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
APRA Publishes Results of Climate Risk Self-Assessment Survey
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
ACPR Publishes Updates Related to CRD IV and Covered Bonds
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
EIOPA Publishes Guidance on Climate Change Scenarios in ORSA
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
EBA and ECB Respond to Proposals on Sustainability Disclosures
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
EBA Publishes Multiple Regulatory Updates for Regulated Entities
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
EESC Opines on Proposals on CRR and European Single Access Point
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury Publishes Multiple Regulatory Updates in July 2022
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.
