Minimum Capital Test 2023 – Adjustments and clarifications

This communication sets out adjustments and clarifications to the Minimum Capital Test Guideline (MCT) 2023 and associated instructions and forms since their publication in July 2022. Items reflected on this list will be incorporated in the PC4 Instruction and may also be incorporated into a future version of the MCT guideline, as appropriate.

Summary of adjustments and clarifications

Any questions should be addressed at MCT-TCM@osfi-bsif.gc.ca.

1. Unexpired coverage for insurance contracts issued (page 40.05)

OSFI remarks

OSFI is clarifying when an insurance contract is included for the determination of the unexpired coverage for insurance contracts issued in section 4.2.2 of the MCT 2023 guideline.

Clarification and page impacted in the PC4 Instruction

Page 40.05

Insurance contracts issued in accordance with paragraphs 25 to 28 of the IFRS 17 standard are recognized for capital purposes in the MCT 2023 Guideline, unless otherwise specified. To determine the unexpired coverage for insurance contracts issued in section 4.2.2 of the MCT 2023 Guideline, only insurance contracts that have the earliest of:

  1. the date the coverage begins, and
  2. the date on which the first payment of the premium is due,

on or prior to the reporting date should be considered recognized. For greater clarity, this means that only insurance contracts that individually meet the recognition criteria (a) or (b) set out in paragraph 25 of IFRS 17, by the reporting date, are to be treated as insurance contracts issued for purposes of the MCT’s requirements for unexpired coverage.

Updated date

November 2022

2. Cryptoassets (page 20.00)

OSFI remarks

OSFI published an advisory on the interim capital treatment for cryptoasset exposures on August 18, 2022. Per the advisory, Group 1 cryptoasset exposures receive a capital treatment consistent with that of comparable traditional assets, including credit, market and/or other risks. Group 2 cryptoasset exposures, including the absolute value of short positions, the full notional amount of long option positions, and the full notional amount of long forward contracts, are deducted from capital available.

Clarification and page impacted in the PC4 Instruction

Page 20.00

Group 2 cryptoasset exposurers are to be reported on the line 225 “Other (specify)” line of MCT with “Group 2 cryptoasset exposures” specified as the description.

Updated date

November 2022