Office of the Superintendent of Financial Institutions
Life Insurance Capital Adequacy Test (LICAT) became effective on January 1, 2018. Since its implementation, OSFI has been monitoring insurer results to assess whether the test is operating as intended.
As communicated by OSFI in its
November 24, 2017 letter, any issues uncovered may be modified, as appropriate. Recently, OSFI identified an aspect of the test that, due to the methodology, causes some unwarranted volatility in interest rate risk requirements for participating (par) products. To address this, today, OSFI is proposing to update the LICAT framework and publish a 2020 version of the LICAT (2020 LICAT). Updates that are being proposed affect the requirement for the par credit floor (see LICAT sections 5.1.2, 9.1.2 and 9.3). Moreover, recognizing that the change could result in an initial increase in capital requirements for some insurers, OSFI is proposing that the impact be phased-in over six quarters.
Also, it has come to OSFI's attention that the current wording of the guideline may lead to a misinterpretation of OSFI's expectations for how an insurer would meet the conditions for claiming par credit, as well as the treatment of negative Dividend Stabilization Reserves or other similar experience leveling mechanisms (see LICAT sections 126.96.36.199 and 9.1.1). Therefore, we are also proposing that we clarify these expectations in the 2020 LICAT guideline.
We look forward to receiving your comments by March 26th, 2020. OSFI will consider all comments in finalizing the 2020 LICAT guideline. A summary of industry comments received along with OSFI's responses may be posted on OSFI's website when the final guideline is released, planned for mid-2020. It will become effective on that date.
Please send comments using a format similar to the template included in the attached document to Jasmine Pan, Senior Analyst, Capital Division (email@example.com) or at:
Should you have any questions, please contact Michelle John, Director, Capital Division (firstname.lastname@example.org) or by telephone at (416) 954-7221.
Ben Gully Assistant Superintendent Regulation Sector