Impact of Revised Capital Framework for P&C Insurers

Document Properties

  • Type of Publication: Letter
  • To: Federally Regulated Property and Casualty Insurers
  • Date: July 13, 2015

A revised capital framework for Canadian P&C insurers and branches of foreign P&C insurance companies was introduced in the Minimum Capital Test (MCT) Guideline that came into effect on January 1, 2015. The new guideline is a more robust risk-based test that better aligns capital requirements to the levels of risk faced by the property and casualty (P&C) insurance industry.

Prior to implementing the revised capital test, OSFI carried out consultations with the P&C insurance industry including a quantitative impact study (QIS) exercise to assess the expected capital impact of the potential changes. The first quarter 2015 P&C Returns data indicates that industry-wide capital impact results are largely in line with expectations.

A high-level capital impact summary comparing the previous (old) and the revised (new) capital frameworks, based on regulatory filings by P&C insurers as of March 31, 2015, is presented below. The summary includes the overall industry-wide capital impact as well as the impact on the distribution of capital requirements by major risk category in relation to the total capital required.

Overall Impact

The table below, using the phase-in amounts of capital available and capital required, quantifies the overall industry-wide capital impact of implementing the new framework as at December 31, 2014. While the industry-wide MCT/BAAT ratio has improved, individual results vary by company given each insurer’s unique risk profile. Reported data indicates that the P&C industry is well positioned to meet the new capital requirements.


Comparison of Old and New Frameworks – Industry-Wide Impact
(Amounts in millions, except percentages and percentage points)

Old Framework

New Framework


Capital/Net Assets Available




Capital/Margin Required




MCT/BAAT ratio



+8.6 percentage points

Distribution of Capital Requirements by Major Risk Category

The data filed also indicates that the distribution of capital requirements is generally in line with OSFI's expectations.


Capital Requirements by Major Risk Category – Industry-Wide

Old Framework

New Framework

Insurance Risk



Market Risk



Credit Risk



Operational Risk



Diversification Credit






A key change is that the new framework includes an explicit operational risk margin and a diversification credit; the total (100%) is therefore distributed among a larger number of components distorting the comparison of each component separately.

OSFI will continue its practice of monitoring emerging issues and developments in the P&C insurance industry and periodically revise the MCT Guideline so that the capital test continues to accurately reflect underlying risks.  

Questions concerning this capital impact summary should be addressed to Ms. Judith Roberge at (613) 990-4412 or by e-mail at  


Mark Zelmer
Deputy Superintendent