OSFI – Industry consultation – Draft insurance capital guidelines 2023

June 21, 2021 – Capital requirements expected for institutions to meet on implementation of IFRS 17. Consultation divided in 3 parts – LICAT, MCAT, and MICAT.

LICAT Draft
Issued draft Life insurance capital adequacy test (LICAT) 2023 public consultation.
International Financial Reporting Standard 17 – Insurance Contracts (IFRS 17) will become effective for annual reporting periods beginning on or after January 1, 2023. The revised draft LICAT guidelines have been updated and adapted for IFRS 17. Additionally, the draft has incorporated the OSFI advisory issued in November 2020, entitled supplementary guidance for the treatment of participating insurance. Draft guidelines also include updated LICAT for IFRS 9 – Financial Instruments.

MCAT Draft
OSFI is issuing a revised draft Minimum capital test (MCT) 2023 guideline, reporting forms, instructions for consultation, which marks key milestone reported in September 2020. Specifically in the September 30, 2020 letter to federally regulated insurers. Key revisions to the MCT 2023 guideline aim to adapt the MCT for IFRS 17 Insurance contracts, including the use of concepts and measurements of insurance liabilities. For example, the new guideline uses “liabilities for incurred claims” and “liabilities for remaining coverage” instead of “unpaid claims” and “premium liabilities”, respectively.
Establish principles for allocation methods used for capital purposes and specify credit risk requirements in a manner consistent with IFRS 9 financial instruments terminology.
Reporting forms for MCT calculation per IFRS 17 will be in a new stand-alone return, PC4. New forms and instructions reflect the proposed draft revisions to the MCT guideline.

MICAT Draft
Revised Mortgage insurer capital adequacy test (MICAT) 2023 guidelines, for IFRS 17. Introduce capital requirement on loss components of liabilities for remaining coverage to enable MICAT ratio to better reflect changes in insurance risk during stress periods. Specify credit risk requirements consistent with IFRS 9 financial instruments terms. MICAT 2023 guideline also directly incorporates calculations for first-time homebuyer incentive mortgage (FTHBI) in advisory MICAT total requirements for FTHBI mortgage. MICAT reporting forms, instructions updated to reflect changes to the MICAT guideline.

Effectiveness
Public comments must be submitted on or before September 30, 2021.

For more information, visit www.osfi-bsif.gc.ca.

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