OSFI Target Capital

Question 1

List Assessments criteria that are important factors in OSFI’s capital and earnings assessment

Answer 1

• Adequacy of capital to support risk profile and business plan
• Ability to access capital at reasonable rates
• Quality of capital
• Strength of the insurer’s capital management policy
• SM and the BOD effectiveness in capital management processes

Question 2

List items that Capital management Policy should include

Answer 2

• Clearly defined roles and responsibilities with respect to the design and execution of relevant policies and procedures
• Policy that states capital adequacy goals relative to risk, taking into account the insurer’s strategic focus and business plan, and that sets its Internal Targets
• Policy with respect to the BOD regular review and discussion of the insurer’s capital management policy and ORSA

Question 3

Provide relevant factors in assessing the adequacy of an insurer’s current capital position

Answer 3

• Past and emerging trends
• Earnings and liquidity
• Insurer’s preparedness to deal with potential capital deficiencies

Question 4

Define Minimum Capital Ratio

Answer 4

Minimum levels of capital necessary for an insurer to cover the risks specified in the Capital Guidelines (100%)
• If not respected, concern about ongoing viability and level of risks for creditors and PHs

Question 5

Define Supervisory Target Capital Ratio

Answer 5

Target levels of capital necessary for an insurer to cover the risks specified in the Capital Guidelines as well as to provide a margin for other risks.
• Early intervention on a timely basis to be a reasonable expectation that action can be successful.
• If below 150%, indicative of material safety, soundness concerns and vulnerability to adverse business and economic conditions

Question 6

Define Internal Capital Levels

Answer 6

Target level of capital, determined as part of an ORSA, needed to cover all risks of the insurer, including risks specified in capital guidelines. Internal targets is amount of capital needed to protect PHs from wind-up.

Question 7

Discuss Available Capital

Answer 7

Insurer are expected to operate at Available Capital level above Internal Target. If insurer fall or is anticipating to fall below Internal Target; notify OSFI promptly and provide plan to:
• Manage risk and/or
• Restore its Capital Level

Question 8

OSFI expects the level and quality of an insurer’s capital and its capital management to be
commensurate with:

Answer 8

• Its circumstances
• Its risk profile and appetite
• Operating environment