Own Risk and Solvency Assessment, Guideline A-4 - osfi-bsif ...

Guideline E-19: Own Risk and Solvency Assessment, Guideline A-4: Regulatory Capital and Internal Capital Targets and ORSA Key Metrics Report. Skiptomaincontent Skiptosecondarymenu GuidelineE-19:OwnRiskandSolvencyAssessment,GuidelineA-4:RegulatoryCapitalandInternalCapitalTargetsandORSAKeyMetricsReport PageContent Alternativeformats PDF,233KB Accompanyingdocuments A-4Guideline E-19Guideline KMRandinstructions Lifeinsurers P&Cinsurers Relateddocuments LICAT2018 DocumentProperties TypeofPublication:Letter To:FederallyRegulatedInsurersFootnote1 Reference:GuidelineforFederallyRegulatedInsurers Date:December14,2017 OSFIisissuingfinalversionsofthefollowingdocuments,whichhavebeenupdatedtoreflecttheintroductionofGuidelineA:LifeInsuranceCapitalAdequacyTest(LICAT)forlifeinsurers,toreflectminorupdatesforpropertyandcasualty(P&C)insurers,andtoimproveoverallclarity: GuidelineE-19-OwnRiskandSolvencyAssessment(ORSA) GuidelineA-4-RegulatoryCapitalandInternalCapitalTargets KeyMetricsReport(KMR)andassociatedinstructionsforlifeandP&Cinsurers. UpdateswerereflectedindraftversionsofthesedocumentsthatwerepublishedinJuly2017forconsultation.ThecommentperiodendedonAugust18,2017.Wethankallthosewhoprovidedcomments,asummaryofwhichisattachedtothisletter. QuestionsmaybedirectedtoHenriBoudreau,ManagingDirector,[email protected](613)998-7478. Sincerely,   CarolynRogers AssistantSuperintendent RegulationSector Attachment Footnotes Footnote1 Insurersreferstoallfederallyregulatedinsurers,includingCanadianbranchesofforeignlifeandpropertyandcasualtycompanies,fraternalbenefitsocieties,regulatedinsuranceholdingcompaniesandnon-operatinginsurancecompanies.  Returntofootnote1 Appendix1–SummaryofPublicConsultationCommentsandOSFIResponses Comment OSFIResponse 1)GuidelineA-4,SectiononRegulatoryCapital Wenotewithparticularinteresttheintroductionofthenewterm“CapitalAvailable”intoGuidelineA-4.Thisterm,withoutfurtherdelineationandexplanation,couldbeconfusingincludingitsapplicationtoTotalandCoreRatios. UnliketheMCCSR,thenumeratoroftheLICATratiosincludeselementsotherthancapitaltocoveraninsurer’srisks(i.e.:SurplusAllowanceandEligibleDeposits).ToclearlyillustratethisconstructandtodifferentiatewithtermsdefinedintheLICATandMCT,thedocumentshavebeenupdatedtoreferto“CapitalResources”fordomesticinsurersand“MarginResources”forbranches. 2)GuidelineA-4,SectiononRegulatoryCapital Inrelationtoallthreesubsectionsofthissection(i.e.Minimum,Supervisory,andRegulatorylevels),itwouldbehelpfultoclarifythedeterminationof“CapitalAvailable”forbothTotalandCoreRatiopurposes.Underthesessubsections,thequantumandapplicationofCapitalAvailablewilldifferfortheTotalandCoreratios. WehaveclarifiedtheguidelinebyaddingatablesummarizingthecomponentsofregulatorycapitalandhighlightingthedifferencesbetweenP&CandlifeinsurersandbetweentheTotalandCoreratios.ThetermsusedinthetablealignwiththosedefinedinthecapitalguidelinesandusedintheKMR,improvingclarityaswellasconsistency. 3)KMRfiling WhenwilltheKMRbeintegratedintheRegulatoryReturnSystem(RRS)?ShoulditcontinuetobesubmittedviaemailtoLeadSupervisors? Startingin2018,theKMR(excelfile)maybesubmittedviatheRRSasanunstructuredfiling.OSFIwillbeintegratingtheofficialstructuredKMRreturnwithinRRSeffectiveQ12019. 4)KMRforLifeInsurers The“DiversificationCredit”lineshouldbejustbeforetheLICATBaseSolvencyBufferlinesincelifeinsurersmayconsiderotherrisksasdiversifiableundertheirORSAs. Aninsurermay,intheirORSA,considersomerisksdiversifiableevenwhenthesearenotintheregulatorytests.AlthoughnochangeshavebeenmadetotheKMRform,theKMRinstructionswereeditedtospecifythataninsurermay,intheirORSA,applyandreportadiversificationcreditrelatedtotheseotherrisksontheLifeKMR.AsimilarchangewasnotdeemednecessaryfortheP&CKMRduetothecurrentplacementofthelineforthecredit. 5)KMRforLifeInsurers TheLICATscalarisonlyreflectedinthetotalline,resultinginthesumofLICATpercentagesforvariousrisksatonly95%.Thescalarshouldbeexplicit,onaseparateline. Toavoidconfusion,wehaveremovedreferencecalculationswhereacomparisontoregulatorycapitalisnotusefulforKMRpurposes.Forlifeinsurers,thescalarremainswithintheBaseSolvencyBufferrow,forconsistencywiththeLICATregulatoryreturns. 6)KMRforLifeInsurers WenotethatareconciliationitemisalwaysneededforORSATier2vs.LICATTier2capitallevelsevenifthecompanysetstheirORSATier2capitaltobeequaltoLICATTier2capital.WerecommendmodifyingtheKMRreturn. TheKMRforlifeinsurershasbeenamendedtoallowfortheinputofORSACoreandNon-Corecapital(margin)resources.Abreakdownofallelementsincludedthereinshouldbeinputtedasreconcilingitems,asnecessary.ThisallowsmoreflexibilityforinsurerstoincludevariouselementscalculatedaspartoftheORSAprocess,ratherthanlimitingthesetoLICATrelatedelementsandconcepts.KMRinstructionshavebeenupdatedaccordingly. ModifiedDate: 2017-12-13 Secondarymenu RegulationandGuidance ActsandRegulations Guidance TableofGuidelines TableofAdvisories ApprovalsandPrecedents ApplicationandApprovalGuides RegulatoryandLegislativeAdvisories LegislativeRulings CapitalRulings NameRequest RiskAssessmentandIntervention SupervisoryPractices GuidetoIntervention TrustAgreements RegulatoryData FilingCorporateReturns FilingFinancialReturns ViewingFinancialData Anti-moneyLaunderingandCompliance Anti-moneyLaundering Anti-terrorismFinancing Sanctions Messages IndustryNotices WebTools WhoWeRegulate