| Unexpired coverage - risk sharing pools administered by the Facility Association |
Current approach requires recognition of expected future cash flows for both the current accident year and the following accident year. Including the following accident year is punitive and OSFI should allow for a gradual recognition of the second-year exposures. |
The capital treatment of the risk sharing pool follows the accounting standard. For additional information on the calculation, the Canadian Institute of Actuaries prepared an Educational Note. We will review these suggestions and reflect them in our next policy update, if appropriate. |
| Other balance sheet assets (credit risk) |
Suggest revising the text as the amounts subject to the 0.7% credit risk factor should be the assets for remaining coverage and not the premiums associated with the unexpired coverage on reinsurance contracts held. |
The risk factor is applied to receivables from registered reinsurers. Under IFRS 17 receivables are netted within the overall insurance contract asset or liability. As a result, the risk factor applies only to the receivables inside the premium for unexpired coverage and inside the asset for incurred claims recoverable. |
| Transition period for CSM recognition for business combinations |
It is not clear when the three-year period begins as the 2024 MCT guideline has the three-year period beginning when the guideline is effective, i.e., January 1, 2024. |
The three-year transition period was introduced in the 2023 MCT guideline and was effective starting January 1, 2023. We added the effective date to the 2026 MCT guideline to be clear when the transitional period began. |
| Interest rate margin |
The text added for the branches is confusing as it implies some assets and liabilities may not be included. |
We amended the text to clarify that all interest rate sensitive assets and liabilities that are part of the determination of net assets available should be included. |
| BAAT funds held |
The term "funds held" is broad and has an impact on the current capital treatment of premiums under those types of arrangements. OSFI should define what should be included. |
We have used Funds held and funds withheld interchangeably. However, the intent is to only include funds withheld reinsurance arrangements and a clarification was added to the MCT. |
| BAAT regulatory adjustments |
OSFI should not limit the type of receivables that can be included as regulatory adjustments to net assets available. |
The capital guideline is reviewed to make sure it is fit for purpose. Risks have evolved and we have made adjustments to recognize only funds withheld reinsurance. The capital framework for foreign branches is based on vested assets with a few exceptions that are not vested. As it is largely the vested assets that protect policyholders, the amount of non-vested assets should be carefully considered. |
| Unexpired coverage for reinsurance contracts held |
Suggest changing footnote 33 to say premiums and commissions cash flows on risk attaching proportional reinsurance contracts are "excluded" rather than "zero". |
We agree and have changed the text in footnote 33. |
