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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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Rulebook Modules
Prudential — Insurance Business Module (PIN) [VER15/01-18]
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  • PIN A8.7 Off-balance sheet liability risk component

    • PIN A8.7 Guidance

      The purpose of the off-balance sheet liability risk component is to require an InsurerG to set aside capital to cover the risk that it will be required to perform on a guarantee, letter of credit or other credit substitute that it has entered into. Although such items are not liabilities of the InsurerG as at the Solvency Reference DateG , they have the capacity to crystallise as liabilities at a subsequent date and therefore to affect the Insurer's capital position. The provisions in this section apply the relevant provisions of PIN section A4.7 to each Long-Term Insurance FundG that an InsurerG maintains.


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A8.7.1

      An InsurerG must calculate an off-balance sheet liability risk component in respect of a Long-Term Insurance FundG if the InsurerG has issued guarantees, including put options serving as guarantees, letters of credit or any other credit substitute in favour of another party, so that the Long-Term Insurance FundG is exposed to the risk of having to make payment on those instruments should the guaranteed party default.


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A8.7.2

      An InsurerG must calculate its off-balance sheet risk component as the sum of the amounts obtained by applying the calculations set out in PIN Rule A8.7.3 in respect of each guarantee, letter of credit or other credit substitute.


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A8.7.3

      The amount in respect of a guarantee, letter of credit or other credit substitute is obtained by calculating, for the nominal amount of the guarantee, letter of credit or other credit substitute, a default risk component as set out in PIN section A8.4 and an investment volatility risk component as set out in PIN section A8.5 in respect of the obligation or asset over which the guarantee, letter of credit or other credit substitute is written, as though that obligation or asset were an obligation or asset of the InsurerG .


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]