OSFI publishes draft 2018 version of Minimum Capital Test for federally regulated P&C insurers

The Office of the Superintendent of Financial Institutions (OSFI) on Thursday published the draft 2018 version of its Minimum Capital Test (MCT) for federally regulated P&C insurers.

The revised guideline, which will be effective Jan. 1, 2018, provides clarification with respect to inquiries received during the year, OSFI noted in a statement. It also relocates the accident and sickness insurance worksheet from the guideline to the quarterly statutory return as a separate exhibit.

Stakeholders are requested to provide comments on the draft revised guideline by Aug. 4.

Subsection 515(1) of the Insurance Companies Act requires federally regulated P&C companies to maintain adequate capital. Subsection 608(1) of the act requires foreign P&C companies operating in Canada on a branch basis to maintain an adequate margin of assets in Canada over liabilities in the country.

Information on the guideline from OSFI notes the document is broken down into the following categories: overview and general requirements; definition of capital available; foreign companies operating in Canada on a branch basis; insurance risk; market risk; credit risk; operational risk; and diversification credit.

The guideline outlines the capital framework, using a risk-based formula, for target and minimum capital/margin required and defines the capital/assets required to meet the minimum standard. The MCT determines the minimum capital/margin required and not the level of capital/margin required at which P&C companies may operate.

More information is available at http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/mct2018.aspx#Toc-1.