Draft Life Insurance Capital Adequacy Test (LICAT) 2023 Public Consultation

Document Properties

  • Type of Publication: Letter
  • Date: June 21, 2021
  • To: Federally Regulated Life Insurance Companies & Fraternal Benefit Societies

Today, the Office of the Superintendent of Financial Institutions (OSFI) is issuing a revised draft Life Insurance Capital Adequacy Test (LICAT) 2023 guideline, reporting forms and instructions for public consultation. This draft guideline reflects input from and dialogue with industry participants and other stakeholders collected over the past three years.

International Financial Reporting Standard (IFRS) 17 - Insurance Contracts, published by the International Accounting Standards Board in May 2017, will become effective for annual reporting periods beginning on or after January 1, 2023. The revised draft LICAT guideline has been updated for IFRS 17. This consultation marks the completion of a key milestoneFootnote 1.

Key revisions to the LICAT 2023 guideline include:

The LICAT quarterly and annual forms, as well as accompanying instructions, have also been revised to reflect the proposed revisions to the LICAT 2023 guideline.

In updating the LICAT for IFRS 17, we have committed to limiting policy changes to the capital framework in order to reduce the implementation burden. We also continue working towards our goal of minimizing industry-wide capital impacts of adapting LICAT for IFRS17. To help achieve this objective, we are also conducting a third quantitative impact study (QIS) and sensitivity test with all life insurers, in parallel with the public consultation.

For life insurers with segregated fund guarantee business, OSFI is extending the implementation date of the new standard approach for determining regulatory capital requirements to January 1, 2025 (i.e. a two-year extension). This postpones the originally planned September 2021 consultation to allow insurers to devote more time and resources for a robust implementation of IFRS 17. In the interim period, OSFI is retaining the current methodology for the capital treatment of segregated fund guarantee risk, updated to accommodate IFRS 17. The draft LICAT 2023 guideline, forms, and instructions have been revised accordingly.

Interested parties are invited to provide comments on the following documents by September 30, 2021.

Please direct your feedback to QISLICAT@osfi-bsif.gc.ca. A non-attributed summary of comments and OSFI’s responses will accompany the issuance of the final guideline in August 2022.

Sincerely,

Ben Gully
Assistant Superintendent, Regulation

Footnotes

Footnote 1

OSFI published the timelines for revising its capital guidance for insurers in its September 30, 2020, Letter to Federally Regulated Insurers.

Return to footnote 1