OSFI Target Capital

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OSFI Target Capital
2014-04-12 13:46:29
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  1. OSFI's risk assessment process
    • evaluate inherent risk within each significant activity of the insurer
    • evaluate quality of risk management applied to mitigate those risks
    • determine the level and direction of the net risk of each activity
    • combine risks to arrive at the Overall Net Risk
    • develop a composite risk rating (and direction) for the insurer, taking into account both the assessment of the overall net risk and its assessment of capital, earnings, liquidity
  2. Other assessment criteria
    • quality of capital
    • adequacy of capital to support risk profile and business plan
    • sustainability of earnings
    • ability to access capital at reasonable rates to meet projected needs
  3. Regulatory capital ratios
    • minimum capital ratio: level necessary to cover risks specified in capital tests
    • supervisory target capital ratio: provide a margin for other types of risks not included in the test; provides for an early intervention approach
    • internal target capital ratio: consider own risk appetite and risk profile; should be above supervisory target to provide adequate time for management to resolve problems
    • MCT/BAAT uses 100% for minimum, 150% for supervisory target
  4. Establishing an internal target capital ratio
    • take into account current and forecasted business environments
    • adjusted when appropriate to ensure capital adequacy under stress scenarios
    • consider results of DCAT
    • BoD has ultimate responsibility for overall risk management program
  5. Establishing capital management policy includes
    • an internal target
    • documented policies and procedures to identify, measure and report material risks
    • clearly defined roles and responsibilities for design and execution of relevant policies
    • process to measure capital needs relative to current and anticipated future levels of risk
    • policy stating capital adequacy goals relative to risk
    • set of internal controls, reviews and audits to ensure integrity of overall risk