the Office of the Superintendent of Financial Institutions (OSFI) published the final version of the insurance capital guidelines on July 21, in order to take into account the international financial reporting standard IFRS17, Insurance contractswhich will enter into force in January 2023.
This international accounting standard affects all aspects of accounting for insurance contracts and improves the comparability of risks worldwide in the sector. OSFI says it will provide meaningful comparisons between companies, contracts and industries.
“The move to IFRS 17 is the most significant change to insurance accounting in over 20 years,” OSFI said in the cover letter to the insurance industry. Insurance companies will have to deal with its application, which is accompanied by substantial changes in accounting, actuarial and reporting practices, in addition to having a significant impact on support systems and practices,” he. “While significant efforts have been made to ensure rigorous implementation, IFRS 17 is still a new standard and OSFI expects insurers to exercise caution when making decisions that would result in changes to their capital levels,” he adds in this letter as well as in each of the three side letters addressed to federal insurers and industry bodies, i.e. life insurers , property and casualty insurers and mortgage insurers.
Documentation includes a final version of the guideline Capital adequacy test of life insurance companies (LICAT) of 2023, as well as the regulatory filings and filing guide, which will come into effect on January 1, 2023. For federal P&C insurers, OSFI has also issued a guideline Minimum capital test (TCM) of 2023, as well as the regulatory statements and the production guide. Finally, for federal mortgage insurers, the guideline Capital adequacy test of mortgage insurance companies (TSAH) has also been updated as have regulatory statements and related instructions.
OSFI explains that shortly after the initial issuance of IFRS 17 in June 2017, it undertook a multi-year exercise to update its capital tests, guidance, reporting requirements and expectations. monitoring. “Comments from the insurance industry and stakeholders have helped OSFI reach conclusions that apply to the Canadian context,” the organization adds. “OSFI will continue to monitor the effectiveness of the guidelines to ensure that they remain fit for purpose and relevant in light of industry and economic developments. »
The documents also include a summary of comments made during the consultations and OSFI’s responses.
Segregated fund guarantees
For life insurance companies that offer segregated fund guarantee (SFG) policies, OSFI is developing a new way to determine regulatory capital requirements for this risk to replace the current method. OSFI announced in June 2021 that it was deferring the implementation date of the new approach to January 1, 2025. “In the meantime, the current methodology for calculating DFM risk capital remains in effect. , as updated to reflect IFRS 17. OSFI expects to hold a public consultation on the revised methodology in February 2023.”
Other life insurance documents are subject to changes as a result of changes to the LICAT 2023 guideline, including the Key Metrics Report form for internal risk and solvency (ORSA scheme) and related instructions, guideline A-4, Regulatory capital and internal capital targetsand the Revised guidance for life insurance companies that calculate capital requirements for segregated fund guarantees using an approved model.
Intra-group reinsurance pooling arrangements
For P&C insurers, the 2023 TCM Guideline clarifies that OSFI expects insurers to obtain supervisory approval for any intragroup reinsurance pooling arrangement, whether new or already in force, while the 2023 TSAH guideline directly incorporates the First Time Home Buyer Incentive Mortgage (PHIAPP) calculations set out in the advisory Total TSAH requirements for PHIAPPs.
“Through this work, OSFI is pursuing its mission to protect the rights and interests of policyholders and creditors and to help maintain public confidence in the Canadian financial system,” he wrote.