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).