• PINS Part A3.5 PINS Part A3.5 Off-balance sheet liability risk component

    Editorial changes (as from 1 January 2015).

    • PINS A3.5 Guidance

      1. An insurer may be exposed to various investment risks through transactions or dealings other than those reflected in its balance sheet. The purpose of the off-balance sheet liability risk component is to require an insurer to hold capital to cover the risk that it will be required to perform on a guarantee, letter of credit of other credit substitute that it has entered into should the guaranteed party default or fail to deliver. Although such items are not liabilities of the insurer as at the solvency reference date they have the capacity to crystallise as liabilities at a subsequent date and therefore to affect the insurer's capital position.
      2. Credit substitutes do not include contracts of insurance for credit and surety insurance business.
      Amended by QFCRA RM/2012-5 (as from 1st July 2013).

    • PINS A3.5.1 How to calculate off-balance sheet liability risk component

      (1) An insurer must calculate its off-balance sheet liability risk component by applying, to the face value of any credit substitute it has issued (including letters of credit, guarantees and put options serving as guarantees) the asset risk component that would be applied to the obligation or asset over which the credit substitute has been written.
      (2) Where the credit substitute is supported by collateral or a guarantee, the provisions of PINS Rule A3.2.2(1) and PINS A3.2.2(2) may be applied by the insurer.
      Amended by QFCRA RM/2015-3 (as from 1st January 2016).