OSFI Vision

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  1. Objectives of the new framework
    • develop more risk sensitive capital rules that recognize improvements in risk management
    • allow use of internal models for insurers meeting minimum mgt and governance criteria
    • encourage insurers using partial modelling (one risk) to develop full modelling (all risks)
  2. Structure of internal models
    • take into account all risks (insurance, credit, market, liquidity, operational)
    • model each risk separately
    • recognize cash flows from all assets and liabilities, and value consistently and realistically
    • ensure insurer assets are sufficient to withstand adversity
    • consider winding-up and restructuring costs when appropriate
  3. Standards for approval and use of internal models
    • appropriateness of model
    • risk management and control standards
    • data quality
    • extent to which model is used to run the business
    • minimum quantitative standards
  4. Internal model approach
    • uses scenario modelling integrated with insurer's risk management process
    • include risk mitigation strategies and risk dependencies (if can evaluate in robust manner)
    • minimum asset requirement (MAR) is determined with standard approach
  5. Specific TARequirements
    • time horizon: 1 year; funds remaining sufficient to fulfill policyholder obligations
    • terminal provision: amount needed to fulfill policyholder obligations or pass the risk
    • confidence level: VaR at 99.5% or TVaR at 99%; recognize volatility, uncertainty, cats
    • consistency: asset and liability risks assessed consistently based on market related info
    • market risk: can use own internally-developed stochastic economic scenario
  6. Framework levels
    • level 1: pre-conditions for solvency assessment
    • level 2: regulatory requirements: financial, governance, market conduct
    • level 3: supervisory assessment and intervention
    • disclosure to the public and to regulators (subject to confidentiality)
  7. Governance / management responsibilities
    • sufficiently skilled and competent resources dedicated to modelling function
    • process to test models (back testing, calibration to market valuations) and review data, ensure model input is consistent with general market data
    • review of model-based valuations to find errors and limit weaknesses
    • credible ongoing effort to improve model performance
    • regular cycle of model evaluation and adequate documentation
  8. Roles of supervisors / regulators
    • approval of all principles and internal models
    • set specific rules and regulations related to solvency financial requirements
    • review and monitoring of capital requirements
    • development of Standardized Approach
  9. Roles of insurer management
    • models embedded in risk management, used in decision-making, independently vetted
    • ensure internal models and tier results can be verified, audited, understood
    • related disclosures are complete and appropriate
Card Set:
OSFI Vision
2014-04-12 18:00:33
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