Federal financial regulators have published a revised capital guideline for property and casualty insurers.

The Office of the Superintendent of Financial Institutions Thursday published a revised Minimum Capital Test guideline, which alters the capital adequacy regime for P&C firms. The revised guideline is effective January 1.

Among other things, the revisions:
> reflect the transition to International Financial Reporting Standards;
> introduce a minimum gross capital level, which requires insurers to maintain a minimum amount of capital on unearned premiums, unpaid claims and adjustment expenses;
> clarify which entities are considered associates and the capital treatment for loans to, and equity investments in, these entities;
> adjust the MCT for consolidation;
> introduce a 0.5% capital factor on letters of credit; and
> introduce a new audit requirement.

In a letter accompanying the new guidance, OSFI says that a collaborative, educational process will be established between OSFI, the Insurance Bureau of Canada, and the audit community, in the coming year, to clarify some key areas of the MCT and to ease the implementation of an audit requirement.