Canadian insurance regulators have issued a policy paper setting out the latest thinking on a new standardized approach to setting capital requirements for life insurers.
A group of regulators, comprised of representatives from the Autorité des marchés financiers (AMF), the Office of the Superintendent of Financial Institutions (OSFI), and Assuris, issued a paper Monday that details the principles and concepts underlying a possible new capital framework for insurers. OSFI notes that the paper “reflects the current stage of development,” not its final position on these issues.
The paper, which was prepared by the Standard Approach Advisory Group (SAAG), outlines the main concepts underlying the potential new standard approach for the life insurance capital framework. The approach covered in the paper takes credit, market, insurance and operational risks into account. It also factors in risk mitigation efforts, such as reinsurance, hedging, and diversification, both within risks and between risks; and, it provides credit for product features, such as participating and adjustable products.
The working group first published a paper back in 2008 that set the stage for a review of the entire capital and solvency regime for life insurers. That review aims to produce a revised capital guideline that includes a better assessment of solvency risk. “The revised approach should better align measures of risks with the economic reality faced by life insurers, thereby promoting appropriate risk management and business decisions,” the regulators say in the paper.