2025 Life Insurance Capital Adequacy Test - Filing Instructions - Draft

Consultation status: Open

Please send your feedback and questions to LICAT-TSAV@osfi-bsif.gc.ca by October 22, 2024.

To review the version of these filing instructions and returns currently in effect, please visit 2023 Life Insurance Capital Adequacy Test - Filing Instructions.

General instructions

Insurers^{Footnote 1} should complete the LICAT Quarterly Return (LCQ) and LICAT Annual Supplement (LCA), referred together as LICAT returns, in accordance with Guideline A: Life Insurance Capital Adequacy Test (LICAT).

Please refer to the Filing Requirements, under Section V of the Canadian & Foreign Life Insurance Companies/Fraternal Benefit Societies - Manual of Reporting Forms and Instructions for expectations, including Electronic, Quarterly and Annual filing, penalties and audit reports, of other Canadian jurisdictions.

Electronic Filing

Electronic filing to OSFI via the Regulatory Reporting System (RRS) website is mandatory for the LICAT returns.

For electronic filing instructions, please refer to the Regulatory Reporting System (RRS) – Manage Financial Returns User Guide available on OSFI's website.

Quarterly Filing

One electronic copy of the LCQ Return (XML format) must be filed with OSFI via the RRS website within 45 days of each quarter end.

Annual Filing

One verified copy of each of the fourth quarter LCQ Return and the LCA Supplement, or Excel spreadsheet versions, together with the electronic file (XML format), must be filed with OSFI via the RRS website, within 60 days following the insurer's year-end.

Penalties for Late Filing

The LICAT returns must be received electronically on or before the applicable due date. There are penalties for late filing. Please refer to the Administrative Procedures for the Late and Erroneous Filing Penalty (LEFP) Framework for more information.

Auditor's Report

The insurer's external auditor (appointed under the Insurance Companies Act) is to report on the LCQ Return in accordance with the relevant standards as promulgated by the Canadian Auditing and Assurance Standards Board (AASB). In 2022 OSFI issued the Guideline: Assurance on Capital, Leverage and Liquidity Returns to better inform auditors and institutions on the work to be performed on regulatory returns in an effort to enhance and align OSFI’s assurance expectations across all FRFIs.

One electronic file of the Auditor's Report must be filed within 90 days of the insurer's fiscal year-end with OSFI via the RRS website.

LICAT Memorandum

In accordance with the Standards of Practice of the Canadian Institute of Actuaries, an insurer's Appointed Actuary is required to prepare, on an annual basis, a memorandum (LICAT Memorandum) to support the LICAT certification. The LICAT Memorandum should document the following:

1. The permitted approximations used, along with the vetting completed to measure the effectiveness of approximations, and the steps taken to refine and correct ineffective approximations (reference section 1.4.5 of the LICAT guideline).
2. The investment-grade corporate bond indices used as a basis for market spreads and how they meet the LICAT criteria (reference section 5.1.1 of the LICAT guideline).
3. The documents required to meet the qualitative conditions for recognition of dynamic hedging credits (reference section 7.3.2.1 of the LICAT guideline).

The LICAT Memorandum should be available for regulatory review upon request.

Other

Reproduced Copies of Returns

Where paper copies of the LICAT returns are filed, care should be taken to adhere to the original size and format of the forms; line numbering should not be altered. Paper copies should be printed on legal size (i.e. 8 ½″ x 14″) paper.

Filing Specifications

Third party vendors may provide software to assist with the preparation of the LICAT returns. If you wish to receive filing specifications or other information for this purpose, please contact OSFI.

Validation Rules

Please refer to OSFI's website or in RRS under Documents/Portal Documents/English/Return Validation Rules/Insurance Validation for a list of all current validation rules.

Specific instructions

These instructions are provided to assist insurers in filing their LICAT returns. The return forms are generally self-explanatory. Therefore, instructions are not provided for every page or field in the LCQ Return or LCA Supplement. The LICAT guideline should be used as the primary reference document for completing the LCQ Return and the LCA Supplement. These instructions provide additional guidance on how to report certain aspects of the LICAT calculations. Should there be any inconsistencies between the LICAT guideline and these instructions or the returns, the LICAT guideline prevails.

