Minimum Capital Test

Document Properties

  • Type of Publication: Guideline Impact Analysis Statement
  • Date: October 2017

I. Background

OSFI’s Guideline A, Minimum Capital Test for Property & Casualty Insurance Companies (P&C companies) was originally implemented in 2003.  Each year, OSFI considers whether changes are required to improve the risk measures, address emerging issues and encourage improved risk management.

The guideline provides the framework within which the Superintendent assesses whether a P&C company maintains adequate capital and whether a company operating in Canada on a branch basis maintains an adequate margin.  The guideline describes the capital required using measures based on risks, and defines the capital that is available to meet the minimum standard.

This Guideline Impact Analysis Statement discusses whether and how the current guideline should be updated.

II. Problem Identification

Since the last revision to the guideline, OSFI has received a number of inquiries and requests for clarification from P&C companies. Our review of these inquiries indicated that the guideline would benefit from appropriate revisions to ensure all P&C companies benefit from the clarifications.  The Guideline also contains some outdated transitional arrangements that have expired.  Furthermore, in its effort to gather more information on the business of accident and sickness insurance, OSFI has determined that the related worksheet should be removed from the guideline and relocated to the quarterly statutory returns as a separate exhibit.

III. Objectives

The revisions to the guideline are intended to ensure OSFI’s capital guidance for P&C companies:  

  • incorporates the clarifications provided in respect of inquiries received, 
  • includes revised terminology to allow for improved consistency with the quarterly statutory returns,
  • is more consistent with capital requirements in other financial services sectors, where appropriate, and
  • no longer contains provisions for transitional arrangements that have expired.

IV. Consultations

On June 15th, 2017, OSFI published on its website a draft version of the 2018 guideline for consultation. Subsequently, OSFI received comments on the revisions introduced in the draft guideline. OSFI considered the comments received during the public consultation period and determined that no substantive changes were needed for the final version of 2018 guideline. However, a few minor amendments were made to further improve the overall consistency and clarity.

V. Recommendation

It is recommended that a final version of the 2018 guideline be published on OSFI’s website.

VI Implementation

The 2018 guideline will be effective as of January 1, 2018.