OSFI - Target Cap Flashcards

1
Q

Define the Minimum Capital Requirement.

A

MinCapReq = 100% x BaseCap

  • it is the capital required to cover risks specified in capital guidelines
  • if CapAvail < MinCapReq, then there are critical viability concerns for the insurer
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2
Q

Define Supervisory Capital Requirement.

A

SupCapReq = 150% x BaseCap

  • it is the capital required to cover risks specified in capital guidelines PLUS a margin
  • if CapAvail < SupCapReq, then the insurer is subject to supervisory attention (early intervention status)
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3
Q

Define Internal Capital Target.

A
  • a capital target determine by ORSA that is above the supervisory capital target
  • includes risks specified in capital guidelines AND all insurer specific risks
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4
Q

Reasons for having an Internal Capital Target. (2)

A
  • gives management time to address issues (before potentially entering early intervention status)
  • captures insurer-specific risks not address by industry-wide capital guidelines
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5
Q

Describe an approach an insurer could use to determine its Internal Target Capital ratio. (3)

A
  • include insurer-specific risks in capital assessment
  • assessment uses stress-testing
  • capital level must withstand a specified level of loss without falling below supervisory capital over specified time horizon
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6
Q

Is it okay to consider future capital injections when determining the Internal Capital Target?

A
  • no, unless planned and certain
  • also, cannot consider head-office guarantees and other managements actions EXCEPT for setting targets above the Internal Target
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7
Q

What management action is required if Capital Available FALLS BELOW Internal Capital Target?

A

If this happens (or is expected to happen within 2 years), then OSFI must be notified and management must submit a plan to restore capital to the internal target level reasonably quickly.

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