The instructions are applicable to all insurers regardless of their jurisdiction of incorporation, unless specified otherwise in this section or in "Section V - Jurisdictional Requirements."

All references to "pages" refer to pages of the LICAT returns. Page numbers relate to relevant chapters of the LICAT guideline; for example, pages 30.000 – 30.600 correspond to Chapter 3 of the guideline. Each data point in the LICAT returns is associated with its unique data point address indicated to the left of the cell containing the data point. These are static and will not change even if their location changes in the future.

Cover – Life Insurance Capital Adequacy Test: Quarterly Return

Insurer's Name, Date of Return and Contact Person

The insurer should use its official name and indicate the period ending date of the return. If regulatory staff has questions about the return or its content, they will generally contact the person indicated on the cover page.

Original Signatures

The Attestation of Authorized official / Chief Agent (Attestation) on the cover page of the LCQ Return should bear the original signature of the Authorized Official or a Chief Agent, as designated by the insurer, to indicate verification of the return information and attest to its accuracy.

In addition to the above, the Opinion of Actuary of the insurer (Opinion) on the cover of the LCQ Return must also be signed, at year-end, by the Appointed Actuary of the insurer. At year-end, the Authorized Official signing the Attestation must be different from the insurer's Appointed Actuary signing the Opinion.

The original signature page must be retained on file for regulatory review upon request.

Attestation – Life Insurance Capital Adequacy Test: Quarterly Return

Insurer’s should complete the Attestation page, in accordance with Assurance on Capital, Leverage and Liquidity Returns – Guideline.

Insurer’s Name, OSFI Identification Code, Date of Return and Contact Person

The insurer should use its official name, OSFI Identification Code and indicate the period ending date of the return. If regulatory staff has questions about the return or its content, they will generally contact the person indicated on the Attestation page.

Original Signatures

The Attestation of Senior Management on the Attestation page of the LCQ Return should bear the original signature of the Senior Management, to indicate that the returns are accurate, complete, and in compliance with the minimum regulatory requirements at the reporting date, commencing fiscal year 2024.

The Opinion of Internal Auditor on the Attestation page of the LCQ Return also must be signed to evaluate and opinion on the effectiveness of the processes and internal controls in place for the LICAT and LIMAT. This requirement commences in fiscal year 2023, and the internal auditors are expected to provide their opinion within 90 days of the fiscal year-end at a minimum once every three years based on the FRI’s internal risk-based frequency of review.

The original signature page must be retained on file for regulatory review upon request.

Page 10.100 – LICAT Ratios: Summary Calculations

Eligible Deposits

Per section 6.8.4 of the LICAT guideline, claims fluctuations reserves should be included in Eligible Deposits. Therefore these should be reported directly on this page and excluded from the total for Credits for Policyholder Deposits and Group Business reported on page 90.000.

Composite Subsidiaries

For composite insurance subsidiaries, capital requirements for credit, market and operational risks should be calculated per the LICAT guideline.

Insurance Risk capital requirements associated with property and casualty (P&C) insurance business of composite subsidiaries should be calculated in accordance with Guideline A: Minimum Capital Test (MCT). Calculated amounts should be included in the line Insurance Risk on page 10.100, combined with the requirements calculated per LICAT. Capital requirements for P&C insurance risk of composite subsidiaries should also be reported in the designated lines of the insurance risk pages 60.000 and 60.010.

Segregated Fund Guarantee Risk

The value reported under required capital for Segregated Fund Guarantee Risk should reconcile to pages 70.300 or 70.400 of the LCQ Return, as applicable.

