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OSFI wants comments on proposed MCT changes by Sept. 4


September 1, 2015   by Canadian Underwriter


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Insurance professionals have until Friday Sept. 4 to submit comments, to the federal government, on proposed changes to the minimum capital test (MCT) for property & casualty insurers.

Canada's federal Office of the Superintendent of Financial Institutions is updating the minimum capital test for property and casualty insurance carriers

“The most significant proposed change to the 2015 MCT Guideline is the addition of further provisions for equity risk exposures,” law firm McMillan LLP commented on its blog. “These provisions include capital requirements for equity derivatives (such as equity total return swaps, futures and forwards) and equity instruments held short, and the recognition of equity hedging strategies used by property and casualty insurers.”

Revisions would take effect Jan. 1, 2016, noted the Office of the Superintendent of Financial Institutions (OSFI) in an impact analysis statement.

OSFI – which reports to Parliament through the federal finance minister – monitors federally-regulated insurers, banks and other financial institutions for solvency and liquidity. With its 2016 MCT guideline, OSFI is aiming to “improve regulatory risk-based capital guidance.”

The MCT “provides the framework within which the (superintendent of financial institutions) assesses whether a P&C insurance company maintains adequate capital and whether a company operating in Canada on a branch basis maintains an adequate asset margin,” OSFI noted on its website. “The guideline describes the capital required using a risk-based formula, and defines the capital that is available to meet the calculated capital requirements.”

In addition to changing guidelines on equity risk exposure, OSFI also proposes to “provide clarification in respect of inquiries received during the year, to revise accounting terminology used in the MCT for consistency with the international accounting standards, and to improve consistency in capital requirements, where warranted, across the financial services sector,” OSFI Deputy Superintendent Mark Zelmer wrote in a letter July 22. “OSFI would appreciate receiving comments on the proposed changes prior to September 4, 2015. OSFI is working towards finalizing the 2016 MCT Guideline to be published in the fall of 2015, with an effective date of January 1, 2016.”

Zelmer added that comments or enquiries may be addressed to Judith Roberge, OSFI’s director of property and casualty insurance capital, at 613-990-4412 or judith.roberge@osfi-bsif.gc.ca.


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