Office of the Superintendent of Financial Institutions
OSFI is developing a new approach to determine capital requirements for SFG risk to replace the current method, which was implemented in the early 2000s. The purpose of this letter is to communicate revisions to the timeline and key steps for the development of the new approach, initially set out in OSFI’s November 26, 2020
In June 2021, OSFI announced that it was deferring the implementation date of the new approach to January 1, 2025 (from January 1, 2023). The deferral will provide additional flexibility for the development of the new approach and will help insurers balance contributions to this important project and a robust implementation of IFRS 17 by January 1, 2023. In the interim period, the current method for the capital treatment of SFG risk will be retained, updated to accommodate IFRS 17.
The development of the new approach continues and, once finalized, it will replace Chapter 7 of the
Life Insurance Capital Adequacy Test (LICAT) Guideline.Footnote 2 Given the deferral of the new approach’s implementation, the public consultation on that approach, originally planned for September 2021, has been deferred to February 2023. Other steps in the development process have also been revised to reflect the January 1, 2025 implementation date and are as follows:
Distribute directly to insurers with SFG business for comment:
SFG QIS including sensitivity tests, qualitative questionnaire
Draft new Chapter 7 of the LICAT Guideline
Distribute directly to insurers with SFG business and select stakeholders:
Public consultation on revised draft Chapter 7 of the LICAT guideline and related forms
Test run, including sensitivity tests and qualitative questionnaire
Potential data calls in May/June 2024 to confirm final calibration and transition measures
Publish on OSFI’s website:
Final 2025 LICAT Guideline, including final new Chapter 7; and,
Final regulatory capital forms, with changes resulting from the new approach incorporated
The design of the new approach will not change from what was communicated in OSFI’s November 26, 2020 letter. Notably, SFG capital requirements under the new approach will be calculated by applying shocks to SFG liabilities, and will include changes in OSFI’s capital policies in respect of SFG capital.
Questions regarding the development of the new approach and this letter should be directed to Lisa Peterson, Managing Director, Life Insurance Capital (email@example.com).
Bernard Dupont Senior Director Capital Division
For the purposes of this letter, “federally regulated life insurers” or “insurers” refers to all federally regulated life insurance companies, including Canadian branches of foreign life companies, fraternal benefit societies, regulated insurance holding companies and non-operating insurance companies.
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Consequential amendments may be made to other areas of the test.
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