Ottawa invites feedback on proposed risk, solvency guidelines for Canadian insurance firms

The Office of the Superintendent of Financial Institutions (OSFI) has announced it is proposing a guideline for Own Risk and Solvency Assessments (ORSA) for federally-regulated property and casualty and life insurance firms.

OSFI also announced Dec. 21 proposed amendments to its current Guideline A-4, which is its Internal Target Capital Ratio for Insured Companies. If approved, Guideline A-4 would be renamed Regulatory and Internal Target Capital Ratios.

If approved, the new ORSA and amended Guideline A-4 would take effect Jan. 1, 2014. OSFI is seeking input and comments from stakeholders on both proposals, which have been published on the OSFI website.

Comments are due April 12, 2013 to Henri Boudreau, director of OSFI’s capital division.

OSFI’s aims include helping insurance firms determine whether their internal capital positions are adequate and to “consider international developments and standards, including advancements in risk and capital management techniques.”

In an impact analysis statement, OSFI says explicit guidance for ORSA, which includes identifying “material risks” and “assessing the adequacy of their risk management and current and likely future solvency positions,” does not exist. In addition to Guideline A-4, OSFI’s existing guidelines include E-18, on stress testing, and E-19, dubbed Internal Capital Adequacy Assessment Process (ICAAP) for Deposit-Taking Institutions, which applies banks, trusts and loan companies.

“A new OSRA guideline will build on existing industry practice and OSFI guidance, while considering international practices,” OSFI states in its impact statement. “A guideline developed expressly for the insurance sector but that adopts similar guidance would facilitate the implementation process and avoid significant duplication effort.”

The OSFI document does not mention specific international standards, but one such proposed standard is Solvency II, a set of capital requirements and risk management standards for European insurers scheduled to take effect Jan. 1, 2014. A plenary vote on the Omnibus II directive is scheduled in European Parliament June 10, according to Britain’s Financial Services Authority.

Two years ago, the OSFI said it would wait before deciding which elements, if any, of Solvency II will apply in Canada.

OSFI is a federal government agency whose activities include evaluating system-wide risks and promoting sound business practices among federally-regulated financial institutions. In addition to P&C insurance firms, OSFI regulates fraternal benefit societies, life insurance companies, banks, trust companies and deposit-taking institutions plus federally-regulated pension plans.