outflow commitments to policyholders (and other creditors) as and when they fall due.
2. The risk management system for liquidity risk will normally include at least the following:
    
   1. Procedures to identify and control the level of mismatch between expected asset and liability cash flows under normal and stressed operating conditions (using realistic scenarios relevant to the circumstances of the Company);
   2. Procedures to monitor the liquidity of assets;
   3. Procedures to identify and monitor commitments to meet liabilities including Insurance liabilities;
   4. Procedures to monitor the uncertainty of incidence, timing and magnitude of Insurance liabilities;
   5. Procedures to identify and monitor the level of liquid assets held by the Company; and
   6. Procedures to identify and monitor other sources of funding including reinsurance, borrowing capacity, lines of credit and the availability of intragroup funding, and to identify the need for such sources to be made available.
       
3. When assessing its liquidity requirements the Company shall also consider the currency in which the assets and liabilities are denominated, and the locations in which those assets and liabilities are situated or payable.
    
4. For the purposes of determining the adequacy of its overall financial resources, the Company must carry out appropriate stress testing and scenario analysis, including taking reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which liquidity risk might occur or crystallize.
    
5. The choice of scenarios that the Company uses will depend on the nature of its activities. For the purposes of testing liquidity risk, however, the Company shall normally consider scenarios based on varying degrees of stress and both Company-specific and market-wide difficulties.
    
6. The Company shall review frequently the assumptions used in stress testing scenarios to gain assurance that they continue to be relevant.
    

Credit Risk

The Company faces Credit risk whenever it is exposed to loss if another party fails to perform its financial obligations to the Company, including failing to perform them in a timely manner. This also includes the impact on investments of credit rating downgrades and widening of credit spreads. Credit exposures can increase the risk profile of a Company and adversely affect financial viability. Credit exposure includes both on-balance sheet and off-balance sheet exposures (including guarantees, derivative financial instruments and performance related obligations) to single and related counterparties.

The risk management system for credit risk will normally include at least the following:

1. Credit Risk Limits (at the minimum as defined in Article (3) for credit exposures to:
   1. Single counterparties and groups of related counterparties;
   2. Entities to which the Company is related;
   3. Single industries; and
   4. Single geographic locations.
       
2. Processes to monitor and control credit exposures against pre-approved limits.
    
3. Processes for identifying breaches of limits and for ensuring that breaches of limits are brought within the pre-approved limits within a set timeframe.
    
4. Processes for reducing or cancelling limits to a particular counterparty where the counterparty is known to be experiencing problems.
    
5. Processes for approving requests for temporary increases in limits.
    
6. Processes to review credit risk exposures (at least annually but more frequently in cases where there is evidence of deterioration in credit quality).
    
7. A management information system that is capable of aggregating exposures to any one counterparty (or group of Related counterparties), asset class, industry or region in a timely manner.
    
8. A process for reporting to the Board of Directors and senior management:
    
   1. Significant breaches of limits; and
   2. Large exposures and other credit risk concentrations.
       

1. Market risk includes equity risk, foreign exchange (FX) risk, commodity risk and interest rate risk.
    
2. The risk management system for market risk will normally include at least the following:
    
   1. Procedures to document its policy for market risk, including its risk appetite and how it identifies, measures, monitors and controls that risk;
       
   2. Procedures to document its asset and liability recognition policy. Documentation shall describe the systems and controls that it intends to use to comply with the policy; and
       
   3. Procedures to establish and maintain risk management systems to identify, measure, monitor and control market risk (in accordance with its market risk policy), and to take reasonable steps to establish systems adequate for that purpose.

1. It understands the scope and nature of derivative activities to be undertaken;
    
2. The derivative transactions are consistent with the investment and risk management policies of the Company;
    
3. Approved policies, systems and procedures that are commensurate with the level and nature of derivative activities to be undertaken by the Company are in place and have been clearly communicated to all levels of staff concerned; and
    
4. The Company has appropriate resources (e.g., competent, capable and qualified personnel), capacity and adequate infrastructure to effectively manage and monitor derivative positions.
    

1. The purpose for which derivatives may be used;
    
2. The scope and types of permitted derivatives, including the risk tolerance level in respect of its derivative activities;
    
3. Procedures for the proper authorization of any change in significant risk management policies or procedures;
    
4. Procedures on authorization of new derivative products for use by the Company;
    
5. Restrictions on counterparties with whom derivative transactions may be executed;
    
6. Details on persons authorized to enter into derivative transactions and limits of authority;
    
7. Clear lines of responsibility for the monitoring and management of the Company's derivative positions;
    
8. Procedures for regular reporting to senior management and the Board of Directors on derivative activities; and
    
9. A provision for periodic review by the Board of Directors and senior management of the Company's risk management policy to gauge its effectiveness in managing risk exposures and to ensure that the policy remains consistent with the Company's corporate strategies and financial and management capabilities, particularly in the light of changing circumstances.