Regulation (April 01, 2009)

OSFI TO TIGHTEN FOCUS ON CAPITAL RESERVE ADEQUACY

The Office of the Superintendent of Financial Institutions (OSFI) is aiming to improve its capital adequacy measurement techniques for federally regulated institutions, including property and casualty insurers, as a key focus for the 2009-12 planning period.

OSFI already started its work on the Minimum Capital Test (MCT) for the property and casualty industry in 2008, and it plans to continue it. Moving forward, OSFI says in its 2009-2010 Report on Plans and Priorities that it plans to develop and reach agreement on more risk sensitive measurement techniques and more forward-looking risk management techniques. “Capital provides a critical cushion for financial institutions which is always important, but especially during difficult economic times,” OSFI notes.

CANADIAN INSURERS RE-ENGINEERING THEIR ACTUARIAL DEPARTMENTS

Canadian insurers are re-engineering their actuarial departments to improve performance while at the same time dealing with current regulatory challenges and increased accounting requirements, PricewaterhouseCoopers says.

In its report, Adapting to a New Economic Reality, PwC notes that insurers are undertaking initiatives that focus on reducing complexity (in processes, controls, valuation models and spreadsheets) and increasing standardiza- tion, automation, process efficiency and effectiveness. Examples of general process improvements identified by insurers in the report include:

• coordinating a closing calendar with the company’s overall timeframes and dependencies;

• developing company policy that covers cut-off dates, calculation methodologies and process dependencies;

• shifting non-critical activities outside the critical close cycle;

• establishing guidelines for materiality and the use of estimates, as well as developing methods for continual monitoring of materiality; and

• maximizing efficiency of controls over data accuracy and completeness (performing key controls as efficiently as possible, for example, and removing non-essential controls).