The Office of the superintendent of Financial Institutions has issued a draft guideline setting out the capital adequacy framework for insurance holding companies and non-operating life companies.

OSFI’s framework for assessing the capital adequacy of a holding company compares capital available with a capital-risk metric. In this assessment, the holding company includes the consolidated operations of all subsidiaries except non-life solvency regulated financial corporations and, with OSFI approval, significant foreign life subsidiaries. The investment in these entities is deducted from capital.

Holding companies may increase their capital available by taking credit for capital in significant foreign life subsidiaries that is reasonably above the level at which the foreign regulator would take action against that subsidiary. Where a capital deficiency exists in a significant foreign life subsidiary, the amount of the deficiency will be deducted from the group’s capital.

There are no minimum or target requirements; however, OSFI expects holding companies to manage their capital in a manner which is commensurate with the group risk profile and control environment, it says.