June 15, 2017

OSFI published the updated Minimum Capital Test (MCT) guideline for property and casualty (P&C) insurance companies in Canada. The MCT guideline outlines the capital framework, using a risk-based formula, for target and minimum capital or margin required and defines the capital and assets that are available to meet the minimum standard. The guideline determines the minimum capital or margin required, not the level of capital or margin required at which P&C insurers must operate.

The guideline applies to Canadian and foreign P&C insurance companies operating in Canada on a branch basis, collectively referred to as P&C insurers. The minimum and supervisory target capital standards set out in this guideline provide the framework within which the Superintendent assesses whether a P&C company maintains adequate capital pursuant to subsection 515(1) and whether a foreign P&C company maintains an adequate margin pursuant to subsection 608(1) of the Insurance Companies Act. Notwithstanding that a P&C company may meet these standards, the Superintendent may direct the P&C company to increase its capital under subsection 515(3) or the foreign P&C company to increase the margin of assets in Canada over liabilities in Canada under subsection 608(4) of this Act. However, the MCT is only one element in the determination of the required assets that must be maintained in Canada by foreign P&C companies. Foreign P&C companies must vest assets in accordance with the Adequacy of Assets in Canada test, as prescribed in the Assets (Foreign Companies) Regulations.

Related Link: Guideline

Keywords: Americas, Canada, Insurance, OSFI, Capital Requirements, MCT, P&C Insurers

 


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