Actuarial Notes

Life Insurance Capital Adequacy Test (2025): Chapter 10 Credit for Reinsurance

By Office of the Superintendent of Financial Institutions · 2025 · Guideline A

Study guide: Exam CP-341

Chapter 10 of OSFI's Life Insurance Capital Adequacy Test (LICAT) guideline, dated January 1, 2025 (issued November 21, 2024), in the Capital Adequacy Requirements category. It describes the treatment of reinsurance in the determination of the LICAT ratios, collateral requirements for unregistered reinsurance, and the conditions necessary in order for an insurer to take credit for reinsurance. For calculating reinsurance credits on segregated fund guarantees, Restated Liabilities are used in lieu of Best Estimate Liabilities.

On the syllabus

  • Exam CP-341 — Outcomes 3d; Chapter 10: Credit for Reinsurance.

10.1 Definitions

  • 10.1.1 Registered reinsurance
    • An arrangement is deemed to constitute registered reinsurance if it is conducted with a registered reinsurer, which OSFI considers a federally incorporated or foreign reinsurer authorized by order of the Superintendent, or a provincially/territorially regulated insurer approved by the Superintendent.
  • 10.1.2 Unregistered reinsurance
    • An entity that is not a registered reinsurer is an unregistered reinsurer, and special purpose vehicles formed for the purpose of securitizing insurance risks are considered to be unregistered reinsurers.
    • Reinsurance with an unregistered reinsurer is treated as unregistered reinsurance unless it meets all of the conditions the section lists, in which case it is deemed registered reinsurance.
  • 10.1.3 Ceded liabilities

10.2 Adjustments to Available Capital for unregistered reinsurance

  • 10.2.1 Requirement for aggregate positive liabilities ceded
  • 10.2.2 Requirement for offsetting policy liabilities ceded
    • Example: Offsetting policy liabilities ceded
  • 10.2.3 Differences between reinsurance contracts held and direct liabilities
    • Examples: Differences between reinsurance contracts held and direct liabilities
  • 10.2.4 Requirement for negative liabilities ceded with recourse
    • Examples: Negative liabilities ceded with recourse
  • 10.2.5 Adjustment for the effect of income taxes
  • 10.2.6 Adjustment for amounts recoverable on surrender
  • 10.2.7 Aggregate negative liabilities ceded

10.3 Collateral and letters of credit

  • 10.3.1 Credit available
    • Examples: Collateral for unregistered reinsurance
  • 10.3.2 Application to requirements for ceded liabilities
    • Example: Adjustments and credit for liabilities ceded
  • 10.3.3 Credit and market risk requirements

10.4 Calculation of required capital/margin or Eligible Deposits

  • 10.4.1 Necessary conditions for credit
  • 10.4.2 Retained loss positions
  • 10.4.3 Registered reinsurance
    • Examples: Credit and market risk requirements for business ceded under funds withheld / modified coinsurance
  • 10.4.4 Unregistered reinsurance

10.5 Adjustment to Available Capital for stop-loss arrangements

Footnotes

Sources