BC regulator implements OSFI’s new stress testing guideline

British Columbia’s regulator has adopted the Office of the Superintendent of Financial Institution (OSFI)’s guidelines for stress testing and dynamic capital adequacy tests (DCAT) for insurance companies.
OSFI released Guideline E-18 in December 2009. The guideline outlines five areas that should receive greater scrutiny in stress testing in light of the market conditions that led to a global recession.
Risks requiring special attention include, among others, collateral use, securitization and counterparty credit risks.
“For British Columbia-incorporated insurers, the requirements in preparing stress tests (including the DCAT) are the same as set out in OSFI’s Guideline E-18, apart from differences due to laws, regulations and filing instructions,” a Financial Institutions Commission (FICOM) release says.
“The British Columbia Superintendent understands that it may take time to fully implement these requirements,” it continued.
“However, we expect insurers to assess their stress testing practices against the principles set out in the guideline and, where gaps have been identified, the insurer [should develop] action plans to improve their practices in a reasonable amount of time.”
FICOM will review these action plans during an insurer’s next on-site examination.