FSCO Sets Stage for New MCT Application

The Financial Services Commission of Ontario (FSCO) has published its guidance on the new minimum capital test (MCT), with insurers set to implement the new test on 2004 annual returns. The MCT, a risk-based system of assessing capital requirements, has been in place on a trial basis since 2002.

The MCT mirrors the test in place at the federal level as monitored by the Office of the Superintendent of Financial Institutions (OSFI). Like OSFI, FSCO expects insurers to hit a minimum 150% score on the test – meaning they would carry 150% of the capital required to meet all their liabilities. However, the regulator reserves the right to set a higher target depending on an insurer’s risk profile. “Although it will not be required that companies maintain capital above statutory limits, FSCO will encourage companies to avoid operating at the minimum levels,” notes the guidance.