The Office of the Superintendent of Financial Institutions has released revisions to the Minimum Continuing Capital and Surplus Requirements that apply to life insurance companies. The changes are effective for fiscal year-end 2003.

OSFI says that the revised guideline contains significant changes to the October 2002 version. In 2002, the asset default factors for assets backing participating policies meeting certain specified criteria were reduced to 50% of the factors used for assets backing non-participating policies and surplus. The qualifying criteria have been modified.

There are also changes concerning segregated fund guarantee risk. It provides OSFI-approved capital factors for products where the standard MCCSR factors are not appropriate. “The change clarifies the capital treatment when a company’s internal model produces materially higher amounts than assumed in the approved segregated fund capital factors.

The treatment of negative reserves and lapse risk requirements has been modified. Companies will calculate capital required and capital available using both the current rules and a modified approach based on the proposal submitted by the Canadian Institute of Actuaries in 2002.

OSFI says the guideline will be adjusted to recognize the difference between current requirements and the modified CIA proposal. In 2003, this adjustment will consist of one third of the differential between the two methodologies. The adjusted MCCSR will form the basis of supervisory assessment and of consideration of requests for approval. Over the next three years, OSFI will assess the impact of the change and, if necessary, recalibrate the lapse factors to ensure industry-wide capital neutrality.

Also, the requirements regarding the treatment of intangible assets have now been incorporated in the guideline. The rating categories for commercial paper under asset default risk have been revised to reflect current rating categories.

As well, there have been significant revisions to certain reporting forms.