The Office of the Superintendent of Financial Institutions reports that it is working to improve risk-based capital adequacy tests for insurance companies.

“There is a great deal of interest both in Canada and abroad in developing new capital requirements to encourage financial institutions to develop better risk management procedures and to collect the data necessary to use company-specific risk components whenever possible,” it says.

OSFI and the Canadian life insurance industry are working together to develop more advanced risk measurement techniques to incorporate into the capital adequacy rules. These techniques will include the development of criteria for risk-sensitive methodologies for use by companies that have the commitment and resources to implement them, it says.

The MCCSR (Minimum Continuing Capital and Surplus Requirements) Advisory Committee is made up of representatives from the CLHIA, the CIA, Assuris, the Autorité des marchés financiers and OSFI. The committee’s mandate is to: build consensus on the direction of the new framework; establish high-level principles for the development of the new framework; provide strategic guidance on technical direction; assess recommendations on modifications to the capital framework made by the technical groups involved in the process.

The committee plans to develop and recommend to OSFI and the AMF changes to the current capital framework in stages. Its first priorities are to revise the Asset/Liability Mismatch and Interest Rate and the Asset Default risk components. A definitive timetable has yet to be developed, but the changes in interest rate and asset default risks initiatives are expected to be completed over the next three years.

OSFI says it will follow its normal public consultation process before any changes are made to the framework.

The committee has also developed and adopted a set of high-level principles to guide the development of a new capital framework.