Adoption of big regulatory changes must avoid unintentional harm

The Office of the Superintendent of Financial Institutions (OSFI) on Friday published the final version of its capital rules for federally regulated life insurers.

Known as the Life Insurance Capital Adequacy Test (LICAT) guideline, the rules are slated to take effect on Jan. 1, 2018

The new rules, which were developed in consultation with the industry and other stakeholders, replace the current industry capital rules, known as the minimum continuing capital and surplus requirements (MCCSR) guideline, which have been in place since 1992.

The new rules serve as “an important evolution” in its regulatory capital rules,” OSFI says in a news release.

“[The LICAT] represents a more advanced and risk-sensitive approach to capital that reflects lessons learned from the financial crisis, significant changes in the nature and management of risk within the life insurance industry, and international advancements in solvency frameworks,” OSFI says.

According to OSFI, the new rules are not expected to significantly change the overall amount of capital required to be held by the industry, compared with the existing MCCSR rules.

“Capital requirements not only protect policyholders and creditors, they promote confidence in the financial condition of life insurers The LICAT strikes the appropriate balance between protecting policyholders, while still allowing insurance companies to take risks and compete effectively,” says Carolyn Rogers, assistant superintendent, OSFI, in a statement.

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