For Property & Casualty insurers, a pivotal moment has arrived: the Office of the Superintendent of Financial Institutions (OSFI) has launched a 90-day public consultation on its draft Minimum Capital Test (MCT) 2026 Guideline. This period offers a critical opportunity to review and provide feedback on proposed changes that will directly influence capital requirements, effective January 1, 2026.
While the 2024 MCT Guideline is the current standard, the 2026 draft builds upon it, aiming for even greater precision and consistency. Think of it as a strategic evolution, designed to make things clearer and more uniformly applied across the industry. Let's break down the key updates and what they mean for you:
The core objective of the 2026 draft is to refine existing capital requirements, making them more straightforward and consistently applied across the industry.
This is arguably the most significant proposed change and one the industry has been hoping for since the 2023 MCT Guideline became effective.
• 2024 MCT: The existing framework, while robust, has been identified as having intricacies that could lead to varied calculations of unexpired coverage for insurance risk.
• Draft 2026 MCT: OSFI is proposing simplified calculations for unexpired coverage, with a distinct, streamlined approach for insurance contracts issued and another for reinsurance contracts held. This simplification, and added clarity of the components of the calculation, aims to reduce ambiguity, ensure consistent interpretation across all P&C insurers, and foster a more standardized calculation of capital held against future policy obligations, stepping away from the previous distinction between PAA and GMM approaches.
The draft 2026 guideline proposes refinements to how insurance receivables impact an insurer's available capital. This update seems to specifically apply to Foreign Branches and the treatment of insurance receivables in the calculation of net assets available.
• 2024 MCT: The guideline outlines specific rules for adjusting insurance receivables from net assets available for capital.
• Draft 2026 MCT: There are proposed updates to the regulatory adjustments to net assets available for insurance receivables (draft 2026 MCT Guideline Foreign Branch section 3.1.2, point 3). This modification aims to ensure that the impact of these receivables on an insurer's capital position is accurately reflected.
While seemingly administrative, clearer guidance is always helpful.
• 2024 MCT: The existing guideline sets out the process for capital confirmations.
• Draft 2026 MCT: OSFI is updating the capital confirmation requirements specifically for user fees. This change seeks to provide clearer guidance on the fees associated with both preliminary and final capital confirmations, ensuring transparency and consistency in the regulatory process.
Changes to a guideline like the MCT inevitably ripple through the associated regulatory reporting mechanisms. While additional updates could emerge closer to the final publication, we can anticipate the following impacts:
The 2026 PC4 Quarterly Return updates in response to the changes in the guideline noted above:
• 20.00: This page will include new rows (221 and 222 within deductions from capital, and 310 within the Memo section) related to crypto assets. These additions align with the requirements of the new guideline for Capital Treatment of Crypto-asset Exposures that is effective on January 1, 2026, to capture risk associated with new financial trend.
• 30.00: This page will be updated with both deletions and an addition. Notably, row 036 (CSM associated with business combinations and portfolio transfers on or prior to June 30, 2019) and row 065 (amounts due from federally regulated insurers and approved reinsurers that can be legally netted from actuarial liabilities) have been removed. On the other hand, a new Memo row 125 has been added to capture total gross exposure to crypto assets.
• 40.05: This page will see significant changes, including the removal of columns related to the unexpired coverage for insurance contracts issued and reinsurance contracts held under PAA and GMM. Since the simplified calculation no longer distinguishes between the two measurement models, columns 02, 04, 08, and 10 have been removed, and the remaining column headings have been updated to align with the guideline changes.
To streamline your review of these upcoming changes, SETpro has proactively created a tracked changes version of the PC4. This resource highlights the modifications, making it easier to pinpoint key adjustments. Please reach out to us for access to this helpful document.
The instructions accompanying the PC4 form are important for ensuring accurate and consistency in reporting:
• 40.00: Instructions will explicitly state capital (margin) to be floored at 0. This clarifies a point that has consistently generated questions for us, and you can find more details in the validation discussion below
• 40.05: References to the calculation of unexpired coverage will be removed from the PC4 instructions, directing filers to refer directly to the guideline due to the simplification and clarity of component descriptions – making the guidelines the single source of truth.
• 40.11/40.21: Instructions will be updated to require col 16 (AIC) to be floored at zero. Note: the validations have not yet been updated to reflect this requirement, but you can rest assured that we’ve asked if they will!
• 50.00: Greater clarity has been added to provide guidance on insurance contract assets and liabilities for Canadian companies and foreign branches.
OSFI employs a robust system of validation rules to ensure the accuracy and consistency of reported data:
• Page 40.00: Updated validations will ensure that the capital required on net insurance liability is floored at zero. This welcome change resolves the previous need to floor the LIC reinsurance held amount in column 02 to the column 01 value for LIC insurance contracts issued when it was higher, allowing the actual amount to be reported.
• Page 40.05: The capital required calculation in column 22 will also be updated. Rules on this page will ensure a maximum of 0 for the amount capital required on unexpired coverage.
• Pages 20.00, 30.00, 40.05: Internal page summations will be updated to align with additions or deletions of rows or columns within pages.
You have until August 20, 2025, to provide your valuable feedback on the draft 2026 MCT Guideline, the PC4 form, its instructions and validations. The final guideline is slated for publication on November 20, 2025, with an effective date of January 1, 2026.
OSFI is hosting an Industry Day on June 6, 2025, to provide the industry a deeper dive into these changes. We truly hope this summary helps you pinpoint the key areas to focus your attention during the consultation period. Speaking of which, following our own comprehensive review, SETpro has already done our part and submitted our questions to the regulators, right in line with the consultation timeline! If you would like a copy of our PC4 in tracked changes mapped to the Draft Guideline and instructions, please reach out and request a copy. We are happy to share.
Getting involved early isn't just smart; it's essential for ensuring a smooth transition into the updated capital framework and keeping Canada's P&C insurance sector financially resilient.
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