Page 10.200 – Balance Sheet Reconciliation: Assets

There is a difference between a consolidated balance sheet based on Canadian GAAP and a consolidated balance sheet for LICAT purposes. The Balance Sheet Reconciliation page presents consolidated balance sheet assets as per OSFI's LIFE Return (based on Canadian GAAP consolidation principles) and reconciles, where applicable, the consolidated balance sheet carrying amounts of assets for LICAT purposes. In addition to the different line item presentation, the LICAT balance sheet includes those GAAP consolidated assets of subsidiaries that carry on a business that a life insurer could carry on directly and excludes the GAAP consolidated assets of non-life solvency regulated financial corporations (non-life subsidiaries) that are deconsolidated and reported instead using the equity method of accounting (reference section 1.3 of the LICAT guideline). The page should reflect the adjustments necessary for excluding the assets and liabilities of deconsolidated subsidiaries (e.g. reversing the consolidation entries and reinstating the corresponding investment accounts using the equity method of accounting).

LICAT Balance Sheet

Total index linked assets should be reported under the appropriate category in the LICAT Balance Sheet column (in addition to the assets shown in Credit Risk and Market Risk section). For example, in this column, insurers should report common equities used to back qualified indexed linked products under the "Common Shares" section, and report bonds and debentures under the "Bonds and Debentures" section.

Vested in Trust

Branches of foreign life insurance companies should use the Vested in Trust column to report balance sheet assets vested in trust. These should normally be equivalent to those reported in the LIFE Return.

Deconsolidation and Other Adjustments

Use the Deconsolidation and Other Adjustments column to report adjustments relevant for determining the carrying values of accounts used for LICAT purposes. These may include accounts receivable, accrued investment income for each type of invested assets (e.g. short-term investments, bonds and debentures). All of these adjustments combined should be reflected on the Balance Sheet Reconciliation page; however, each adjustment should be documented and available for review upon request.

Page 10.250 – Balance Sheet Reconciliation: Investments in Non-Life Solvency Regulated Financial Subsidiaries

Use this page to enter information pertaining to non-life subsidiaries deconsolidated for LICAT purposes (reference section 1.3 of the LICAT guideline). Subsidiaries should be reported in descending order (largest to smallest), determined based on the reported Investment Amount in the entity. The form allows for a total of 15 entries. If there are more than 15 subsidiaries, the insurer should report 14 subsidiaries, aggregate the information for all remaining subsidiaries, and report the resulting amounts as "Subsidiary 15".

In the Business Type column, indicate the deconsolidated entity's primary type of business such as banking, trust and loan, P&C insurance, cooperative credit society, securities dealer or other.

Investment Amount should be calculated using the equity method of accounting, as specified in section 1.3 of the LICAT guideline.

In the Capital Requirements column, enter, in Canadian dollars, capital requirements for non-life subsidiaries based on their respective jurisdictional solvency requirements.

Example: For a deposit-taking subsidiary domiciled in Canada, the insurer would report capital requirements, in Canadian dollars, equivalent to 10.5% of risk weighted assets. For a Canadian property and casualty subsidiary of a life insurer, the insurer would report capital requirements determined using the MCT guideline at the target level (i.e. not divided by 1.5).

Page 10.300 – Balance Sheet Reconciliation: Liabilities and Equity

Similar to page 10.200, the Balance Sheet Reconciliation – Liabilities and Equity page reflects the reversal of some accounting entries and reclassifications necessary to arrive at balance sheet liability amounts for LICAT purposes.

Example: The LICAT balance sheet would exclude liabilities of non-life subsidiaries such as, for example, liabilities of a P&C insurance subsidiary.

In the Shareholders' Equity section and the Head Office Account, Reserves & AOCI section, the value reported under Reserves should only be completed for amounts reported on OSFI's LIFE return for P&C composite subsidiaries.

Page 10.500 – Eligible Deposits

Page 10.500 is a quarterly requirement effective January 1, 2025.

The Eligible Deposits After Application of Limits (section 6.8.1 and 6.8.4) should be calculated per section 1.1.4 of the LICAT guideline and should reconcile with Eligible Deposits on page 10.100 or page 120.000 of the LCQ Return.

Page 20.100 – Available Capital: Tier 1

Gross Tier 1 Capital reported should equal to the sum of Tier 1 Capital Instruments (issued directly by the insurer and those issued by subsidiaries of the insurer and held by third party investors) and Tier 1 Capital Elements Other than Capital Instruments. Net Tier 1 Capital reported should be equal to Gross Tier 1 Capital less deductions from Gross Tier 1 Capital. Tier 1 Capital reported should correspond to Net Tier 1 Capital less deductions from Gross Tier 2 Capital that are in excess of Gross Tier 2 Capital.

