- Type of Publication: Guideline Impact Analysis Statement
- Date: November, 2018
OSFI’s Guideline A, Minimum Capital Test (MCT) for Property & Casualty Insurance Companies (P&C companies) was originally implemented in 2003. Each year, OSFI considers whether changes are required to improve the risk measures, address emerging issues and encourage improved risk management.
The guideline provides the framework within which the Superintendent assesses whether a P&C company maintains adequate capital and whether a company operating in Canada on a branch basis maintains an adequate margin. The guideline describes the capital required using measures based on risks, and defines the capital that is available to meet the minimum standard.
This Guideline Impact Analysis Statement discusses whether and how the current guideline should be updated.
II. Problem Identification
OSFI identified the need to introduce a transitional measure to implement the increase in the margin required for reinsurance ceded to unregistered reinsurers, to review the condition for funds withheld reinsurance arrangements with unregistered reinsurers, to improve the classification of the capital requirements for leases, and to recognize three additional credit rating agencies for capital purposes.
OSFI’s risk-based capital adequacy guidance should constitute an appropriate framework for assessing whether P&C insurance companies maintain adequate capital or an adequate margin, as appropriate. The following changes support this objective:
- The introduction of a transition period for the increase in the margin required for reinsurance ceded to unregistered reinsurers from 15% to 20%.
- Amendments to allow the return of excess funds withheld or collateral associated with reinsurance ceded to unregistered reinsurers.
- The relocation of the capital requirements for right-of-use assets from the credit risk chapter to the market risk chapter.
- The addition of three credit rating agencies to the list of recognized rating agencies.
In June 2018, OSFI published a draft version of the 2019 MCT guideline for consultation. As a result of comments received and other inquiries throughout the year, OSFI incorporated the above amendments in the final version of 2019 MCT guideline
We recommend the publication of the 2019 MCT guideline with the above-noted amendments on OSFI’s website.
The 2019 MCT guideline will be effective January 1, 2019.