August 13, 2004, Ottawa – The purpose of this letter is to update you on the impact of the implementation of the Minimum Capital Test (MCT) in 2003, compared to the former Minimum Asset Test (MAT). This comparison was conducted to fulfil OSFI’s commitment to the industry to review the industry aggregate capital impact of the MCT after the first year of implementation. The results were discussed at a May 27, 2004 meeting with representatives of the Insurance Bureau of Canada (IBC). With MCT implementation in 2003, OSFI no longer uses the MAT test and does not intend to conduct further comparisons to the MCT. Any further evaluation of the MCT will be directed towards refining the Test rather than comparing it to the MAT.
After experiencing several difficult years, conditions in the P&C industry improved in 2003. This was reflected in good MCT results. At year-end 2003 three-quarters of companies had an MCT over 200% and one-quarter had an MCT between 162% and 200%. The industry-aggregate MCT rose to 221%, from 211% in 2002, with MCT Excess Capital rising by $1.1 billion to $6.3 billion1.
To see the letter from OSFI to Federally regulated P&C Company CEO’s.