The bureau’s new guideline spells out expectations in reporting solvency strength
The Office of the Superintendent of Financial Institutions has released a draft guideline on life insurance capital adequacy test (LICAT) public disclosure requirements, which is meant to clarify the office’s expectations on disclosures for federally regulated life insurance companies and insurance holding companies.
LICAT is a capital-solvency framework designed to measure the overall quality of available capital, and measures the degree of risk in the context of economic realities faced by the life insurance industry.
“The Life Insurance Capital Adequacy Test (LICAT) guideline replaces the Minimum Continuing Capital and Surplus Requirement (MCCSR) Guideline and is effective January 1, 2018,” an accompanying document from the OSFI said. “The transition to LICAT provides an opportunity to improve the measurement and disclosure of risks associated with insurance activities.”
According to OSFI, current practices involving public disclosures of capital vary among Canadian insurance companies. By making disclosures consistent and comparable through the LICAT solvency-risk framework, the office hopes to improve understanding of insurers’ solvency strength.
“Public disclosure of solvency risk is in keeping with leading international best practices to improve transparency and encourage prudent behaviour through market discipline,” the accompanying document said. “Such disclosures promote good governance and improve oversight of risk taking activities.”
The draft guideline consists of two main parts. The first part deals with the guiding principles behind LICAT public disclosures to be submitted to stakeholders, which include clarity, consistency over time, and comparability across life insurers. The second part deals with the scope and implementation.
The draft also includes more specific rules, such as required core and total ratios. The ratios are derived from factors such as the insurers’ available capital and margin, surplus allowance, and eligible deposits.
OSFI is accepting comments on the draft guideline, which is available on the office’s website, until October 20. “OSFI will consider all comments in developing the final version of the guideline,” the bureau said in a statement.
In an outlook on the Canadian life insurance space released earlier this year, EY said it expects a large impact on the industry from regulations. “Ever-increasing regulations and new accounting standards will present significant challenges as well as opportunities to insurers in 2017 and beyond,” the firm said in its report.
Related stories:
Life and health body outline priorities for NAFTA talks
EY life insurance outlook highlights new solvency standard
LICAT is a capital-solvency framework designed to measure the overall quality of available capital, and measures the degree of risk in the context of economic realities faced by the life insurance industry.
“The Life Insurance Capital Adequacy Test (LICAT) guideline replaces the Minimum Continuing Capital and Surplus Requirement (MCCSR) Guideline and is effective January 1, 2018,” an accompanying document from the OSFI said. “The transition to LICAT provides an opportunity to improve the measurement and disclosure of risks associated with insurance activities.”
According to OSFI, current practices involving public disclosures of capital vary among Canadian insurance companies. By making disclosures consistent and comparable through the LICAT solvency-risk framework, the office hopes to improve understanding of insurers’ solvency strength.
“Public disclosure of solvency risk is in keeping with leading international best practices to improve transparency and encourage prudent behaviour through market discipline,” the accompanying document said. “Such disclosures promote good governance and improve oversight of risk taking activities.”
The draft guideline consists of two main parts. The first part deals with the guiding principles behind LICAT public disclosures to be submitted to stakeholders, which include clarity, consistency over time, and comparability across life insurers. The second part deals with the scope and implementation.
The draft also includes more specific rules, such as required core and total ratios. The ratios are derived from factors such as the insurers’ available capital and margin, surplus allowance, and eligible deposits.
OSFI is accepting comments on the draft guideline, which is available on the office’s website, until October 20. “OSFI will consider all comments in developing the final version of the guideline,” the bureau said in a statement.
In an outlook on the Canadian life insurance space released earlier this year, EY said it expects a large impact on the industry from regulations. “Ever-increasing regulations and new accounting standards will present significant challenges as well as opportunities to insurers in 2017 and beyond,” the firm said in its report.
Related stories:
Life and health body outline priorities for NAFTA talks
EY life insurance outlook highlights new solvency standard
