In the shadow of the large stress test on European banks (with results expected this Friday), Canadian insurance industry is preparing for its own domestic version. Despite the positive outlooks in the light of succeeding recovery from the financial crisis, Canadian life insurance companies are lagging behind expectations with their Q2 results, some even booking a loss, opening thus speculations about the financial health of the industry.
In the light of the results, financial regulators have decided to conduct stress tests on major Canadian life insurers. The purpose of these tests, according to The Globe, is to examine the ability of the insurers to survive a critical situation: a large pandemic, affecting the lives of thousands of people or another stock market crash (seeing as a large portion of insurers’ investments sits in the stock market).
The Office of the Superintendent of Financial Institutions (OSFI) is now examining the results in detail, according to The Globe’s sources. If the tests predict that a large volatility of insurers’ financial performance can be expected as a result of major health issues or financial shocks, OSFI could demand that those institutions hold more capital.
The test involving mathematical and statistical modelling was ordered to be conducted by 20 life insurers. This time, according to industry sources, OSFI has been unusually strict and particular about the way the tests should be performed. OSFI itself does not provide information on its tests or results thereof publicly.
