Office of the Superintendent of Financial Institutions
OTTAWA ─ March 31, 2016 ─ Office of the Superintendent of Financial Institutions Canada
The Office of the Superintendent of Financial Institutions Canada (OSFI) has released for comment a draft new capital adequacy guideline for federally regulated life insurance companies.
The Life Insurance Capital Adequacy Test (LICAT) guideline will replace the current life insurance capital test, the Minimum Continuing Capital and Surplus Requirements (MCCSR) guideline, in place since 1992. OSFI developed the LICAT to better align capital and risk measures with the economic realities of the life insurance business.
The LICAT guideline takes into account lessons learned from the financial crisis, recent developments in financial reporting standards, actuarial standards, economic and financial practice, and international trends in solvency frameworks.
The LICAT guideline is not expected to increase the amount of capital in the industry compared to the current MCCSR. However, life insurers will evaluate their overall plans and requirements particularly for those businesses that may require more capital under the new guideline. Much of this will depend on what businesses individual institutions are engaged in, and the risks they are assuming.
The draft LICAT guideline was developed in consultation with life insurers and other industry stakeholders, notably Quebec's financial services regulator, l'Autorité des marchés financiers (AMF), and Assuris, a not-for-profit organization that protects Canadian policyholders should their life insurance company fail.
The feedback received from this public consultation process, further discussions with our partners, as well as results from some test runs will help us calibrate our final approach and ensure there are no anomalous effects to introducing the LICAT guideline in 2018.
Similar to the MCCSR, OSFI will regularly review the effectiveness of the LICAT guideline and update it to keep abreast of developments in the life insurance industry and evolving risk management practices.
"The LICAT guideline represents an evolution in OSFI's regulatory capital expectations," said Deputy Superintendent Mark Zelmer. "It is consistent with OSFI's mandate to protect policyholders and other creditors while allowing life insurers to compete and take reasonable risks."
The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.
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