Quebec’s financial markets regulator, the Autorité des marchés financiers (AMF), is concerned about the results of a 2010 study into the solvency of Quebec-chartered life insurance companies. The regulator needs more data and wants to apply additional tests to insurers in order to better quantify the risk. The nature of these tests will be determined by trends in interest rates and the pending International Financial Reporting Standards (IFRS).

The AMF believes further research is required to develop certain parameters and hypotheses used in the study of life insurers’ solvency buffers. The regulator is also attempting to find answers to unresolved questions.
Interest rate risk is part of the AMF’s areas of inquiry. For example, the regulator notes that exposure to reinvestment risk beyond 30 years can vary significantly due to volatility over time. This represents more than half of all interest rate risk exposure, and the report points out that risk beyond the 30-year mark is predominantly unhedgeable. The AMF is therefore questioning exactly how much of a solvency buffer should be required of insurers in order to deal with these risks.
The AMF also says it intends “to consider ongoing developments with respect to the determination of IFRS liability discount rates.” Should the International Accounting Standards Board (IASB) use a more conservative discount rate, insurers will have to set aside more reserves to meet future obligations.
The report, called the Market Risk Quantitative Impact Study 2, is the result of work conducted by the Solvency Advisory Committee, which is made up of representatives from the AMF, as well from the Office of the Superintendent of Financial Institutions, and Assuris. The study is part of the committee’s work in dealing with the Capital Adequacy Requirements Guideline.