The Office of the Superintendent of Financial Institutions (OSFI) has published revised capital rules for property & casualty (P&C) insurers, along with an advisory for mortgage insurers, who will be adopting a tailored version of the P&C rules until a regime specific to that part of the industry is developed.

OSFI released a revised minimum capital test guideline for P&C insurers Wednesday, which updates the capital regime for the sector. The guideline, which takes effect Jan. 1, 2015, updates the risk factors and margins that go into firms’ capital calculations, and revises the definition of available capital. The new rules are to be phased in over three years.

“This new version of the guideline represents a more robust risk-based test that more accurately aligns capital requirements to the risks faced by the property and casualty insurance industry,” said deputy superintendent, Mark Zelmer, in a letter to the industry.

On average, OSFI reports that the new risk-based capital framework results in a 2.8 percentage point decline in the capital ratio across the entire industry. “Although the decline in the overall capital ratio is not material, the impact may vary by individual company as the new framework better aligns each insurer’s capital requirements with its risk profile,” OSFI says.

OSFI first published a discussion paper on proposed changes to the capital rules for the P&C industry in May 2013. And, it published the draft guideline for industry consultation in December 2013. The comments received during the consultation period led to a number of changes in the final rules, OSFI reports, including: reducing the operational risk factors by 15%; extending the phase-in period from two to three years; and, extending the filing requirements for audit opinions on capital positions from 60 days to 90 days.

“This guideline would not have been possible without the industry’s significant cooperation over the past few years,” said Zelmer.

Advisory for mortgage insurers

Separately, OSFI also issued an advisory setting out the regulatory capital framework that federally regulated mortgage insurance companies will be required to use, on an interim basis, starting in 2015. The interim capital framework is a modified version of the framework for P&C insurers that will be used until a new capital framework for mortgage insurers is in place.

The advisory describes the adjustments that mortgage insurers must make to the P&C rules to determine their capital requirements in order to reflect the specific characteristics of mortgage insurance companies. There is no phase in for this new regime.