Release Notes

15th July 2024

Canadian Life Insurance Capital Adequacy Test (LICAT) now have its market and credit risk modules implemented in the SCR Calculator.

The LICAT has some unique characteristics compared to all other solvency regimes:

• The base yield curves are calibrated for 5 world regions - Canada, the US, the UK, Europe ex-UK and Japan (The SCR Calculator maintains an independent monthly calibration of these curves).
• Interest rate risk capital is calibrated by four uniquely defined stress scenarios.
• Portfolio-level stress is first aggregated by the world geographical regions and then added.
• Equities are assumed to exhibit some interest rate risk due to future dividend streams.
• Equity option stresses are calibrated using a 2-d grid approach, varying the underlying price and implied volatility to identify a worst-case scenario.
• Foreign currency risk is taken as the larger of the net long and net short positions, rather than offsetting the two. Gold consists part of the currency risk.
• No diversification benefit is assumed between market and credit risk.

Some complicated modelling-based capital calibrations, e.g. collateralised capital market transactions and repo risk mitigation effects, are not implemented in the calculator.

The Minimum Capital Test for Canadian P&C insurers are not implemented, because it involves straight forward calculation.