Federal financial regulators are cutting capital requirements on life insurers’ infrastructure investments, setting the stage for insurers to boost activity in this critical area — while also pausing the next round of capital rule changes.
In a letter to the industry, the Office of the Superintendent of Financial Institutions (OSFI) announced reductions in the capital charges for infrastructure investments. It’s cut the credit risk charge for investments in unrated infrastructure debt to 3% from 6%, and reduced the market risk charge for qualifying equity investments to 30% from 40%.
The moves aim to facilitate increased infrastructure investment at a time when the federal government has pledged to accelerate such projects, in response to the fallout from the U.S. trade war and rising defence spending — much of which includes infrastructure initiatives.
“Reduced capital requirements for Canada-based infrastructure projects implies that, all else being equal, a company can now hold more Canadian-based infrastructure projects for an equivalent amount of regulatory capital,” OSFI said.
Ultimately, the change “could incentivize life insurers to invest more in Canadian-based infrastructure projects,” it said.
At the same time, the regulator cancelled its planned public consultation on the next round of changes to the Life Insurance Capital Adequacy Test (LICAT), which was scheduled for 2026. As a result, there will be no changes to the rules in 2027, OSFI said.
Following the most recent changes to the capital rules, OSFI said it “determined that maintaining the current stability of the LICAT framework will better ensure capital regulatory management and predictability.”
The regulator pledged to give the industry at least one year’s notice before restarting consultations, with changes not expected until after 2028.
In the meantime, OSFI said it will proceed with planned quantitative impact studies to help inform future LICAT guidance.
“We will continue to monitor the risk environment and adjust the capital framework as required,” the regulator said.