Federal financial regulators have released an advisory setting out guidance for revised segregated fund capital guarantee requirements.

The Office of the Superintendent of Financial Institutions Tuesday released guidance setting out new minimum calibration criteria for models that may be used to determine seg fund guarantee capital requirements.

The existing criteria, which are based on the performance of the TSX total return index, were developed at a time when the majority of exposure in seg fund products was to large cap Canadian equities, OSFI notes. Since then, product lineups have expanded to include offerings with significant exposure to U.S. and international equities, small and mid cap equities and bonds. To accommodate this evolution, OSFI is revising the criteria “to better capture the risks” in the current universe of seg funds.

The new criteria will apply to models approved for determining capital requirements for business written after January 1, 2011. The existing criteria will continue to apply to business written prior to Jan. 1, until a new approach, “which is consistent with the vision for life insurance company capital is developed and implemented,” OSFI says.

IE