-
Type of Publication: Letter
-
Date: August 31, 2020
-
To: Federally Regulated Insurers (FRIs)
In its
March 27 and
April 9 letters, OSFI announced that in situations where:
-
For all insurers: Payment deferrals for insurance premiums that are approved by insurers because of the impact of COVID-19, the related assets will not be subject to higher credit risk factors per the Life Insurance Capital Adequacy Test (LICAT), Minimum Capital Test (MCT), and the Mortgage Insurer Capital Adequacy Test (MICAT) guidelines. The special capital treatment would apply to the duration of the deferral up to a maximum of six months;
-
For life insurers: An insurer grants a borrower a payment deferral, these loans will continue to be treated as performing loans under the LICAT guideline for the duration of the deferral up to a maximum of six months; and
-
For mortgage insurers: In determining regulatory capital requirements, provided there is no claim outstanding on a mortgage loan, mortgage insurers should not consider a mortgage loan to be delinquent or in arrears if a deposit-taking institution has approved a deferral of mortgage payments, and the borrower respects the payment deferral terms and conditions. This capital treatment applies for the lesser of six months or the duration of the payment deferral.
OSFI further communicated that it would revisit the treatment, as needed.
OSFI continues to monitor the evolving situation with COVID-19, and has been in frequent contact with institutions to assess their operational capacity and management of the current economic challenges. As a result, today OSFI is announcing the following updates to the special capital treatment that applies when loan payment deferrals or premium deferrals have been granted:
- The special capital treatment for payment or premium deferrals granted before August 31 will remain limited to a maximum of six calendar months from the effective date of the deferral.
- A new payment or premium deferral granted for the first time after August 30 and on or before September 30 will receive the special capital treatment for the duration of the deferral, up to a maximum of three calendar months from the approval date of the deferral.
- Payment and premium deferrals with approval dates after September 30, will not be eligible for the special capital treatment.
This change supports the accurate measurement of insurers’ capital needs and the long-term integrity of OSFI’s capital framework. While the special capital treatment and regulatory flexibility related to premium and payment deferrals was warranted at the onset of COVID-19, insurers and their clients have adapted to the extraordinary circumstances and unprecedented disruptions related to the pandemic, and insurers are in a better situation to respond to pressures with business-as-usual measures. As such, the special capital treatment for loan payments and premium deferrals is no longer warranted and is being phased out through the changes being announced.
Loan Payment Deferral Examples
- A loan that was granted a payment deferral with an effective date on July 31 will continue to be treated as a performing loan pursuant to the special capital treatment for the duration of the deferral, for a maximum of six calendar months from the effective date of the deferral, or up to January 31, 2021.
- A loan that has not previously been granted a payment deferral, but is granted a payment deferral for the first time with an approval date on September 30, would be treated as a performing loan pursuant to the special capital treatment for the duration of the deferral, for a maximum of three calendar months from the approval date of the deferral, or up to December 31, 2020.
- A loan granted a payment deferral on or after October 1 as part of a life insurer’s business-as-usual support programs for troubled borrowers will not be eligible to receive the special capital treatment.
Premium Deferral Examples
- A premium payment deferral that was granted with an effective date on July 31 will continue to be eligible for the special capital treatment for the duration of the deferral, for a maximum of six calendar months from the effective date of the deferral, or up to January 31, 2021.
- A new premium payment deferral granted for the first time, with an approval date on September 30, would be eligible for the special capital treatment for the duration of the deferral, for a maximum of three calendar months from the approval date of the deferral, or up to December 31, 2020.
- A premium payment deferral granted on or after October 1 as part of an insurer’s business-as-usual support programs for troubled policyholders will not be eligible to receive the special capital treatment.
OSFI continues to monitor the impacts of COVID-19 on insurers and is prepared to adjust its guidance and temporary measures if necessary.
Further clarifications can be found in our
updated FAQs for Federally Regulated Insurance Companies.