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October 10, 2018

OSFI issued the final version of the 2019 Life Insurance Capital Adequacy Test (LICAT) guideline for life insurers. Appendix 1 to the OSFI notification letter summarizes comments received during consultation, organized by theme, along with the responses of OSFI. Life insurers are required to apply this guideline for reporting periods ending on or after January 01, 2019. Early application is not permitted.

In addition to minor edits and clarifications, the key changes made to the guideline include the following:

  • Apply the same capital treatment to all leases that will be reported on the balance sheet as a result of IFRS 16 – Leases
  • Create consistency with the upcoming revised Guideline B-5: Asset Securitization
  • Add three credit rating agencies to the list of recognized agencies
  • Specify that mortality risk components apply to group life insurance products
  • Introduce additional conditions for funds withheld reinsurance arrangements

This guideline establishes standards, using a risk-based approach, for measuring specific life insurer risks and for aggregating the results to calculate the amount of a regulatory required capital of a life insurer to support these risks. The guideline also defines and establishes criteria for determining the amount of qualifying regulatory available capital. LICAT is only one component of the required assets that foreign life insurers must maintain in Canada. Foreign life insurers must also vest assets in Canada per the Insurance Companies Act. A Subsection 515(1), 992(1), and 608(1) of the Insurance Companies Act requires federally regulated life insurance companies and societies, holding companies, and companies operating in Canada on a branch basis, respectively, to maintain adequate capital or to maintain an adequate margin of assets in Canada over liabilities in Canada. 

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Effective Date: January 01, 2019


Keywords: Americas, Canada, Insurance, LICAT, Capital Adequacy, IFRS 16, Life Insurance, OSFI

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