Canada’s Office of the Superintendent of Financial Institutions (OSFI) launched three consultations and introduced changes to the Life Insurance Capital Adequacy Test (LICAT), as part of its Spring 2025 Quarterly Release Day.
The updated LICAT proposals include the removal of the current aggregate limit on the Tier-1 capital deduction for Canadian insurers.
For foreign insurers operating in Canada, the change eliminates the cap on the reduction in asset amounts. OSFI stated it may take supervisory measures if these adjustments result in a significant decline in capital quality.
The changes apply to all federally regulated life insurers, including Canadian branches of foreign life insurers, fraternal benefit societies, regulated holding companies, and non-operating life insurance firms.
Should we observe material deterioration in the insurer’s capital quality because of these arrangements, we may take supervisory actions to ensure the insurer’s capital quality remains satisfactory
Canada’s Office of the Superintendent of Financial Institutions
The updated guidelines also remove the deduction limit from available capital for stop-loss reinsurance and standardize treatment of unregistered reinsurance for segregated fund guarantees.
The agency began a 60-day consultation on a draft for new liquidity adequacy requirements, intended to confirm that insurers hold sufficient liquid assets to meet obligations.
It also launched a 90-day consultation on revisions to its internal liquidity assessment process, outlining a more structured supervisory review, along with proposals to simplify the draft Minimum Capital Test guideline.
OSFI said these updates align with its broader Policy Modernization initiative and aim to increase clarity, improve regulatory efficiency, and provide greater predictability.
According to superintendent Peter Routledge, regular updates and industry feedback help strengthen Canada’s financial system and maintain regulatory standards under changing risk conditions.
