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
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)
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
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
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
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
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.