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

The Off-Balance Sheet Asset Risk Component must be calculated, if the AIFC-Incorporated Takaful Operator or any of its Takaful Funds are, as of the Solvency Reference Date, a party to a Shari’ahcompliant 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

The Off-Balance Sheet Asset Risk Component must be calculated as the sum of the amounts obtained by applying the calculations set out in paragraph 5.3 in respect of each Shari’ah-compliant Derivative contract entered into by the AIFC-Incorporated Takaful Operator or any of the Takaful Funds managed by it that meets the description in paragraph 5.1.

5.3. Amount of Off-Balance Sheet Asset Risk Component

To calculate the amount of the Off-Balance Sheet Asset Risk Component, the asset equivalent value of each Shari’ah-compliant 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 Shari’ahcompliant 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 Shari’ah-compliant Derivative in accordance with the following table, according to the nature and residual maturity of the Shari’ah-compliant Derivative.

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