Tier 1 Capital Instruments

Tier 1 Capital Instruments reported here should include common shares as well as Tier 1 Capital Instruments Other than Common Shares. Insurers are asked to report instruments that meet the LICAT qualifying criteria (for common shares and for Tier 1 Capital Instruments Other than Common Shares) as well as instruments that are subject to transition measures outlined in sections 2.4.1 and 2.4.2 of the LICAT guideline.

Reported capital instruments subject to transition measures outlined in section 2.4.1 may include, for example, Tier 1 innovative instruments or certain preferred shares, issued directly by the insurer or by a subsidiary.

It is important to note that transition measures outlined in section 2.4.2 of the LICAT guideline are applicable only to instruments and therefore are not applicable to Tier 1 elements, other than capital instruments, attributable to non-controlling interests.

Tier 1 Capital Elements other than Capital Instruments

Insurers are asked to report all eligible elements, other than instruments, as reported on their balance sheet, except where indicated otherwise in the LICAT guideline. This may include, for example, contributed surplus. For Adjusted Retained Earnings and Adjusted Accumulated Other Comprehensive Income (AOCI), detailed information must be reported on page 20.400 of the LCA Supplement. For Participating Account and Non-Participating Account, insurers should pay particular attention to relevant footnotes included in section 2.1.1 of the LICAT guideline.

Capital Composition for Common & Policyholders' Equity (%)

Insurers should use this data point to report the percentage of Net Tier 1 capital comprised of common shareholders' equity and / or participating policyholders' equity. As outlined in section 2.3 of the LICAT guideline, the amount must be at least 75%.

Capital Composition Tier 1 Capital Instruments Other Than Common Shares (%)

Insurers should use this data point to report the percentage of Net Tier 1 capital comprised of Tier 1 Capital Instruments Other than Common Shares. As outlined in section 2.3 of the LICAT guideline, the amount is limited to 25%. Should an insurer's amount exceed 25%, the excess may be included in Tier 2 capital (subject to the Tier 2 limit).

Page 20.200 – Available Capital: Tier 2

Gross Tier 2 Capital reported should be equal to the sum of Tier 2 Capital Instruments (issued directly by the insurer and issued by subsidiaries of the insurer and held by third party investors) and Tier 2 Capital Elements Other than Capital Instruments. Net Tier 2 Capital reported should be equal to Gross Tier 2 Capital less deductions from Gross Tier 2 Capital. Tier 2 Capital reported should be equal to Net Tier 2 capital less Net Tier 2 Capital in excess of Net Tier 1 Capital, if applicable.

Tier 2 Capital Instruments

Insurers are asked to report Tier 2 instruments that meet the LICAT qualifying criteria (for Tier 2 instruments) as well as instruments that are subject to transition measures outlined in sections 2.4.1 and 2.4.2 of the LICAT guideline.

Tier 2 capital instruments that meet the LICAT qualifying criteria may include those that are issued directly by the insurer, as well as those issued by a subsidiary and held by third party investors. They may include, for example, subordinated debt issued directly or subordinated debt issued by subsidiaries on or after September 13, 2016 that are subject to the Third Party Share limit outlined in section 2.2.1.4.

Reported capital instruments subject to transition measures outlined in section 2.4.1 of the LICAT guideline may include, for example, hybrid capital instruments, issued directly by the insurer or by a subsidiary.

Reported capital instruments subject to transition measures outlined in section 2.4.2 are Tier 2 instruments issued by subsidiaries and held by third parties either prior to August 7, 2014 and subject to section 2.4.1, or issued prior to September 13, 2016 that meet LICAT qualifying criteria.

Tier 2 Capital Elements other than Capital Instruments

Insurers are asked to report all eligible elements, other than instruments, as reported on their balance sheet, except where indicated otherwise in the LICAT guideline. This may include, for example, negative reserves or share premium resulting from the issuance of capital instruments included in Tier 2 capital.

