2016 Minimum Capital Test (MCT) Guideline

Document Properties

  • Type of Publication: Letter
  • Date: November 30, 2015
  • To: All Federally Regulated Property and Casualty Insurance Companies

OSFI is releasing a revised Minimum Capital Test (MCT) Guideline which takes effect on January 1, 2016 for federally regulated property and casualty (P&C) insurers. Amendments to the MCT guideline are intended to deal with identified issues, provide clarifications or reflect resolutions of comments and questions received over the past year concerning OSFI's regulatory capital treatment for property and casualty insurers.

We would like to thank the stakeholders who provided comments during the public consultation period in July 2015 relating to the draft 2016 MCT Guideline. OSFI appreciates the collaboration, time and support of the industry in helping to refine the regulatory capital framework.

As a result of the comments received and other queries, OSFI has made further amendments to the guideline including:

  • The introduction of two transitional measures with respect to equity derivatives, common shares held short and eligible equity hedges. First, P&C insurers should use a mandatory phase-in to recognize the capital impact of the new capital charge and credit over a period of two years. Second, a gradual recognition of a capital credit will be granted in the second year of a new eligible equity hedging strategy, as long as there has been no change in the hedging or the active management strategy on which the equity portfolios are based.
  • Branches of foreign insurance companies will be allowed to include insurance receivables from federally regulated insurers and approved reinsurers in net assets available in the Branch Adequacy of Assets Test (BAAT), subject to conditions.

As the number of comments received was limited, and as they were mostly related to the changes to equity derivatives and were technical in nature, these were addressed directly with the stakeholders. Therefore, a summary table of comments and OSFI's responses was not prepared for publication.

The revised Guideline A - Minimum Capital Test is available on OSFI's website.

Comments or enquiries may be addressed to Judith Roberge, Director, Property and Casualty Insurance Capital, at 613-990-4412 or judith.roberge@osfi-bsif.gc.ca


Mark Zelmer
Deputy Superintendent