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November 30, 2018

OSFI released a revised Minimum Capital Test (MCT) Guideline for federally regulated property and casualty (P&C) insurers. The MCT 2019 guideline incorporates changes to reflect review of the framework for reinsurance, International Financial Reporting Standard (IFRS) 16, and the amendments to the Guideline B-5 on asset securitization. Effective date for the revised MCT guideline is January 01, 2019.

This guideline outlines the capital framework, using a risk-based formula, for target and minimum capital/margin required and defines the capital/assets that are available to meet the minimum standard. The MCT determines the minimum capital/margin required and not the level of capital/margin required at which property and casualty companies must operate. The MCT Guideline applies to Canadian property and casualty insurance companies and foreign property and casualty companies operating in Canada on a branch basis, collectively referred to as P&C insurers. The key changes to the MCT guideline, compared to the June 2018 draft version, include the following:

  • The introduction of a transition period for the increase in the margin required for reinsurance ceded to unregistered reinsurers from 15% to 20%
  • Amendments to allow the return of excess funds withheld or collateral associated with reinsurance ceded to unregistered reinsurers
  • The addition of three credit rating agencies to the list of recognized rating agencies

 

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Effective Date: January 01, 2019

Keywords: Americas, Canada, Insurance, Property and Casualty Insurance, MCT Guideline, Capital Requirements, IFRS 16, Guideline B-5, OSFI

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