Page 20.300 – Available Capital: Deductions

All deductions are reported as made from Gross Tier 1 or from Gross Tier 2, as applicable.

The deductions for goodwill, intangible assets and defined benefit pension plan assets should be reported net of their corresponding deferred tax liabilities (DTL).

The Tier 1 deduction for negative reserves should be reported inclusive of requirements defined in sections 2.1.2.9, 10.2.2, 10.2.4 and 10.5 of the LICAT guideline.

Insurers should report, on pages 20.500 and 20.600, details of deduction amounts for deferred tax assets, encumbered assets and negative reserves.

Page 20.400 – Available Capital: Adjusted Retained Earnings and Adjusted AOCI

In order to recognize contractual service margins (CSM) within Available Capital, contractual service margins that are reported as liabilities in the financial statements are added and all contractual service margins that are reported as assets in the financial statements are subtracted in determining Adjusted Retained Earnings.

For non-stock companies (without reported retained earnings), amounts reported on line "Retained Earnings (LICAT Balance Sheet)" should be interpreted as surplus which includes amounts attributable to Participating Policyholders /Certificate holders, Fraternal and Other Fund Account and Residual Interest Policyholders, as reported in the LIFE return. In these instances, adjustments (including CSM reversals) to determine Adjusted Retained Earnings should be made from this reported amount.

Accumulated after tax fair value gains (losses) arising from changes in institution's own credit risk

The adjustment under AOCI for Accumulated after tax fair value gains (losses) arising from changes in institution's own credit risk refers primarily to gains (losses) recognized in OCI where an insurer has adopted IFRS 9, and reflects changes in the fair value of the insurer's own credit risk recognised in OCI unless doing so creates an accounting mismatch, in which case it would be reported as an adjustment to Retained Earnings.

The difference between Restated Liabilities for segregated fund guarantees and the Best Estimate Liability for these guarantees, if positive, is deducted from the Adjusted Retained Earnings

Restated Liabilities for segregated fund guarantees are defined in section 7.1 of the LICAT guideline.

AOCI

All AOCI items leading to the Subtotal AOCI (LICAT Balance Sheet) should be reported and will provide a breakdown of AOCI components on the insurer's balance sheet. The items listed below the subtotal value are AOCI adjustments made for LICAT purposes, in order to calculate the Adjusted AOCI value.

AOCI Accumulated unrealized gains (losses) on controlled investments in non-life FIs, deducted from Available Capital

Accumulated unrealized gains (losses) on controlled investments in non-life FIs, deducted from Available Capital refers to all AOCI balances relating to non-life subsidiaries deconsolidated for LICAT purposes.

Page 20.500 – Available Capital: Deferred Tax Assets (DTA) and Encumbered Assets

Eligible Deferred Tax Liabilities

Eligible DTL reported here are limited to those permitted to offset DTA for balance sheet reporting purposes at the legal entity level, excluding DTL that have been netted against the deductions for goodwill, intangible assets and defined benefit pension plan assets. Eligible DTL are allocated on a pro rata basis between DTA Temporary and DTA Non-Temporary.

Encumbered Assets

Insurers should report LICAT specified encumbered assets pledged as collateral to a counterparty, in order to participate in certain activities, such as mortgage borrowing and doing business in a foreign jurisdiction (e.g. by posting deposits to cover for regulatory requirements).

These pledged assets are deducted from Gross Tier 1. The deduction is calculated as the difference between the value of the assets and the excess (for each pool of encumbered assets and the liabilities they secure) of the value of on-balance sheet liabilities and any marginal capital requirements (floored at zero). Insurers should refer to the LICAT guideline for any exceptions, exclusions or special allocations relating to the deduction.

Example: The table below is an example of an insurer calculating its required deduction for various encumbered assets. Insurers should note that the table includes two shaded columns for amounts that are exempt from the encumbered assets deduction (i.e. derivatives and off-balance sheet repurchase agreements / securities lending). These were included for completeness to illustrate the calculation of the deduction but should not be reported in the LICAT returns.

Page 20.600 – Negative Reserves

Page 20.600 is now a quarterly requirement.

