4. Investment Risk Requirement
4.1. Asset Risk Component
(1) The Asset Risk Component for a Takaful Operator or for any Takaful Fund is the sum of the amounts obtained by multiplying the value of each asset held by the relevant entity categorised according to the Counterparty Grade of the asset, by the percentage applicable to that asset, as detailed below:
- (a) for assets that are not Retakaful / reinsurance assets—table B1;
- (b) for assets that are Retakaful / reinsurance assets where the Retakaful Operator / reinsurer is subject to prudential supervision by a sub-rule (2)regulator—table B2; or
- (c) for assets that are reinsurance assets where the Retakaful Operator / reinsurer is not subject to prudential supervision by a sub rule (2) regulator— table B3.
(2) A regulator is a sub-rule (2) regulator if it is located:
- (a) in the AIFC or the Republic of Kazakhstan;
- (b) in 1 of the member states of the European Union;
- (c) in Australia, Canada, Hong Kong, Iceland, Japan, Norway, Singapore, Switzerland, the United States of America; or
- (d) in any other jurisdiction that is a signatory to the Multilateral Memorandum of Understanding on Cooperation and Information Exchange initiated by the International Association of Insurance Supervisors.
Note 1 For the list of the member states of the European Union, see http://europa.eu/about-eu/countries/index_en.htm.
Note 2 For the list of signatories to the Multilateral Memorandum of Understanding on Cooperation and Information Exchange, see http://www.iaisweb.org/MMoU-signatories605
Table B1 Percentage applicable to assets that are not Retakaful / reinsurance assets
Item | Asset | % |
1 | cash, bank deposits and other cash equivalents Grade 1 sovereign Sukuk | 0.50 |
2 | Sukuk that mature, or are redeemable, in less than 1 year issued by a counterparty with a rating of Grade 1 or 2 (excluding subordinated debt and government debt obligations dealt with anywhere else in this table) cash management trusts with a counterparty rating of Grade 1 or 2 | 1.00 |
3 | unpaid premiums due 6 months or less previously from a counterparty with a rating of Grade 1, 2 or 3 Sukuk that mature, or are redeemable, in 1 year or more issued by a counterparty with a rating of Grade 1 or 2 (excluding subordinated debt and government debt obligations dealt with anywhere else in this table) | 2.00 |
4 | unpaid premiums due 6 months or less previously from an unrated counterparty or a counterparty with a rating of Grade 4 or 5 bonds issued by a counterparty with a rating of Grade 3 (excluding subordinated debt) cash management trusts with a counterparty rating of Grade 3 secured loans | 4.00 |
5 | unpaid premiums due more than 6 months previously from a counterparty with a rating of Grade 1, 2 or 3 bonds issued by a counterparty with a rating of Grade 4 (excluding subordinated debt) cash management trusts with a counterparty rating of Grade 4 | 6.00 |
6 | unpaid premiums due more than 6 months previously from an unrated counterparty or a counterparty with a rating of Grade 4 or 5 bonds issued by a counterparty with a rating of Grade 5 (excluding subordinated debt) cash management trusts with a counterparty rating of Grade 5 listed subordinated debt | 8.00 |
7 | unlisted subordinated debt preference shares | 10.00 |
8 | listed equity investment listed trusts | 16.00 |
9 | direct holdings of real estate unlisted equity investment unlisted trusts | 20.00 |
10 | loans to: (a) directors of the Takaful Operator; (b) directors of related parties; or (c) dependent relatives of such directors unsecured loans to employees (except loans of less than USD 1,000) assets subject to a fixed or floating charge | 100.00 |
11 | other non-reinsurance assets not mentioned in this table | 20.00 |
Table B2 Percentage applicable to reinsurance assets— reinsurer / Retakaful Operator supervised by sub-rule (2) regulator
Item | Asset | % |
1 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 1 | 1.00 |
2 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 2 | 2.00 |
3 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 3 | 4.00 |
4 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 4 | 6.00 |
5 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 5 | 8.00 |
Table B3 Percentage applicable to reinsurance assets—reinsurer / Retakaful Operator not by supervised by sub-rule (2) regulato
Item | Asset | % |
1 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 1 | 1.20 |
2 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 2 | 2.40 |
3 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 3 | 4.80 |
4 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 4 | 7.20 |
5 | reinsurance assets due from reinsurer / Retakaful Operators with a counterparty rating of Grade 5 | 9.60 |
4.2. Effect of guarantee or collateral
(1) Assets that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating in Grades 1, 2 or 3 who is not a related party to the AIFC-Incorporated Takaful Operator may be assigned the asset risk charge that would apply to a debt instrument issued from the guarantor.
(2) Where an AIFC-Incorporated Takaful Operator holds collateral against an asset, and this collateral takes the form of a charge, mortgage or other security interest in, or over, cash, or any debt security whose issuer has a counterparty rating of Grades 1, 2 or 3, the AIFCIncorporated Takaful Operator may apply the asset risk charge relevant to the collateral (instead of applying the asset risk charge that would otherwise apply to the asset).
(3) The provisions in sub-Rules (1) and (2) above apply only to so much of the asset that is covered by the guarantee or the collateral.
4.3. Assets subject to mortgage or charge
(1) Subject to (2), assets of the AIFC-Incorporated Takaful Operator that are under a fixed or floating charge, mortgage or other security are subject to an asset risk charge of 100% to the extent of the indebtedness secured on those assets. This would replace the asset risk charge that would otherwise apply to the secured assets.
(2) Where the security supports an AIFC-Incorporated Takaful Operator’s Takaful Liabilities, the asset risk charge of 100% is applicable only to the amount by which the market value of the charged assets exceeds the AIFC-Incorporated Takaful Operator’s supported liabilities.
4.4. Excluded assets
An AIFC-Incorporated Takaful Operator need not include an amount in the asset risk charge for any asset excluded from Eligible Capital in accordance with the table B1 in rule 4.1.