The Office of the Superintendent of Financial Institutions has issued a new guideline for life insurers regarding their required source of earnings (SOE) disclosure.

The methodology for the calculation of an SOE analysis was originally developed in co-operation with the Canadian Institute of Actuaries. The guideline also reflects a number of comments provided during the industry consultation process, OSFI notes.

The guideline outlines OSFI’s expectations regarding the methodology, content and form of the SOE disclosure, which is intended to be a supplement to the disclosure required by the CICA accounting rules. “Because of the complexities and inherent uncertainties in the insurance industry, this SOE disclosure should enhance the ability of a company’s stakeholders to better form a view as to the quality, potential volatility and sustainability of earnings,” it says.

OSFI expects SOE disclosure to appear in either the notes to the annual public financial statements or as part of other disclosures within or accompanying the company’s public annual report. Where a company does not issue annual public financial statements or an annual report, OSFI expects SOE disclosure to be publicly available, e.g. upon request or on an Internet Web site. It is expected that the company will include some commentary explaining the SOE analysis methodology and results, and not just present the numbers in isolation.

Source of earnings analysis is a methodology for identifying and quantifying the various sources of Canadian GAAP income of a life insurance company. It is a presentation of net income in a different format from the traditional income statement form. It provides an analysis of the difference between actual income and the income that would have been reported had all assumptions at the start of the reporting period been realized during the reporting period.