OSFI Proposes Guideline on Internal Model Oversight for Insurers
OSFI proposed the draft guideline E-25 on the internal model oversight framework for federally regulated property and casualty (P&C) insurance companies. The guideline outlines OSFI expectations for insurers when establishing and maintaining an oversight framework with policies and procedures that identify, assess, and manage risks of internal models used to determine regulatory capital requirements, in accordance with the OSFI Minimum Capital Test (MCT) guideline. The comment period on this consultation ends on August 30, 2019 and OSFI intends to finalize the guideline for publication by the end of 2019.
The guideline applies to insurers that have received approval to use an internal model. If OSFI were to approve a P&C insurer to use an internal model to determine regulatory capital requirements for its insurance risk, the insurer would have some flexibility to design its internal model to better measure and manage associated risks. However, this flexibility introduces internal model risk. To minimize the internal model risk, OSFI expects insurers to develop and implement sound policies and practices for the oversight and control of risk associated with internal models. This draft guideline outlines the OSFI expectations for such internal model oversight and risk control.
OSFI also published an impact analysis statement on the guideline for internal model oversight framework. An internal model, which is developed by an insurer and is used for determining the MCT regulatory capital requirements, captures the risks faced by an insurer more precisely than a non-customized standard approach. Insurer-specific elements of the model could include model inputs, model form, modeling technique, or choice of parameters. Insurers should satisfy the expectations of this guideline on an ongoing basis and demonstrate compliance on request.
Related Links
Comment Due Date: August 30, 2019
Keywords: Americas, Canada, Insurance, Property and Casualty Insurers, Guideline E-25, Internal Model, Capital Requirements, MCT Guideline, OSFI
Previous Article
BaFin Publishes Guidance on Outsourcing to Cloud Service ProvidersRelated Articles
EC to Defer Application of SFDR Standards Till July 2022
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
EBA Seeks Views on Proportionality Assessment Methodology
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
US Agencies Propose Changes to Call Reports and Instructions
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
EBA Examines Asset Encumbrance in Banking Sector
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
EBA Publishes Methodological Guide to Mystery Shopping
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
APRA Issues Update on Capital Reform Policy Settings for Banks
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
CPMI-IOSCO Assess Continuity Planning of Market Infrastructures
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
ESMA Responds to Proposal Related to Sustainability Standards Board
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.
