Office of the Superintendent of Financial Institutions
The Life Insurance Margin Adequacy Test (LIMAT) set out in this guideline, along with Guideline A-4: Regulatory Capital and Internal Capital Targets, provide the framework within which the Superintendent assesses whether life insurers operating in Canada on a branch basis (branches) maintain an adequate margin pursuant to subsection 608(1). Under subsection 608(1) of the ICA, a foreign insurer is required to maintain in Canada an adequate margin of assets over liabilities in respect of its insurance business in Canada.
In addition, foreign insurers are required to maintain assets in Canada, with respect to their life insurance business in Canada, that are sufficient to cover:
These requirements are prescribed in accordance with the Assets (Foreign Companies) Regulations.
The LIMAT Total Ratio measures the adequacy of assets available to meet the margin requirements, as determined in accordance with this guideline. The Total Ratio focuses on policyholder and creditor protection. The formula used to calculate the Total Ratio is:
The LIMAT Core Ratio makes an adjustment to the Total Ratio calculation by excluding Other Admitted Assets, and focuses on financial strength. The formula used to calculate the Core Ratio is:
The Available Margin is the difference between Assets Available and Assets Required.
Assets Available consists of:
Vested Assets are to be valued in accordance with the Insurance Companies Act.
The amount of Other Admitted Assets included in Assets Available is the lesser of:
A. The sum of:
B. 50% of the difference between Required Margin and Surplus Allowance.
Assets under the control of the Chief Agent may be included in Other Admitted Assets only if the following conditions are met:
The following amounts are deducted from Assets Available:
Assets Required in respect of a branch's insurance business in Canada consists of:
In order to deduct an amount due from a registered reinsurer from Assets Required, a branch should, at a minimum, meet the following conditions:
The amount of the Surplus Allowance included in the calculation of the Total Ratio is based on PfADs that are calculated under CALM or any other method prescribed under the Standards of Practice of the Canadian Institute of Actuaries that is used to calculate insurance contract liabilities in respect of insurance business in CanadaFootnote 5. The specific PfADs included in the Surplus Allowance are outlined in section 1.1.3.
Eligible Deposits, as described in section 1.1.4, may be recognized in the calculation of the Total Ratio and Core Ratio.
A branch's Required Margin is calculated in the same way as the Base Solvency Buffer described in section 1.1.5, and applies to:
The Required Margin forms part of the vesting requirements for foreign insurers.
Refer to Guideline E-4 Foreign Entities Operating in Canada on a Branch Basis.
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For LIMAT purposes, policy liabilities should include future income tax cash flows under valuation assumptions as required by the Canadian Institute of Actuaries Standards, prior to any accounting adjustment for balance sheet presentation.
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These amounts must be included in assets required irrespective of whether they are classified as liabilities or equity for financial reporting purposes.
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Includes liabilities associated with leased properties, plant and equipment recognised as right of use assets on the branch's balance sheet in accordance with relevant accounting standards and OSFI instructions.
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If approximations are permitted by the CIA Standards of Practice and used to calculate the PfADs those approximations should continue to be used for LICAT purposes.
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