A Year in Review: Update to the Life Insurance Regulatory Framework

Document Properties

  • Type of Publication: Notice
  • Date: November 12, 2013
  • To: Life insurance companies and industry associations

In September 2012, OSFI issued the Life Insurance Regulatory Framework. The Framework outlined OSFI’s priorities and addressed issues such as corporate governance and risk management, evolving regulatory capital requirements, and promoting the transparency of information on the financial condition of life insurance companies. The Framework established a timeline of planned initiatives to 2016, to help life insurers and industry stakeholders in their planning processes. OSFI provides here an update on progress made during the first year of implementing the Framework.

Specific initiatives to date: 

  • An amended Corporate Governance Guideline was published in January 2013, for implementation in 2014.
  • OSFI consulted the insurance industry on Own Risk Solvency Assessment (ORSA). The final version of the ORSA Guideline will be released in November 2013 with implementation beginning in January 2014.
  • Work on developing an internal models framework for segregated funds has been halted to accelerate the development of the standardized approach for segregated funds. OSFI expects the work on the internal models framework will resume once the new standardized approach is completed.

Update on Evolving Regulatory Capital Requirements Timelines

The timelines set in the September 2012 Life Insurance Regulatory Framework to implement the various regulatory capital initiatives allowed for developing the proposed changes, implementing them, and transitioning to the new regulatory capital regime.

After further review, the milestone for finalizing the life insurance capital framework has been shifted to 2016 with implementation now targeted for 2018 (see Annex A).

The revised timeline is needed to provide OSFI more time to develop, refine and calibrate the capital framework components, while continuing consultations with industry stakeholders through the Quantitative Impact Studies process. The new dates also give OSFI and insurers more time to prepare and make changes to their information systems, and take account of the impact of the upcoming changes to domestic actuarial and international accounting standards on the regulatory capital framework.

OSFI is satisfied that the additional time will not pose undue risks to the life insurance industry. The financial crisis demonstrated that the current regulatory capital framework continues to be robust and broadly reflects the financial condition of Canada's life insurers. OSFI continues to believe that, in aggregate, the industry currently has adequate financial resources (total assets) for its current risk. However, the updated framework should result in a better alignment of financial resources to the underlying risks.

Looking Forward

  • OSFI will continue to analyze the results of the new Life Insurance Capital Framework through annual quantitative impact studies (QIS) in 2013-2015. OSFI plans to issue a draft of the new capital guideline and related forms for public consultation, before publishing the final capital guideline in 2016. The 2016-2018 period will provide an opportunity for parallel runs prior to the planned implementation in 2018, and time for industry participants to plan for changes and to prepare for implementation.
  • The International Accounting Standards Board (IASB) published a targeted exposure draft for IFRS 4 Insurance Contracts Phase II for review by interested stakeholders. OSFI has reviewed the exposure draft to provide feedback to the IASB on potential further improvements. OSFI will continue to follow this and other IASB projects very closely as the IASB works towards finalization, in order to assess potential impacts on OSFI’s capital framework.
  • On July 18, 2013, the Financial Stability Board (FSB) published the first set of Global Systemically Important Insurers (G-SIIs). No Canadian insurers were included on the initial list. The International Association of Insurance Supervisors (IAIS) will review the status of reinsurers to determine whether any reinsurers should be classified as G-SIIs. OSFI continues to participate in the G-SII initiative. 
  • The IAIS announced timelines in October 2013 for developing a global insurance capital standard for internationally active insurance groups (IAIGs) and simple backstop capital requirements for G-SIIs. The IAIS indicated that full implementation of the former will begin in 2019, while the latter is expected to be ready for implementation in late 2014. OSFI is participating in these initiatives to promote their alignment with OSFI’s regulatory capital framework.
  • The IAIS is making progress on its common framework (ComFrame) for the supervision of internationally active insurance groups (IAIGs). OSFI continues to participate in and monitor the development of ComFrame to ensure alignment with OSFI’s insurance supervisory framework.

OSFI will provide further progress updates to insurers and industry stakeholders, as required, as we continue to implement the new Life Insurance Regulatory Framework. Consultations with insurance industry stakeholders will continue to be an important part of the implementation work.