The Office of the Superintendent of Financial Institutions (OSFI) today released final insurance capital guidelines updated to reflect implementation of International Financial Reporting Standards 17 (IFRS 17).
Specifically, OSFI released the final Minimum Capital Test (MCT) 2023 guideline, reporting forms and instructions that will come into force on Jan. 1, 2023.
Key revisions to the MCT 2023 guideline include:
Adapting it for IFRS 17 Insurance Contracts, including the use of concepts and measurements of insurance liabilities (for example the new guideline uses ‘liabilities for incurred claims’ instead of ‘unpaid claims’).
Adjusting requirements in respect of claims liabilities to maintain the overall level of required resources to protect policyholders.
Specifying credit risk requirements in a manner consistent with IFRS 9 Financial Instruments.
Establishing principles for allocation methods used for capital purposes.
Further, in keeping with IFRS 17 requirements for reinsurance, the MCT 2023 sets out OSFI’s expectation that insurers obtain a supervisory approval for any new or existing intra-group reinsurance pooling arrangements.
“We would like to acknowledge the extensive engagement with the insurance industry throughout this multi-year project to update the MCT framework for IFRS 17.”
Munipalle’s letter also included an appendix supplying OSFI’s responses to a range of insurance industry questions and comments on topics ranging from allocation principles, insurance acquisition cash flows, future cash flows, unexpired coverage, unregistered reinsurance, provincial risk-sharing pools, net premiums received, premiums written, and more.