rules and regulations

The Office of the Superintendent of Financial Institutions (OSFI) is crafting a new approach for setting capital requirements for segregated fund guarantee risk.

The federal financial regulator is developing a new methodology, which will be implemented in 2023, for calibrating the capital that insurers must set aside for seg fund guarantee risk that will replace the current approach — which was adopted in the early 2000s.

OSFI said that the new approach will reflect changes to accounting standards, which are due to take effect in 2023, and it will also modernize the capital rules in this area.

“One objective of the new standard approach is to improve the risk sensitivity of [seg fund guarantee] capital requirements,” OSFI noted.

The existing approach uses a factor-based methodology and allows insurers to rely on internal models (subject to OSFI approval).

OSFI said that the new approach “will be calculated by applying shocks to [seg fund guarantee] liabilities,” and it won’t allow for reliance on insurers’ own models.

The regulator plans to provide insurers with a proposed new methodology in December, and to undertake a public consultation by September 2021, with the aim of finalizing the new rules by August 2022.

Alongside the new accounting rules, OSFI’s new capital rules would take effect Jan. 1, 2023.