Insurance industry regulators are undertaking a quantitative impact study of a new standardized method of calculating capital requirements.

The Office of the Superintendent of Financial Institutions reports that the Standardized Approach Working Group, which is comprised of representatives from OSFI, Assuris and Quebec’s Autorité des marchés financiers, is undertaking the first quantitative impact study for the new standardized approach that it is developing for the Minimum Continuing Capital and Surplus Requirements (MCCSR).

The primary purpose of the study, which covers the market and credit risk components of the new approach, is to test the practicality of the methods being proposed for the new components as well as to estimate the potential impact of adopting these components, it says.

“The new market risk component is based on applying shocks to interest rates, equities, and other market variables that affect the valuation of a company’s assets and liabilities, and measuring the change in the company’s financial position under these shocks. The new credit risk component retains the existing factor-based methodology, but differs from current requirements in that the factors used depend on both the term and credit quality of an obligation,” the regulators explain.

The study is being sent to all federally-regulated life insurers, and they are being asked to respond by December 11.

The new approach is expected to be implemented in stages, with the first components to be implemented starting in 2012.

IE