5.1. Investments in subsidiaries and associates

An AIFC-Incorporated Takaful Operator must deduct investments in subsidiaries and associates from the total of Tier 1 Capital and Tier 2 Capital.

5.2. Connected lending of a capital nature

An AIFC-Incorporated Takaful Operator must deduct connected lending of a capital nature from the total of Tier 1 and Tier 2 Capital.

Guidance

The AFSA regards connected lending of a capital nature to be any lending to a company in the same Group as the AIFC-Incorporated Takaful Operator for activities which that company would find hard to finance from another source, and is typically on a long term basis. Unless there is a genuine ability for the funds to be repaid within a short time, it is generally considered that the loan is of a capital nature.

5.3. Inadmissible assets

An AIFC-Incorporated Takaful Operator must deduct the following inadmissible assets from the total of Tier 1 Capital and Tier 2 Capital:

• (a) tangible fixed assets, including inventories, plant and equipment and vehicles;
• (b) deferred acquisition costs;
• (c) deferred tax assets;
• (d) deficiencies of net assets in subsidiaries;
• (e) any investment by a subsidiary of the AIFC-Incorporated Takaful Operator in the AIFCIncorporated Takaful Operator’s own shares;
• (f) holdings of other investments which are not readily realisable investments; and
• (g) any other assets to be deducted from Eligible Capital as directed by the AFSA.

Guidance

The above assets have been identified as inadmissible assets because:

• (a) a sufficiently objective and verifiable basis of valuation does not exist;
• (b) their realisability cannot be relied upon with sufficient confidence;
• (c) their nature presents unacceptable custody risks; or
• (d) the holding of these may give rise to significant liabilities or onerous duties.