OSFI to focus on capital adequacy measurements

The Office of the Superintendant of Financial Institutions (OSFI) has cited improving its capital adequacy measurement techniques for federally regulated institutions, including property and casualty insurers, as a key focus for the 2009 – 2012 planning period.

In 2008 OSFI started its work on the Minimum Capital Test (MCT) for the p&c industry, and it plans to continue it.

“This initiative is to develop and reach agreement on more risk sensitive measurement techniques and more forward-looking risk management techniques,” OSFI said in its 2009-2010 Report on Plans and Priorities.

“Capital provides a critical cushion for financial institutions which is always important, but especially during difficult economic times.”

OSFI will also focus on post-implementation issues associated with the Basel II Capital Accord and the transition to International Financial Reporting Standards (IFRS), the report says.

“Policy work in this area [Basel II] will examine the target capital policy for risk ratios, modifications based on lessons learned to international capital rules and floors based on Basel II use and experience.”

Where IFRS is concerned, OSFI’s objective is to issue final guidelines, advisories and reporting returns to industry by mid-2010. Subsequent to that, the focus will shift to system development and implementation of the changes, the report adds.