Negative reserves net of all reinsurance: Report best estimate negative reserve amounts for existing business, and future business assumed through reinsurance, with breakdown of amounts by non-tax eligible and tax eligible business (refer to section 2.1.2.9). Refer to section 2.1.2.9 for the definition of negative reserves for segregated fund guarantees.

Amounts recoverable on surrender: Report amounts for each of the amounts recoverable on surrender for retained business as specified in section 2.1.2.9.

For insurers adopting the Simplified Option (q.v. section 7.4), the approximation of amounts recoverable on surrender related to negative reserves should be included in line "Scalar × (1 + operational risk factor) × 70% of marginal risk requirements (Section 2.1.2.9.2 and 2.1.2.9.3)".

Memo Item – Adjustment for the effect of income taxes and Adjustment for amounts recoverable on surrender

The sum of the values reported under these two items should reconcile to the Tier 1 Capital component and Tier 2 deductions reported on pages 20.100 and 20.300, or to the amounts deducted from Assets Required and Other Admitted Assets on page 120.100 of the LCQ Return, as applicable.

Page 30.000 – Credit Risk

Capital requirements for credit risk associated with Letters of credit and other acceptable collateral used to obtain capital credit for unregistered reinsurance should be calculated and reported separately. The documented calculations should be available for regulatory review upon request.

Capital requirements for credit risk associated with segregated fund guarantees should be calculated and reported separately on page 70.300 of the LCQ Return.

Page 30.200 – Credit Risk: Bonds

Insurers are asked to report exposures to both private and public bonds on this page.

Insurers should report the following maturities in each of the columns^{Footnote 2}:

Page 30.400 – Credit Risk: Mortgage Loans

For reporting Other Insured Mortgage Loans, refer to sections 3.1.6 and 3.3 of the LICAT guideline regarding mortgage insurance other than CMHC.

Refer to section 3.1.6 of the LICAT guideline regarding the definition of qualifying residential mortgage loans.

The amounts for Impaired and Restructured Mortgages should be reported net of write-downs and individual allowances^{Footnote 3}.

Page 30.500 – Reinsurance Contracts Held, Receivables, and Other Assets

Refer to section 3.1.7 of the LICAT guideline to determine the portion of registered reinsurance contract held assets that are currently receivable.

Assets Held for Sale

Insurers may choose to either apply a 20% risk factor to Assets Held for Sale or use a look through approach as per section 3.1.8 of the LICAT guideline. Each should be reported separately.

Page 40.200 – Derivatives Contracts

Notional principal amounts reported on this page are for information purposes only. Capital requirements for off-balance sheet exposures are calculated on page 40.100.

Page 40.300 – Derivatives Contracts

Credit equivalent amounts calculated and reported on this page are for information purposes only. Capital requirements for off-balance sheet exposures are calculated on page 40.100.

Page 50.000 – Market Risk

The final required capital (after the smoothing is applied by participating block) should be reported on page 50.000 for par required capital for each geographic region.

Capital requirements for market risk associated with acceptable collateral used to obtain capital credit for unregistered reinsurance should be calculated and reported separately. The documented calculations should be available for regulatory review upon request.

The requirements of composite insurers that the LICAT requires be calculated per the MCT should not be included and reported on page 50.000 nor should they be included and reported on pages 50.100 to 50.500.

Capital requirements for market risk associated with segregated fund guarantees should be calculated and reported separately on page 70.300 of the LCQ Return.

Page 50.100 – Interest Rate Risk

Page 50.100 is now a quarterly requirement. The most adverse scenarios should be determined using the current quarter information (unsmoothed amounts). The smoothed required capital amounts for par (reference section 5.1.2.3 of the LICAT guideline) should also be reported on page 50.100.

Page 50.300 – Market Risk: Real Estate Risk

PV of Lease Cash Flows for Investment Real Estate should only include leases in force and exclude renewals.

Required capital for Owner-Occupied Real Estate reported here should be determined on a property-by-property basis. Documentation supporting the amounts reported should be available for regulatory review upon request.

Required capital for leased properties and other leased assets should be reported under All Other Real Estate. The exposure amount is the balance sheet value of the leased asset determined in accordance with IFRS 16 Leases.

