OSFI.TargCap

Question 1

define Minimum Capital Requirement

Answer 1

MinCapReq = 100% * BaseCap
- capital required to cover risks specified in capital guidelines
- if CapAvail < MinCapReq, then there are critical viability concerns for insurer

Question 2

define Supervisory Capital Requirement

Answer 2

SupCapReq = 150% * BaseCap
- capital required to cover risks specified in capital guidelines plus margin
- if CapAvail < SupCapReq, then insurer is subject to supervisory attention (early intervention status)

Question 3

define Internal Capital Target

Answer 3

The target levels of capital, determined as part of an insurer’s ORSA, needed to cover all the insurer-specific risks, and risks specified in the Capital Guidelines

Question 4

reasons for having an Internal Capital Target

Answer 4

• give management time to address issues
• captures insurer-specific risks not addressed by industry wide capital guidelines

Question 5

determining Internal Capital Target ratio

Answer 5

• include insurer specific risk
• assess using stress testing
• capital level must withstand a specified level of loss without falling below supervisory capital over specified time horizon

Question 6

is it ok to consider future capital injections when determining the Internal Capital Target?

Answer 6

no, unless its planned and certain
- also , cannot consider head office guarantees and other management actions. They should only be considered when determining the level at which the insurer will operate.

Question 7

Does OSFI need to be notified when an insurer changes its internal targets?

Answer 7

yes

Question 8

what is the required management action if capital available falls below Internal Capital Target?

Answer 8

if this happens or expected within 2 years, notify OSFI and submit plan to restore capital to internal target level reasonable quickly