Canadian insurance regulators are proposing to revise their approach to setting capital requirements for the life insurance industry ahead of a new capital adequacy framework.

In late 2007, a working group consisting of representatives from the Autorité des marchés financiers, the Office of the Superintendent of Financial Institutions and Assuris was formed to update the current solvency framework that would form the standard approach in the new solvency framework.

“The increased complexity of products and globalization of insurance products requires a modernization of the current approach for measuring capital requirements. Also, impending accounting changes will make it necessary to update the standard approach,” it says.

In March 2008, the working group published a discussion paper that proposed a new standard approach to determine how much capital a Canadian life insurance company should be required to have on hand in order to be able to meet its obligations. Following the comments received, the working group has revised the document, and it says most of the suggestions have been incorporated into the revised paper.

This paper is not intended to be a final statement of the position of OSFI, AMF or Assuris. They will also now be preparing more detailed papers on market, credit, insurance and operational risk.

The new methodology for market and credit risk is targeted to be implemented on January 1, 2012.