Solo Capital Return

Purpose

The Solo capital return (“the return”) collects the data to calculate the Solo capital ratio of the reporting institution, as well as details of the calculation.

Statutory

Subsection 515(1) of the Insurance Companies Act (ICA).

Application

This return applies to all life insurers designated by OSFI as Internationally Active Insurance Groups (IAIGs). The domestic parent life insurer is the Canadian legal entity incorporated or continued under the Insurance Companies Act that is both an operating entity and the parent of the consolidated insurance group.

Frequency

Institutions with fiscal year-ends of December – Quarterly – March, June, September, and December.

Contact person

For business and/or interpretation questions, contact Muhammad Abid (Muhammad.Abid@osfi-bsif.gc.ca), Capital Division.

For all technical questions, contact Returns Admin (RA-RRS.Support@osfi-bsif.gc.ca).

Reporting dates

The return must be completed on a quarterly fiscal basis and filed within 45 days of the quarter-end date.

Where to submit

The completed Solo capital return should be submitted in Excel format via the Regulatory Reporting System (RRS) to OSFI.

General instructions

The solo capital return is to be completed using the methodologies and calculations described in OSFI’s Parental Stand-Alone (Solo) Capital Framework for Federally Regulated Life Insurers guideline (the Solo Capital Guideline), and OSFI’s Life Insurance Capital Adequacy Test (LICAT).

The purpose of these instructions is to ease completion of the return by referencing its components to the applicable section(s) of the relevant guideline. In addition to guideline references, these instructions provide supplementary explanations for selected sections or cells in the return.

1. Introduction

1.0 Introduction

These instructions have been drafted as a supplement to OSFI’s Solo Capital Guideline for Life IAIGs. The Solo capital Guideline sets out the scope of consolidation, definitions, requirements, and risk factors which are referenced in these instructions.

1.1 Reporting format

Life IAIGs will report their solo capital positions using the OSFI-supplied Excel reporting template.

1.2 General instructions

• Unless specifically instructed otherwise, life IAIGs should report on a Canadian currency basis with figures reported in thousands of dollars.
• Filers should enter data only in those cells highlighted yellow.
• Filers should not alter the structure of the worksheets or the formulas in the workbook without prior consent from OSFI.
• If reporting requirements cannot be met due to system limitations, reporting FIs are to discuss with OSFI bilaterally to determine remediating action plans and alternative interim reporting solutions.

1.3 Filing instructions

• Life IAIGs must submit the return via the Regulatory Reporting System (RRS). For security reasons, insurers should not file the return through e-mail. The return is an Excel file, and the Excel file should not be security protected.
• The filing instructions may be obtained on the OSFI website under Filing Financial Returns – Regulatory Reporting System (RRS) – Manage Financial Returns User Guide (PDF).
• The return code is OSFI969

2. Return completion

2.0 Summary calculations (Schedule 1)

• Life IAIGs should report data for the cells highlighted yellow in Schedule 1 (tab S1).
• Life IAIGs should report Group consolidated Available Capital, Group consolidated Surplus Allowance, Group consolidated Eligible Deposits, and Group consolidated Base Solvency Buffer (BSB) in the relevant cells. The amounts reported for these items should be consistent with their reporting in the Life IAIG’s Life Insurance Capital Adequacy Test (LICAT).
• LICAT BSB for the combined entity is described in paragraph 11 of the Solo Capital Guideline.

2.1 Consolidated domestic non-OSFI regulated subsidiaries (Schedule 2)

Report items pertaining to Canadian subsidiaries regulated by an authority other than OSFI. The following deductions from the numerator of the solo capital ratio are described in paragraph 7 of the Solo Capital Guideline and should be reported separately for each subsidiary.

• Capital instruments issued by consolidated subsidiaries to third parties.
• Elements other than capital instruments attributable to third parties.

2.2 Consolidated foreign regulated subsidiaries (Schedule 3)

Schedule 3 reports items pertaining to regulated subsidiaries in a foreign jurisdiction that are consolidated for regulated purposes. The following items are deducted from total capital and must be reported separately for each subsidiary:

• Surplus Allowance and Eligible deposits arising from the subsidiary (see paragraph 6).
• Capital instruments and elements other than capital instruments issued by consolidated foreign subsidiaries to third parties (see paragraph 7).

The following items are used to compute the equity investments of the solo parent that are risk-weighted to compute solo BSB and must be reported separately for each subsidiary:

• Parental equity investments in the subsidiary (see paragraph 12), computed using the equity method of the International Financial Reporting Standards (IFRS).
• Deductions from consolidated capital arising from parental investments in the subsidiary that were applied in the Life IAIG’s consolidated capital calculations as per the LICAT guideline.
• Contractual Service Margin (CSM) arising from investments in the subsidiary.
• The parent’s holdings of subordinated debt and equivalents issued by the subsidiary.

