Federal regulators Wednesday released revised capital rules for life insurers, which aim to more closely align regulatory capital requirements with risk.

The Office of the Superintendent of Financial Institutions has released the latest revisions to its Minimum Continuing Capital and Surplus Requirements (MCCSR) for life insurance companies and fraternal benefit societies, which will come into effect on January 1, 2012. OSFI says that the objective of these latest revisions is to adopt more appropriate risk-based guidance in several areas.

Among other things, it aims to make the asset default risk requirements for investments in mutual funds more risk sensitive by aligning the capital charge with the permitted asset mix of the fund. It also clarifies the concept of retained loss position in reinsurance arrangements and amends its treatment to improve consistency among the various types of variable risk transfer mechanisms. And, it clarifies that the “reversal from retained earnings of the net decrease in policy liabilities resulting from the recognition of future mortality improvement” includes insurance and annuities, but excludes segregated funds.

On July 11, OSFI published a draft guideline for public consultation. The comments from the industry, and discussions with the Canadian Life and Health Insurance Association, have been incorporated in to the final guideline, it says.