In 2015 the Office of the Superintendent of Financial Institutions Canada (OSFI) substantially revised the Minimum Capital Test (MCT) Guideline.(1) This was intended to implement a more robust risk-based capital test that aligns capital requirements with the level of risk experienced by the property and casualty insurance industry.

OSFI has recently proposed several revisions to the 2015 MCT Guideline that will take effect in 2016. The objective of the 2016 MCT Guideline is to improve regulatory risk-based capital guidance. The most significant proposed change is the addition of further provisions for equity risk exposures. These provisions include capital requirements for equity derivatives (eg, equity total return swaps, futures and forwards) and equity instruments held short, and the recognition of equity hedging strategies used by property and casualty insurers. The other revisions amend the wording of the 2015 MCT Guideline to incorporate clarifications, to make accounting terminology consistent with international accounting standards and to enhance consistency in capital requirements across the financial services sector.

OSFI has issued a draft 2016 MCT Guideline that contains these proposed revisions. OSFI was accepting comments on its draft until September 4 2015. The revisions will take effect on January 1 2016.

For further information on this topic please contact Carol Lyons, Pat Forgione or Sean Brandreth at McMillan LLP by telephone (+1 416 865 7000), fax (+1 416 865 7048) or email (, or The McMillan LLP website can be accessed at

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