All Other Real Estate (incl. Oil & Gas, Plant and Equipment, etc.) is not necessarily equal to the sum of the components reported directly above it (reference section 5.3 of the LICAT guideline).

Page 50.500 – Market Risk: Currency Risk

Although not reported here, the net open long and net open short positions as well as the offset, if applicable, for currencies other than USD, EUR, GBP and JPY, should be calculated by individual currency. Those individual amounts should then be aggregated by reporting region and reported under Exposures in other currencies, by region^{Footnote 4}. Documentation supporting the amounts reported should be available for regulatory review upon request.

Page 60.000 – Insurance Risk

Composite Subsidiaries

Insurers for which the LICAT requires that capital requirements be calculated in accordance with Guideline A: Minimum Capital Test (MCT) should report those insurance risk requirements in line P&C Insurance (per MCT) (reference section 6.7 of the LICAT guideline).

Credit for stop-loss arrangements

For pages 60.000 – 60.030, each insurance risk category should be reported net of stop loss, if any. The memo item Credit for stop-loss arrangements at the bottom of each page is reported for information purposes only. For further details, refer to section 6.8.5 of the LICAT guideline.

Segregated fund guarantees

Capital requirements for all insurance risk associated with segregated fund guarantees should be reported separately on page 70.300 of the LCQ Return.

Page 60.010 – Insurance Risk: Non-Participating Products

Composite Subsidiaries

Insurers for which the LICAT requires that capital requirements be calculated in accordance with Guideline A: Minimum Capital Test (MCT) should report those insurance risk requirements in line P&C Insurance (per MCT) (reference section 6.7 of the LICAT guideline).

Page 60.300 – Insurance Risk: Morbidity

Incidence Rates Required Capital

The total Incidence Rates Required Capital (i.e. data point address: 6030037090) should not be equal to:

$$\mathrm{Level\; Required\; Capital}\left(\mathrm{After\; Diversification}\right)+\mathrm{Trend\; Required\; Capital}+\sqrt{{\mathrm{Volatility\; Required\; Capital}\left(\mathrm{After\; Diversification}\right)}^2+{\mathrm{Catastrophe\; Required\; Capital}}^2}$$

(i.e. data point addresses: $6030037050+6030037060+\sqrt{{6030037070}^2+{6030037080}^2}$ ).

This is due to the volatility and catastrophe components being aggregated using a square root sum of squares calculation at the geography level, not at the total consolidated level.

Individually Underwritten Group Business

A "group" that is individually underwritten should be reported under individual columns in the Incidence Rates exhibit.

Other A&S

Other individual A&S and other group A&S products should be reported under Other A&S column in the Incidence Rates exhibit.

Pages 70.300 and 70.400 – Segregated Fund Guarantee Risk

Segregated fund guarantees are subject to capital requirements for credit, market, insurance risk, and operational risks and diversification credit.

Insurers must complete either page 70.300 or page 70.400, for those insurers that qualify^{Footnote 5} and choose to use the Simplified Option.

Scalar and smoothing are applicable, please refer to section 7.5 of the LICAT guideline for details.

Page 70.300 – Segregated Fund Guarantee Risk Capital Requirements

Required capital for segregated fund guarantees should be reported on page 70.300^{Footnote 6}.

Credit Risk

For reporting credit risk capital requirements, refer to sections 7.2.1 Credit Risk of the LICAT guideline.

Market risk

For reporting of market risk capital requirements, refer to sections 7.2.2 Market Risk and section 7.3 Recognition of Equity Hedges of the LICAT guideline.

Insurance Risk

For reporting of insurance risk capital requirements, refer to sections 7.2.3 Insurance Risk of the LICAT guideline.

Guaranteed values of Segregated Fund Guarantees

In addition to the capital requirements, insurers should also report the guaranteed values of segregated fund guarantees on page 70.300.

Page 70.400 – Segregated Fund Guarantee Risk: Simplified Option

This page is for reporting under the Simplified Option^{Footnote 6}, please refer to sections 7.4.2 Simplified Option Capital requirements of the LICAT guideline.

