After considering the information collected during its sixth quantitative impact study (QIS 6), which was carried out in November, Canadian regulators are preparing their future capital requirements for life insurers.The Standard Approach Advisory Group (SAAG) is composed of representatives from the Office of the Superintendent of Financial Institutions (OSFI), Quebec’s Autorité des marchés financiers (AMF), and the life insurance compensation body Assuris. SAAG has recently published a document outlining its general approach to monitoring the solvency of Canadian insurers. At the moment, the rules allow regulators to intervene and begin monitoring capital adequacy should an insurer’s Minimum Continuing Capital and Surplus Requirements (MCCSR) reach 150%. When the minimum regulatory ratio reaches 120%, it becomes possible for the regulators to assume control of the insurer.

QIS 6 collected information that the group will consider when it eventually develops new solvency measures. The regulators will look at various key elements, including how they can detect solvency problems quickly and intervene in time to reduce the risk of losses to insured parties. While new solvency measurements must also be sensitive to risk, regulators also say they should not be excessively volatile.

Among other things, the discount rate to be used by insurers will have to conform with the discount rate for future liabilities that may apply when the new accounting standards for insurance contracts (IFRS 4) come into effect. Overall, SAAG is considering a wide range of risks against which insurers must protect themselves, including credit risk, mortality, and longevity risks. No date has been given for when the final revised capital framework for life insurance companies may be expected.