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
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB Reports Assess Impact of Pandemic on Financial Stability
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ Consults on Implementation of Capital Review Changes
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
IASB Announces Andreas Barckow as the New Chair from July 2021
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA Consults on Capital Rules for Bank Equity Investments in Funds
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).
