MCCSR Standardized Approach QIS – Market Risk and Credit Risk

Document Properties

  • Type of Publication: Letter
  • Date: October 22, 2009
  • To: Federally Regulated Life Insurance Companies & Fraternal Benefit Societies

As outlined in the previously posted documents entitled “Framework for a New Standard Approach to Setting Capital Requirements” (November 2008) and “Standardized Approach for Calculating the Solvency Buffer for Market Risk” (November 2008), the Standardized Approach Working Group (SAWG), with representatives from OSFI, Assuris and the AMF, has begun development of the future MCCSR standardized approach. The new approach is expected to be implemented in stages, with the first components to be implemented starting in 2012. Major revisions to the MCCSR guideline are necessitated by international developments in accounting and solvency standards for insurers and other financial institutions.

The SAWG is now undertaking the first quantitative impact study (QIS) for the new MCCSR standardized approach. This QIS covers the market and credit risk components of the new approach. The main purpose of the QIS is to test the practicality of the methods being proposed for the new components as well as to estimate the potential impact of adopting these components.

The new market risk component is based on applying shocks to interest rates, equities, and other market variables that affect the valuation of a company’s assets and liabilities, and measuring the change in the company’s financial position under these shocks. The new credit risk component retains the existing factor-based methodology, but differs from current requirements in that the factors used depend on both the term and credit quality of an obligation. The credit risk factors in the QIS are based on the asymptotic single risk factor model that was used to derive requirements under the Basel II foundation internal ratings based approach. The market and credit risk factors have been designed to only provide for unexpected losses.

Attached are the instructions and the worksheets that companies are requested to fill out as part of the QIS. The requirements calculated according to the factors and scenarios in the QIS should be viewed as indicative of the approaches being explored. Your feedback on these approaches is requested. The actual amount of the requirements will require calibration as well as consideration of their relationship with other related market or credit risk elements of the financial statement and/or capital returns at the time of their introduction.

Please complete the attached worksheets and return them by email to Mr. Jean-Guy Lapointe, Capital Division. Questions concerning the completion of the QIS should also be addressed to Mr. Jean-Guy Lapointe. He may be reached by email at

Alternatively, companies may mail their submissions on diskette or CD to:

  • OSFI Capital Division
  • 15th floor
  • 255 Albert Street
  • Ottawa, Ontario
  • K1A 0H2

The worksheets should be completed and returned by December 11, 2009. Note that all submissions received will be shared with Assuris and the AMF on a confidential basis.

  • Bernard Dupont
  • Director
  • Capital and Accounting Division