E.2 Life Insurance Regulatory Framework

Question 1

Purpose and scope of OFSI’s planned revisions

Office of the superintendent of financial institutions

Answer 1

Objectives:

• Increase integration between risk measurement, management, and pricing in insurer governance and culture
• Support risk governance and information sharing culture
• Transparent information for stakeholders

planned enhancements :

• revised corporate gov guideline and ORSA guidance
• revised regulatory capital requirements guidance to measure risk at a similar level and accommodate companies of different size
• consider developments in actuarial and economic capital theory
• links risk measures to the quality of capital available to absorb losses

Question 2

General impact on PHs, creditors, and insurers

Answer 2

Impact to PHs and creditors:

• more understanding of insurers risk taking activities
• more confidence in life insurers ability to withstand major economic shock
• continued level of protection for PH and creditors

Impact to Insurers:

• Board will need broader skill set
• more risk management resources
• capital levels or allocations may change
• Higher loss absorbency of capital
• continued ability to price risk competitively

Question 3

Revision to risk management and governance

Answer 3

• enhance corporate governance - by implementing practices that account for the nature, complexity, and strategy of the insurer
• Promoting ORSA
• Use of internal models for regulatory capital requirements

Question 4

Key changes in the revised regulatory framework compared to the current framework

Answer 4

similarities with current approach:

• same starting point
• continued use f approved internal models
• standard approach will continue to define the min RC
• measures are expressed as a capital ratio

More comprehensive:

• TAR
• min vs supervisory target
• ensuring uniformity in risk measurement; benefits have a similar confidence level
• segregated fund gts ; set a higher regulatory capital requirement for contracts <5 years to maturity
• Diversification and hedging - revised approach will give more diversification benefits