Regulatory Capital and Internal Capital Targets Flashcards
(8 cards)
Define minimum capital
The minimum levels of capital necessary for an insurer to cover the risks specified in the Capital Guidelines.
Define supervisory target capital
The 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.
Define internal capital target
The target levels of capital, determined as part of an insurer’s ORSA, needed to cover all the risks of the insurer, including the risks specified in the Capital Guidelines.
Define capital management
On-going process of determining and maintaining the quantity and quality of capital appropriate to support an insurer’s planned operations.
What are factors other than regulatory capital that are considered by regulatory organisations (like OSFI) to determine if an institution has the financial resources required for its operations?
- Adequacy of capital
- Ability to access capital at resonable rate
- Quality of capital
- Quality of insurer’s capital management policy
- Effectiveness of oversight
Why should an FRFI hold more capital than the regulatory requirements?
Because the regulatory requirements are minimums and do not acocunt for every risk the insurer is exposed to since regulatory requirements are based on general risks, not specific ones to the insurer.
Why does OSFI emphasize the quality of capital in its assessments?
High-quality capital ensures financial strength during stress periods and provides protection during wind-up scenarios.
What is OSFI’s expectation regarding insurers’ capital management policies?
Insurers should have policies and procedures that:
- Include clearly defined roles and responsibilities
- State capital adequacy goals relative to risk,
- Is aligned with their strategic focus and business plan
