Office of the Superintendent of Financial Institutions
This communication sets out adjustments and clarifications to the
Minimum Capital Test Guideline (MCT) 2023 and associated instructions and forms since their publication in July 2022. Items reflected on this list will be incorporated into the PC4 Instructions and may also be incorporated into a future version of the MCT guideline, as appropriate.
Any questions should be addressed to
OSFI is clarifying when an insurance contract is included for the determination of the unexpired coverage for insurance contracts issued in section 4.2.2 of the MCT 2023 guideline.
Insurance contracts issued in accordance with paragraphs 25 to 28 of the IFRS 17 standard are recognized for capital purposes in the MCT 2023 Guideline, unless otherwise specified. To determine the unexpired coverage for insurance contracts issued in section 4.2.2 of the MCT 2023 Guideline, only insurance contracts that have the earliest of:
on or prior to the reporting date should be considered recognized. For greater clarity, this means that only insurance contracts that individually meet the recognition criteria (a) or (b) set out in paragraph 25 of IFRS 17, by the reporting date, are to be treated as insurance contracts issued for purposes of the MCT’s requirements for unexpired coverage.
OSFI published an
advisory on the interim capital treatment for cryptoasset exposures on August 18, 2022. Per the advisory, Group 1 cryptoasset exposures receive a capital treatment consistent with that of comparable traditional assets, including credit, market and/or other risks. Group 2 cryptoasset exposures, including the absolute value of short positions, the full notional amount of long option positions, and the full notional amount of long forward contracts, are deducted from capital available.
Group 2 cryptoasset exposurers are to be reported on the line 225 “Other (specify)” line of MCT with “Group 2 cryptoasset exposures” specified as the description.
OSFI is clarifying the appropriate capital treatment for arrangements referred to as “captive fronting arrangements”. In these arrangements, a federally regulated insurer issues a policy to a policyholder in Canada, and then subsequently cedes the risk to an entity within the same group as the policyholder.
Pages 40.11 and 40.21
Federally regulated insurers are expected to include on this schedule all reinsurance ceded to unregistered reinsurers, including captive arrangements, irrespective of whether or not the captive arrangement is accounted for as insurance contracts under IFRS 17.
OSFI is making a clarification with respect to the determination of the unexpired coverage for insurance contracts issued in section 4.2.2 of the MCT 2023 guideline.
For a reinsurance contract issued, all underlying insurance contracts that are within the contract boundary, including underlying insurance contracts that have not yet been issued, should be included in the determination of the unexpired coverage for insurance contracts issued in section 4.2.2 of the MCT 2023 Guideline. This includes both the group of insurance contracts issued measured using (i) the GMM and (ii) the PAA to determine the LRC.