OSFI posts 14 principles guiding the development of a new capital framework

Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), has posted 14 high-level principles to guide the development of a new capital framework for property and casualty insurers. 
OSFI says the principles are intended to encourage the use of improved risk-based business decisions and better reflect an insurer’s risk profile and risk management practices.
The principles were prepared by the property and casualty (P&C) minimal capital test (MCT) advisory committee and endorsed by OSFI.
They include encouraging good risk management, encouraging capital planning and avoiding pro-cyclicality.
On the topic of risk measurement, the principles advise to:
• consider all risks;
• determine assets, liabilities and the capital requirement on a consistent basis for risk measurement purposes;
• be practical, yet technically sound;
• reflect existing risks on going concern basis and consider winding-up and restructuring;
• use measures that are comparable across risks and products; and
• use a total asset requirement (TAR) approach
On the subject of capital adequacy, the principles encourage insurers to make sure that capital is prudent and to consider international principles and best practices in their capital management activities.
As for risk monitoring, the principles call for insurers to:
• allow comparison of similar risks across financial institutions;
• be transparent, validated and based on credible data;
• use reliable processes with assumptions sustainable in times of stress; and
• be part of intervention levels for supervisory action.