The Office of the Superintendent of Financial Institutions has published revised capital rules for property and casualty insurance companies, which will come into effect on January 1, 2012.

OSFI says that the proposed guideline, which was published for comment in May, reflects OSFI’s intention to make the P&C insurance capital test more risk-based, and to bring greater consistency with the capital requirements of the other financial sectors. It has now finalized the guideline, with several key changes in response to industry comments.

The regulator indicates that it has decided to postpone the implementation of the foreign exchange risk margin for Canadian P&C insurers until 2013, while branches of foreign insurance companies maintain the existing foreign exchange risk margin. “We are currently examining our approach to foreign exchange risk margin for life insurers. In order to ensure consistent treatment of this risk across the two insurance sectors, the decision was made to defer implementation until similar foreign exchange risk margins could be developed for both industries,” it says.

OSFI will also consider introducing a large credit risk exposure limit during 2012 to prevent excessive concentrations of investments and collateral used to reduce the capital required for unregistered reinsurance and other exposures, to any one entity or group of entities, it adds.

IE