Actuarial Notes

Guideline on Capital Adequacy Requirements: Property and Casualty Insurance

By Autorité des marchés financiers · 2025

The Autorité des marchés financiers' capital adequacy guideline for property and casualty ("damage") insurers authorized in Québec, January 2025 revision. It sets out the capital framework — a risk-based formula for target and minimum capital requirements, the Minimum Capital Test (MCT) — and defines the capital available to meet the minimum standard. The guideline applies to all insurers authorized to carry on P&C insurance activities in Québec (excluding self-regulatory organizations and reciprocal unions), on a consolidated basis, and this version takes effect on January 1, 2025, for fiscal years beginning on or after that date.

1 Introduction and general requirements

  • 1.1 Introduction
    • 1.1.1 Guideline objective
    • 1.1.2 Scope of application
    • 1.1.3 Effective date
    • 1.1.4 Clarification
    • 1.1.5 Interpretation
  • 1.2 Risk-based capital adequacy
    • Capital requirements are set at a target confidence level of 99% of the expected shortfall (CTE 99%) over a one-year horizon, including a terminal provision.
    • Target capital is the sum of the capital required for insurance risk, market risk, credit risk and operational risk, less the diversification credit; minimum capital required is target capital divided by 1.5.
    • The MCT ratio is capital available divided by minimum capital required.
  • 1.3 General requirements
    • 1.3.1 Minimum ratio, intervention target ratio and internal capital target ratio
      • Insurers maintain, continuously and at a minimum, an MCT ratio of 100%; the AMF expects an intervention target ratio of 150% in its supervisory activities.
      • Each insurer sets an internal capital target ratio above the 150% intervention target ratio, reflecting its risk appetite and the results of sensitivity analyses, and taking into account at least residual credit, market and insurance risks, liquidity, concentration, regulatory and strategic risk, and access to market capital.
    • 1.3.2 Considerations relating to reinsurance
      • 1.3.2.1 Definitions
      • 1.3.2.2 Registered reinsurance
      • 1.3.2.3 Unregistered reinsurance
    • 1.3.3 Audit
      • 1.3.3.1 External Audit
      • 1.3.3.2 Internal audit
    • 1.3.4 Allocation
    • 1.3.5 Intra-group pooling arrangements
    • 1.3.6 Transition period
    • 1.3.7 Designated representative's signature

2 Capital available

  • 2.1 Capital components
    • 2.1.1 Category A capital (common equity)
    • 2.1.2 Category B capital
    • 2.1.3 Category C capital
  • 2.2 Capital composition limits
  • 2.3 Regulatory adjustments to capital available
  • 2.4 Interests in and loans to subsidiaries, associates and joint ventures

3 Insurance risk

  • 3.1 Description of insurance risk
  • 3.2 Diversification credit within insurance risk
  • 3.3 Margins for liability for incurred claims and unexpired coverage
  • 3.4 Risk mitigation and risk transfer mechanisms - reinsurance
  • 3.5 Self-insured retentions
  • 3.6 Earthquake risk exposure
  • 3.7 Nuclear catastrophe risk exposure
  • 3.8 Other classes

4 Insurance risk – Internal model

  • 4.1 Main phases leading to approval
  • 4.2 Internal model documentation
  • 4.3 Governance
  • 4.4 Validation and internal audit
  • 4.5 Data maintenance
  • 4.6 Use test
  • 4.7 Insurance risk modelling validation requirements
  • 4.8 Changes and change tracking
  • 4.9 Ongoing monitoring

5 Market risk

  • 5.1 Interest rate risk
  • 5.2 Foreign exchange risk
  • 5.3 Equity risk
  • 5.4 Real estate risk
  • 5.5 Right-of-use assets
  • 5.6 Other market risk exposures

6 Credit risk

  • 6.1 Capital requirements for balance sheet assets
  • 6.2 Capital requirements for off-balance sheet assets exposures
  • 6.3 Capital treatment of collateral and guarantees

7 Operational risk

  • 7.1 Operational risk formula
  • 7.2 Components of operational risk margin

8 Diversification credit

  • 8.1 Risk aggregation and diversification credit

Annex 1 Qualifying criteria for category A capital instruments

Annex 2 Qualifying criteria for category B capital instruments

Annex 3 Qualifying criteria for category C capital instruments

Annex 4 Instructions – capital required – accident and sickness insurance

Related readings

  • OSFI MCT — the federal Minimum Capital Test guideline; the AMF guideline sets its own MCT for insurers authorized in Québec

Sources