Life Insurance Capital Adequacy Test – Guideline (2025)

Subsection 515(1), 992(1) and 608(1) of the Insurance Companies Act (ICA) requires federally regulated life insurance companies and societies, holding companies and companies operating in Canada on a branch basis, respectively, to maintain adequate capital or to maintain an adequate margin of assets in Canada over liabilities in Canada. Guideline A: Life Insurance Capital Adequacy Test is not made pursuant to subsections 515(2), 992(2) and 608(3) of the ICA. However, the guideline along with Guideline A-4: Regulatory Capital and Internal Capital Targets provide the framework within which the Superintendent assesses whether a life insurer^{Footnote 1} maintains adequate capital or an adequate margin pursuant to subsection 515(1), 992(1) and 608(1). Notwithstanding that a life insurer may meet these standards; the Superintendent may direct the life insurer to increase its capital under subsection 515(3), 992(3) or 608(4).

This guideline establishes standards, using a risk-based approach, for measuring specific life insurer risks and for aggregating the results to calculate the amount of a life insurer's regulatory required capital to support these risks. The guideline also defines and establishes criteria for determining the amount of qualifying regulatory available capital.

The Life Insurance Capital Adequacy Test is only one component of the required assets that foreign life insurers must maintain in Canada. Foreign life insurers must also vest assets in Canada per the ICA.

Life insurers are required to apply this guideline for annual reporting periods beginning on or after January 1, 2025.

Life Insurance Capital Adequacy Test

The following LICAT chapters are under consultation:

• Chapter 1 - Overview and General Requirements
• Chapter 2 - Available Capital
• Chapter 5 - Market Risk
• Chapter 6 - Insurance Risk
• Chapter 7 - Segregated Fund Guarantee Risk
• Chapter 8 - Operational Risk
• Chapter 9 - Participating and Adjustable Products
• Chapter 10 - Credit for Reinsurance
• Chapter 11 - Aggregation and Diversification of Risks
• Chapter 12 - Life Insurers Operating in Canada on a Branch Basis