Standardized Approach for Solvency Buffer for Market Risk

Document Properties

  • Type of Publication: Letter
  • Date: November 7, 2008
  • To: Canadian Life Insurance Industry

In late 2007, a working group consisting of representatives from the Autorité des marchés financiers (AMF), the Office of the Superintendent of Financial Institutions (OSFI) and Assuris was formed to update the current solvency framework that would form the Standard Approach in the new solvency framework. The working group developed a framework paper entitled “Framework for a New Standard Approach to Setting Capital Requirements” that was published on October 29, 2008.

The working group has prepared the attached discussion paper which proposes a new standard approach to determine the solvency buffer for market risk. The paper expands on the principles outlined in the above mentioned Framework Paper. It is being distributed to the industry and to the Canadian Life and Health Insurance Association (CLHIA) for discussion and feedback. After we have received the feedback on the paper we will design a quantitative impact study and ask companies to participate in the evaluation of the methodology.

This discussion document is not intended to be a final statement of the position of the AMF, OSFI or Assuris. The methods and scenarios described in the document are to promote discussion and will need to be reconsidered in light of additional information, including the current market development. We believe it is vital to engage in an open and constructive dialogue with the industry. This may lead to changes in the suggested approaches.

The attached document makes reference to a confidence level of 99% CTE. This confidence level is part of the package of changes proposed for market risk and is consistent with the direction being taken by other international regulators. The degree of confidence is related to the time horizon over which the risks emerge. The new international approaches tend to set the time horizon to one year. A higher confidence level is attached in this case than would apply to a longer time horizon.

OSFI welcomes comments you may have on the attached document. Please send your comments no later than December 19, 2008 to Bernard Dupont, Director, Insurance, Capital Division at 613-990- 7797 or via e-mail at

  • Robert Hanna
  • Assistant Superintendent
  • Regulation Sector