Page 80.000 – Operational Risk

Direct Premiums Received

Direct premiums received used for calculating Business Volume and Large Increase in Business Volume requirements may not be equivalent to gross premiums reported in the Income Statements of LIFE Quarterly return as gross premiums represent the sum of direct premiums received and assumed premiums received. A breakdown of the components of gross premiums, which include direct and assumed premiums used for LICAT purposes, can be found in the LIFE Annual Supplement.

Business Volume

Business volume required capital should be calculated per the guideline (reference section 8.2.1) and entered directly without using information from "12 Months Premiums/Account Values/Liabilities – Current Year" or "12 Months Premiums/Account Values/Liabilities – Prior Year". The values reported for each geographic region should be greater than or equal to zero.

Large Increase in Business Volume

Large increase in business volume required capital should use the formulas specified in the guideline (reference section 8.2.2), as well as the information from "12 Months Premiums/Account Values/Liabilities – Current Year" and "12 Months Premiums/Account Values/Liabilities – Prior Year". The values reported for each geographic region should be greater than or equal to zero.

Page 90.000 – Participating, Adjustable and Policyholder Deposits and Group Business Credits

Par Credit

Insurers should refer to sections 9.1 and 9.3 of the LICAT guideline for specific criteria that must be met in order to report a Par Credit amount on this page. The Par Credit is also subject to specific conditions, floors, limits and smoothing as outlined in the guideline. The reported amount should reflect consideration of all those elements.

The amount reported in Required Capital for Participating Products before Credits and Non-Diversified Risks should be the sum of the adjusted diversified requirements K_i calculated for the qualifying participating blocks (after smoothing is applied by participating block) and for the qualifying participating products that are contractually adjustable (refer to section 9.1 and 9.3 of the LICAT guideline). The amount reported in Required Capital, reduced by Par RPT features should be Required Capital for Participating Products before Credits and Non-Diversified Risks less the sum of the credits CP_i for the qualifying participating blocks and the aggregate credit for the qualifying participating products that are contractually adjustable (refer to section 9.1 and 9.3 of the LICAT guideline). Smoothing should also be applied to the components of CP_i as defined in section 9.1.2 and 9.3.

Adjustable Credit

Insurers should refer to section 9.2 of the LICAT guideline for specific conditions that must be met in order to report an Adjustable Credit amount on this page. The Adjustable Credit is also subject to specific conditions, floors and limits as outlined in the guideline and should reflect consideration of all those elements.

The amount reported in Required Capital for Non-Participating Products before Credits and Non-Diversified Risks should be the requirement K calculated for the non-participating block (refer to section 9.2.2 of the LICAT guideline). The amount reported in Required Capital, reduced by adjustable features should be Required Capital for Non-Participating Products before Credits and Non-Diversified Risks less the sum of the credits CA_j calculated for the qualifying adjustable blocks (refer to section 9.2.2 of the LICAT guideline).

Claims Fluctuation Reserves

Claims fluctuations reserves are not included in the total for Credits for Policyholder Deposits and Group Business. Per section 6.8.4 of the LICAT guideline, they should be included in Eligible Deposits and reported directly on page 10.100.

Page 110.000 – Diversification Credit

The diversification credit for Par, Non-Par and Total lines should be equal to Undiversified Risk Requirement (U) less Adjusted Diversified Requirement for Insurance, Credit and Market Risk (K), i.e. U − K. The smoothed interest rate requirements should be used to calculate diversification credit for Par.

Page 120.100 – LIMAT: Available Margin

Assets Available

Only assets that are vested in trust in Canada, as defined in the Insurance Companies Act, should be reported under Vested Assets in Canada.

Assets Required

Insurers should refer to section 12.2.5 of the LICAT guideline to determine amounts reported under Insurance contract liabilities, net of all reinsurance ceded.

In order to recognize contractual service margins within Available Margin, contractual service margins should be reversed in determining Assets Required.

The difference between Restated Liabilities for segregated fund guarantees (q.v. section 7.1) and the Best Estimate Liability for these guarantees reported in the financial statements, if positive, is included in Assets Required.