The Memo Items section of Schedule 3 details the composition parental equity investments and the associated deductions for each subsidiary.

2.3 Deconsolidated regulated and non-regulated subsidiaries (Schedule 4)

Schedule 4 reports items related to subsidiaries that are deconsolidated and regulated by a foreign authority; it also reports items for domestic and foreign non-regulated subsidiaries, i.e., subsidiaries not subject to prudential regulation.

Under section 2 of the LICAT Guideline, the Life IAIG’ investments in deconsolidated subsidiaries regulated by a foreign authority are subject to certain deductions. These deductions are reversed in the computation of solo capital, thus they must be reported for each such subsidiary (see paragraph 8).

Capital instruments and elements other than capital instruments issued by non-regulated subsidiaries to third parties (per paragraph 7) must be reported and may be aggregated separately for domestic and foreign subsidiaries.

Non-regulated subsidiaries may have committed capital requirements, i.e., a requirement to maintain capital for non-regulatory purposes (per paragraph 10). These must be reported and may be aggregated separately for domestic and foreign subsidiaries.

2.4 Foreign branches (Schedule 5)

Schedule 5 reports items related to foreign branches of the solo parent.

Life IAIGs must compare the quantum of vested asset requirements for each branch with the branch’s third-party liabilities; the solo Framework deducts from total capital any excess from the solo capital numerator (see paragraph 9). As such, vested assets and third-party liabilities must reported for each foreign branch.

Surplus allowance and eligible deposits of each branch, which are also deducted from total capital (see paragraph 6), must be reported for each foreign branch.

The following items are used to compute the exposure arising from foreign branches and must be reported separately for each branch:

• Total assets of the foreign branch as reported on its stand-alone balance sheet; this includes assets that are eliminated upon accounting consolidation.
• Deductions from capital arising from the foreign branch and applied under the LICAT Guideline.
• Receivables due from related parties, i.e., they arise from intra-group transactions and are eliminated upon accounting consolidation.
• Assets arising from intra-group reinsurance arrangements, and which are eliminated upon accounting consolidation.
• The branch’s CSMs reported as assets and CSMs reported as liabilities (other than those associated with segregated fund contracts).
• Third-party liabilities (excluding CSM) aggregated across all foreign branches. Third-party liabilities are those not eliminated upon accounting consolidation.

The exposure amount that is risk-charged is total assets, adjusted for items described above, less third-party liabilities (excluding CSM).

2.5 Parental guarantees (Schedule 6)

Schedule 6 reports on and computes solo BSBs for capital guarantees and non-capital guarantees (as described in paragraphs 14 to 20) provided to foreign regulated subsidiaries.

Since a capital guarantee from the parent is treated as a direct capital investment into the subsidiary, the associated risk charge corresponds to that applied to parental equity investments. As such, the BSB for a capital guarantee is the product of the outstanding exposure (per paragraph 14) and the relevant risk charge.

Insurers must provide additional information about the capital guarantee, including the type of capital guarantee, the name of the entity benefitting from the guarantee, the currency of exposure, etc.

The risk charge associated with a non-capital guarantee for a given subsidiary depends on the stand-alone credit rating of that subsidiary (i.e., the credit rating excluding any parental uplift) and this approach is consistent with the risk charges applied under the LICAT Guideline. A fixed risk charge is applied in the case of unrated subsidiaries. The solo BSB is calculated as the product of the risk charge and the outstanding parental exposure to the subsidiary (see paragraph 15).

As with capital guarantees, insurers must provide additional information about their parental non-capital guarantee exposures.

2.6 Commentary on material changes and drivers of solo capital

Schedule 7 reports quantitatively and qualitatively on material (past and expected) changes in solo capital and the key drivers of such changes.

Insurers must report the following quantitative information for the relevant quarter for different categories of subsidiaries in Section A of Schedule 7:

• Capital issuances of the solo parent, i.e., the operating company (Opco).
• Remittances from subsidiaries to the Opco parent.
• Capital injections from the Opco parent to subsidiaries.
• Remittances from the Opco to the holding company (Holdco) parent, where relevant, and to third-party investors.

Insurers must likewise provide commentary on material movements in the solo capital ratio or its components. This includes but is not limited to:

• Changes to the solo capital ratio (including analyses of Q/Q and Y/Y movements where relevant).
• Expected changes to solo capital or components of solo capital.
• Capital issuances by the parent.
• Parental capital distributions to third-party investors. Distributions include but are not limited to dividends, buy-backs, interest payments on capital instruments.