Office of the Superintendent of Financial Institutions
OSFI's Guideline A, Minimum Continuing Capital and Surplus Requirements (MCCSR) for life insurance companies and fraternal benefit societies was originally released in 1992. Each year, OSFI considers whether changes are required to improve the risk measures, address emerging issues, and encourage improved risk management.
The MCCSR, along with other capital guidelines, provides the framework within which OSFI assesses whether a life insurance company maintains adequate capital and whether a company operating in Canada on a branch basis maintains an adequate margin. The guideline establishes standards, using a risk-based approach, for measuring specific insurer risks and for aggregating these results to calculate the amount of an insurer's regulatory capital needed to support these risks (Base Required Capital / Required Margin). The guideline also defines and establishes criteria for determining the amount of qualifying regulatory available capital (Available Capital / Available Margin).
This Guideline Impact Analysis Statement discusses whether and how the current MCCSR Guideline should be updated.
OSFI has received a number of inquiries and requests for clarification regarding the MCCSR, most of which should be incorporated into the guideline to ensure that all life insurers are aware of how OSFI dealt with the issues.
Also, recognizing the significance of capital requirements for holding companies, it is important to align these requirements with those of Canadian operating life insurance companies. The financial strength of regulated insurance holding companies and non-operating insurance companies (referred to as holding companies) is closely tied to their regulated subsidiaries / life operating companies. OSFI is of the view that increased transparency, as well as consistent and comparable reporting of capital requirements for all regulated life insurers, whether they are holding or operating companies, can complement OSFI's supervisory efforts.
The revisions to the MCCSR Guideline this year include:
On July 30, 2015, OSFI issued the draft guideline for public consultation and received comments from industry stakeholders on the proposed revisions and other related matters which were considered in the preparation of the final version of the guideline. The cover letter accompanying the final MCCSR Guideline includes a table of comments and how they have been addressed by OSFI.
We recommended that the MCCSR, as well as guidelines E-19 and A-4, be updated as outlined in section III. The modifications to the guidelines will provide clarity to its users with respect to the calculation of qualifying regulatory available capital and more closely align the Base Required Capital / Required Margin calculation with the nature of the risks.
The changes to the MCCSR as well as to guidelines E-19 and A-4 will be effective as of January 1, 2016. Early adoption of the 2016 MCCSR will not be permitted.
With the exception that OSFI Supervisory Targets (defined in Guideline A-4 and referenced in Guidelines A and E-19) do not apply to regulated insurance holding companies and non-operating insurance companies.
Return to footnote 1