Office of the Superintendent of Financial Institutions
This guideline provides life and property and casualty insurance companies as well as insurance holding companies with guidance that is consistent with that in International Financial Reporting Standard 7 Financial Instruments: Disclosures (IFRS 7) as issued by the International Accounting Standards Board.
This guideline takes effect for fiscal years commencing on or after January 1, 2011.
IFRS 7 provides comprehensive disclosure requirements relating to all financial instruments.
This guideline supplements the guidance contained in IFRS 7. It includes further disclosure requirements for derivative financial instruments as well as disclosure requirements for derivative non-financial instruments such as commodities contracts. In addition, it requires life insurance companies and insurance holding companies to disclose certain derivatives related amounts that are reported to OSFI in accordance with the capital requirements guidelines. This guideline outlines minimum disclosure requirements and institutions are encouraged to make additional disclosures that they consider to be appropriate.
The annexes to this guideline summarize the information that should be presented in the institution's annual report, or OSFI annual return for institutions that do not produce annual reports, to conform with the requirements of this guideline.
These disclosures should be made either in the body of the financial statements or in the accompanying notes. Institutions that do not produce annual financial statements should make these disclosures in their OSFI annual return.
The notional amounts and other information about the extent and nature of all derivative instruments should be disclosed, including those instruments that are excluded from the reports to OSFI for capital adequacy purposes. The remaining term to maturity of all derivative instruments should be disclosed, as a minimum, for the following three time bands: 1 year or less, over 1 year through 5 years, and over 5 years.
Notional amounts and other information about the extent and nature of derivative financial instruments should be disclosed by class (e.g., interest rate contract or foreign exchange contract) and by type (e.g., forwards, futures, credit default swaps, total return swaps and options). Interest rate cross currency swaps should be included under foreign exchange contracts.
The notional amounts of over-the-counter (OTC) derivative instruments should be disclosed separately from the notional amounts of those derivative instruments that are exchange traded or that are completed through a central counterparty (e.g. a clearinghouse).Footnote 1
The notional amounts and other information about the extent and nature of derivative instruments held for trading purposes should be disclosed separately from the information relating to derivative instruments that are held for other than trading purposes.
The notional amounts of other derivative instruments held for trading purposes should be
disclosed and presented with the notional amounts of derivative financial instruments held for trading purposes.
See Annex A for information on notional amount disclosures.
These disclosures should be made in the notes to the financial statements. Institutions that do not prepare an annual report should make these disclosures either in the notes to the financial statements or in a supplementary management report. Institutions that do not produce annual financial statements should make these disclosures in the notes to the OSFI annual return.
In disclosing information about management's policies for controlling or mitigating risks, information should be included about management's policies on matters such as hedging risk exposures, avoidance of undue concentrations of risk and requirements for collateral to mitigate credit risks.
Life insurance companies, property and casualty insurance companies and insurance holding companies should disclose the positive replacement cost, credit equivalent amount and capital requirement by class of derivative instrument. Further categorization within each class of derivative financial instrument by type of contract (e.g. credit default swap, total return swap, option) is strongly encouraged. The credit equivalent amount is the positive replacement cost plus an amount representing the potential future credit exposure as outlined in OSFI's Capital Requirements Guidelines. Institutions should provide an explanation of these disclosures and indicate how the amounts are calculated.
Life insurance companies and insurance holding companies should calculate the positive replacement cost, credit equivalent amount and capital requirement in accordance with the Life Insurance Capital Adequacy Test (LICAT) guideline. Property and casualty insurance companies should calculate the positive replacement cost, credit equivalent amount and capital requirement in accordance with the Minimum Capital Test (MCT).
See Annex B for Disclosure of Positive Replacement Cost, Credit Equivalent Amount and Capital Requirement.
Below is a summary of the information that should be disclosed relating to notional amounts for each class and type of derivative instrument and an illustration of how these disclosures could be integrated with the disclosures relating to other instruments.
Assets to be classified in accordance with industry practice.
Credit instruments to be classified in accordance with industry practice.
Below is a summary of the information that should be disclosed relating to the positive replacement cost, the credit equivalent amount and the capital requirement for derivative instruments. Disclosure of derivative financial instruments by type is encouraged but not required.
See paragraph 6 Annex 4 of Chapter 3 in OSFI’s Capital Adequacy Requirements Guideline for a description of central counterparties.
Return to footnote 1
Total of notional amounts for each type of derivative instrument should be broken down between (a) those held for trading purposes as defined in IFRSs, and (b) those held for other than trading purposes.
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Total of notional amounts for each type of derivative instrument should be broken down between OTC and exchange traded derivatives.
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Total of notional amounts for each type of derivative instrument should be broken down by remaining term to maturity.
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