Office of the Superintendent of Financial Institutions
The Life Insurance Capital Adequacy Test (LICAT) guideline replaced the Minimum Continuing Capital and Surplus Requirement (MCCSR) Guideline effective January 1, 2018. The transition to LICAT provides an opportunity to improve the measurement and disclosure of risks associated with insurance activities. In addition, disclosures that are simple, useful and comparable can encourage prudent behaviour through market discipline.
Current regulatory capital public disclosure practice varies among insurance companies in Canada. Therefore, consistent disclosure of LICAT solvency risk would help to improve understanding of insurers’ solvency strength by highlighting simple, useful and comparable solvency disclosures.
Public disclosure of solvency risk is in keeping with leading international best practices to improve transparency and encourage prudent behaviour through market discipline. Such disclosures promote good governance and improve oversight of risk taking activities.
OSFI’s desire to improve transparency of life insurance company activities was outlined and broadly communicated in OSFI’s Life Insurance Regulatory Framework issued in 2012. To achieve this objective, the Framework stated that OSFI will promote enhancements to the regulatory framework for life insurance companies through information disclosures to support the revised regulatory capital requirement.
In July 2017, the guideline was published in draft form on the OSFI website for a three-month public consultation period. Comments received were taken into consideration in drafting the final guideline. All material comments have been summarized in a non-attributed format and include a summary of how each comment was addressed.
OSFI recommends that the LICAT public disclosure requirements should be:
OSFI expects federally regulated life insurers to apply the guidance at least annually.