5.1. When Off-Balance Sheet Asset Risk Component must be calculated

An AIFC-Incorporated Insurer must calculate an Off-Balance Sheet Asset Risk Component, if the AIFC-Incorporated Insurer is, as of the Solvency Reference Date, a party to a Derivative contract, including a forward, future, swap, option or other similar contract, but not:

• (a) a put option serving as a guarantee;
• (b) a foreign exchange contract which has an original maturity of 14 calendar days or less; or
• (c) an instrument traded on a futures or options exchange which is subject to daily mark-tomarket and margin payments.

5.2. How to calculate Off-Balance Sheet Asset Risk Component

An AIFC-Incorporated Insurer must calculate its Off-Balance Sheet Asset Risk Component as the sum of the amounts obtained by applying the calculations set out in paragraph 5.3 in respect of each Derivative contract entered into by the AIFC-Incorporated Insurer that meets the description in paragraph 5.1.

5.3. Amount of Off-Balance Sheet Asset Risk Component for Derivative contract

To calculate the amount of the Off-Balance Sheet Asset Risk Component, the asset equivalent value of each Derivative (as determined in paragraph 5.4) is multiplied by the Asset Risk Component as though the asset equivalent value were a debt obligation due from the Derivative counterparty.

5.4. Asset equivalent value

(1) The asset equivalent value is the current mark-to-market exposure of the Derivative (where positive) and a potential exposure add-on.

(2) The potential exposure add-on is determined by multiplying the notional principal amount of the Derivative in accordance with the following table, according to the nature and residual maturity of the Derivative.

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