{"id":7065,"date":"2009-06-29T13:28:07","date_gmt":"2009-06-29T17:28:07","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=7065"},"modified":"2009-06-29T13:28:07","modified_gmt":"2009-06-29T17:28:07","slug":"osfi-seeks-comments-on-pc-capitalization","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=7065","title":{"rendered":"OSFI Seeks Comments on P&C Capitalization!"},"content":{"rendered":"

The Office of the Superintendent of Financial Institutions has announced<\/a>:<\/p>\n

The Office of the Superintendent of Financial Institutions and the Canadian P&C insurance industry are working together through the Minimum Capital Test (MCT) Advisory Committee to develop more advanced risk measurement techniques (internal models) for incorporation into the MCT \/ Branch Adequacy of Assets Test. These techniques will include the development of risk management and disclosure criteria for risk-sensitive methodologies for use by companies that have the commitment and resources to implement them.<\/p>\n

The MCT Advisory Committee has developed and proposed a set of high level key principles to guide the development of a new capital framework. Please provide your comments by August 31, 2009.<\/p><\/blockquote>\n

This is significant. In the past I have harshly criticized<\/a> OSFI’s lack of consultation. There’s no way of telling at this point whether this is genuine consultation or merely window-dressing, but it is undeniably a step forward.<\/p>\n

The Key Principles<\/a> are, unfortunately, so generic as to be useless. Like, f’rinstance:<\/p>\n

Capital requirements should be risk-based.<\/p><\/blockquote>\n

It’s pretty hard to argue about that!<\/p>\n

The section that might prove contentious is:<\/p>\n

To allow market discipline, the meaning and methodology for, and the factual disclosure related to, regulatory capital and capital requirements should be transparent.<\/p><\/blockquote>\n

Assiduous Readers will know of my long-standing complaint about the lack of disclosure of the double-leverage inherent in the holdco\/sub structure. The accompanying letter<\/a> provides information regarding submission of comments:<\/p>\n

For comments or questions, please contact Bernard Dupont at (613)990-7797 or bernard.dupont@osfi-bsif.gc.ca<\/a> or Judith Roberge at (613) 990-4412 or judith.roberge@osfi-bsif.gc.ca<\/a>.<\/p><\/blockquote>\n

I suggest that all those with an interest in the preferred shares issued by P&C holdcos (e.g., ELF.PR.F, ELF.PR.G) write in and suggest that ownership of a controlling interest in a P&C operating company be made conditional on the holdco publishing deconsolidated financial statements.<\/p>\n

And, with respect to procedure, it will also be worthwhile to suggest that<\/p>\n