The Office of the Superintendent of Financial Institutions (OSFI) is developing a new approach to setting capital requirements for separate fund guarantee risk.
The federal financial regulator is developing a new methodology, to be implemented in 2023, for calibrating the capital insurers must allocate to segmented fund underwriting risk, replacing the current approach adopted in the early 2000s.
OSFI said the new approach will reflect changes in accounting standards that are scheduled to come into force in 2023, and will also modernize capital rules in this area.
“One of the objectives of the new standard approach is to improve the risk sensitivity of capital requirements (segment fund guarantees),” OSFI noted.
The existing approach uses an agent-based methodology and allows insurers to use internal models (subject to OSFI approval).
OSFI said the new approach “will be calculated by applying shocks to (segregated guarantee funds) liabilities” and will not allow reliance on insurers’ own models.
The regulator plans to present the proposed new methodology to insurers in December and conduct a public consultation by September 2021, with a view to finalizing the new rules by August 2022.
In addition to the new accounting rules, OSFI’s new capital rules will come into force on January 1, 2023.
