OSFI Proposes Guideline on Internal Model Oversight for Insurers

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

• Letter to Insurers
• Proposed Guideline E-25
• Impact Analysis Statement

Comment Due Date: August 30, 2019

Keywords: Americas, Canada, Insurance, Property and Casualty Insurers, Guideline E-25, Internal Model, Capital Requirements, MCT Guideline, OSFI