Implementation of CICA 3855

1
Implementation of CICA 3855

• CIA AA Seminar
• September 21, 2006
• By Bernard Dupont

2
Process for Updating MCSSR

• Modifications to be made every 3 years
• New and material requirements for risks not
  currently covered
• Substantial modifications of existing
  requirements for risks currently covered

3
Changes for 2007

• Made to
• Correct errors
• Close a material loophole
• Provide clarifications
• Reflect new accounting standards

4
Current MCCSR Requirements

• Assets are valued at amortized cost or moving
  average market on the balance sheet
• Assets supporting surplus are recognized at
  market (net of taxes) for Capital Available
  purposes
• 55 of unrealized unamortized gains recognized in
  Tier 2C

5
Financial Instruments Guideline

• OSFI has issued criteria for the use of the Fair
  Value Option
• It eliminates or significantly reduces mismatch,
  or
• A group of financial assets, financial
  liabilities or both is managed and its
  performance is evaluated on a fair value basis,
  in accordance with a documented risk management
  strategy

6
Held for Trade FVO Instruments

• Accumulated net after tax unrealized gains/losses
  included in Tier one capital available
• Balance sheet values used to determine capital
  required

7
AFS Loans

• Accumulated net after tax unrealized gains/losses
  not included in capital available
• Amortized cost used to determine capital required

8
AFS Debt and Equities

• Accumulated net after tax unrealized losses
  deducted from Tier 1 capital
• Accumulated net after tax unrealized gains
  included in Tier 2A capital
• Balance sheet values used to determine capital
  required

9
Held to Maturity Instruments

• Accumulated net after tax unrealized gains/losses
  not included in capital available
• Balance sheet values (amortized cost) used to
  determine capital required

10
Other assets

• No change to current accounting and capital
  treatment

11
Impact on Capital Required

• Varies by Company
• CALM Valuation
• C-1 Requirement applied to
• Balance sheet values for all financial
  instruments except AFS loans
• Amortized cost for AFS loans
• Transitional provisions