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
IASB Publishes Work Plan and Meeting Updates for June 2019Related Articles
HKMA on Fintech Adoption and Innovation by Banks in Hong Kong
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB Consults on Guide for Managing Climate and Environmental Risks
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA Assesses Interlinkages Between Recovery and Resolution Planning
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB Publishes Final MREL Policy Under the Banking Package
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
EIOPA Risk Assessment Shows Increase in Credit and Market Risks
EIOPA published its risk dashboard based on Solvency II data from the fourth quarter of 2019.
MNB Issues Statement on Loan Payments After Moratorium Expires
MNB published a statement on loan payments post the announced moratorium, in addition to a set of new questions and answers (Q&A) on supervisory measures and requirements announced amid COVID-19 pandemic.
EBA Single Rulebook Q&A: Second Update for May 2020
EBA updated the Single Rulebook question and answer (Q&A) tool for banks.
US Agencies Temporarily Amend Supplementary Leverage Ratio Calculation
US Agencies (FDIC, FED, and OCC) published an interim final rule that temporarily revises the supplementary leverage ratio calculation for depository institutions.
